Anayatullah Niyazi Nazrawee

General Budget 2011-2012

2011-04-18T22:18:00.000+05:30

Budget 2011-2012

Speech of
Pranab Mukherjee
Minister of Finance

February 28, 2011

Madam Speaker,
I rise to present the Union Budget for 2011-12.
We are reaching the end of a remarkable fiscal year. In a globalised world with its share of uncertainties and rapid changes, this year brought us some opportunities and many challenges as we moved ahead with steady steps on the chosen path of fiscal consolidation and high economic growth.
2. Our growth in 2010-11 has been swift and broad-based. The economy is back to its pre-crisis growth trajectory. While agriculture has shown a rebound, industry is regaining its earlier momentum. Services sector continues its near double digit run. Fiscal consolidation has been impressive. This year has also seen significant progress in those critical institutional reforms that would set the pace for double-digit growth in the near future.
3. While we succeeded in making good progress in addressing many areas of our concern, we could have done better in some others. The total food inflation declined from 20.2 per cent in February 2010 to less than half at 9.3 per cent in January 2011, but it still remains a concern. In the medium term perspective, our three priorities of sustaining a high growth trajectory; making development more inclusive; and improving our institutions, public delivery and governance practices, remain relevant. These would continue to engage the Indian policy-planners for some time. However, there are some manifestations of these challenges that need urgent attention in the short term.
4. Though we have regained the pre-crisis growth momentum, there is a need to effect adjustments in the composition of growth on demand and supply side. We have to ensure that along with private consumption, the revival in private investment is sustained and matches pre-crisis growth rates at the earliest. This requires a stronger fiscal consolidation to enlarge the resource space for private enterprise and addressing some policy constraints. We also have to improve the supply response of agriculture to the expanding domestic demand. Determined measures on both these issues will help address the structural concerns on inflation management. It will also ensure a more stable macroeconomic environment for continued high growth.
5. The UPA Government has significantly scaled up the flow of resources to rural areas to give a more inclusive thrust to the development process. The impact is visible in the new dynamism of our rural economy. It has helped India navigate itself rapidly out of the quagmire of global economic slowdown. Yet, there is much that still needs to be done, especially in rural India. We have to reconcile legitimate environmental concerns with necessary developmental needs. Above all, there is the 'challenge of growing aspiration' of a young India.
6. To address these concerns, I do not foresee resources being a major constraint, at least not in the medium-term. However, the implementation gaps, leakages from public programmes and the quality of our outcomes are a serious challenge.
7. Certain events in the past few months may have created an impression of drift in governance and a gap in public accountability. Even as the Government is engaged in addressing specific concerns emanating from some of these events in the larger public interest and in upholding the rule of law, such an impression is misplaced. We have to seize in these developments, the opportunity to improve our regulatory standards and administrative practices. Corruption is a problem that we have to fight collectively.
8. In a complex and rapidly evolving economy, the Government can not profess to be the sole repository of all knowledge. Indeed, in a democratic polity, it stands to benefit from inputs from colleagues on both sides of the House. They must lend their voice and expertise to influence public policy in the wider national interest. In some areas, good results depend on coordinated efforts of the Centre and the State Governments and in some others, on favourable external developments.
9. I see the Budget for 2011-12 as a transition towards a more transparent and result oriented economic management system in India. We are taking major steps in simplifying and placing the administrative procedures concerning taxation, trade and tariffs and social transfers on electronic interface, free of discretion and bureaucratic delays. This will set the tone for a newer, vibrant and more efficient economy.
10. At times the biggest reforms are not the ones that make headline, but the ones concerned with the details of governance, which affect the everyday life of aam aadmi. In preparing this year's Budget, I have been deeply conscious of this fact. I am grateful for the able guidance of the Hon’ble Prime Minister and the strong support lent by UPA Chairperson Smt. Sonia Gandhi in my endeavour. I would now begin with a brief overview of the economy.
I. Overview of the Economy
11. On last Friday, I laid on the table of the House the Economic Survey 2010-11, which gives a detailed analysis of the economic situation of the country over the past 12 months. The Gross Domestic Product (GDP) of India is estimated to have grown at 8.6 per cent in 2010-11 in real terms. In 2010-11 agriculture is estimated to have grown at 5.4 per cent, industry at 8.1 per cent and services at 9.6 per cent. All three sectors are contributing to the consolidation of growth. More importantly, the economy has shown remarkable resilience to both external and domestic shocks.
12. Our principal concern this year has been the continued high food prices. Inflation surfaced in two distinct episodes. At the beginning of the year, food inflation was high for some cereals, sugar and pulses. Towards the second half, while prices of these items moderated and even recorded negative rates of inflation, there was spurt in prices of onion, milk, poultry and some vegetables. Of late prices of onion have crashed in wholesale markets and we have had to remove the ban on their exports.
13. Despite improvement in the availability of most food items, consumers were denied the benefit of seasonal fall in prices normally seen in winter months. These developments revealed shortcomings in distribution and marketing systems, which are getting accentuated due to growing demand for these food items with rising income levels. The huge differences between wholesale and retail prices and between markets in different parts of the country are just not acceptable. These are at the expense of remunerative prices for farmers and competitive prices for consumers.
14. Monetary policy stance in 2010-11, while being supportive of fiscal policy, has succeeded in keeping core-inflation in check. As the transmission lag in monetary policy tends to be long, I expect the measures already taken by the RBI to further moderate inflation in coming months.
15. The developments on India's external sector in the current year have been encouraging. Even as the recovery in developed countries is gradually taking root, our trade performance has improved. Exports have grown at 29.4 per cent to reach US Dollar 184.6 billion, while imports at US Dollar 273.6 billion have recorded a growth of 17.6 per cent during April-January 2010-11, over the corresponding period last year. The current account deficit is around the
2009-10 level and poses some concerns because of the composition of its financing.
16. Policy making in a globalised world has to take into account the likely international developments. To realise the desired outcomes, it is important that there is convergence in expectations of our investors, entrepreneurs and consumers on the macroeconomic prospects of the economy. Against this backdrop, the Indian economy is expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12. I expect the average inflation to be lower next year and the current account deficit smaller and better managed with higher domestic savings rate and stable capital flows. While, like last year, I seek the blessings of Lord Indra to bestow on us timely and bountiful monsoons, I would pray to Goddess Lakshmi as well. I think it is a good strategy to diversify one's risks.
II. Sustaining Growth
17. In my last Budget, I had started rolling back the fiscal stimulus implemented over 2008-09 and 2009-10 to mitigate the impact of the global financial crisis on economic slowdown in India. In the course of the year, I have moved further on that path. I believe that a part of the current recovery must be stored away to build future resilience. Indeed, a counter cyclical fiscal policy is our best insurance against external shocks and localised domestic factors.
Fiscal Consolidation
18. The experience with Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) at Centre and the corresponding Acts at State level show that statutory fiscal consolidation targets have a positive effect on macroeconomic management of the economy. In the course of the year the Central Government would introduce an amendment to the FRBM Act, laying down the fiscal road map for the next five years.
19. The Thirteenth Finance Commission has worked out a fiscal consolidation road map for States requiring them to eliminate revenue deficit and achieve a fiscal deficit of 3 per cent of their respective Gross State Domestic Product latest by 2014-15. It has also recommended a combined States’ debt target of 24.3 per cent of GDP to be reached during this period. The States are required to amend or enact their FRBM Acts to conform to these recommendations.
20. The Government has been in the process of setting-up an independent Debt Management Office in the Finance Ministry. A Middle Office is already operational. As a next step, I propose to introduce the Public Debt Management Agency of India Bill in the next financial year.
Tax Reforms
21. The introduction of the Direct Taxes Code (DTC) and the proposed Goods and Services Tax (GST) will mark a watershed. These reforms will result in moderation of rates, simplification of laws and better compliance.
22. As Hon'ble Members are aware, the Direct Taxes Code Bill was introduced in Parliament in August, 2010. After receiving the report of the Standing Committee, we shall be able to finalise the Code for its enactment during
2011-12. This has been a pioneering effort in participative legislation. The Code is proposed to be effective from April 1, 2012 to allow taxpayers, practitioners and administrators to fully understand the legislation and adjust to the revised procedures.
23. Unlike DTC, decisions on the GST have to be taken in concert with the States with whom our dialogue has made considerable progress in the last four years. Areas of divergence have been narrowed. As a step towards the roll-out of GST, I propose to introduce the Constitution Amendment Bill in this session of Parliament. Work is also underway on drafting of the model legislation for the Central and State GST.
24. Among the other steps that are being taken for the introduction of GST is the establishment of a strong IT infrastructure. We have made significant progress on the GST Network (GSTN). The key business processes of registration, returns and payments are in advanced stages of finalisation. The National Securities Depository Limited (NSDL) has been selected as technology partner for incubating the National Information Utility that will establish and operate the IT backbone for GST. By June 2011, NSDL will set up a Pilot portal in collaboration with eleven States prior to its roll out across the country.
Expenditure Reforms
25. The effective management of public expenditure is an integral part of the fiscal consolidation process. Expenditure has to be oriented towards the production of public goods and services. The extant classification of public expenditure between plan, non-plan, revenue and capital spending needs to be revisited. This is necessary as one recognises the importance of service sector and the knowledge economy for our development. A Committee under Dr. C. Rangarajan has been set up by the Planning Commission to look into these issues.
Subsidies
26. During the year 2010-11, the Nutrient Based Subsidy (NBS) policy was successfully implemented for all fertilisers except urea. The policy has been well received by all stakeholders, and the availability of fertilisers has improved. The extension of the NBS regime to cover urea is under active consideration of the Government.
27. The Government provides subsidies, notably on fuel and food grains, to enable the common man to have access to these basic necessities at affordable prices. A significant proportion of subsidised fuel does not reach the targeted beneficiaries and there is large scale diversion of subsidised kerosene oil. A recent tragic event has highlighted this practice. We have deliberated for long the modalities of implementing such subsidies. The debate now has to make way for decision. To ensure greater efficiency, cost effectiveness and better delivery for both kerosene and fertilisers, the Government will move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.
28. A task force headed by Shri Nandan Nilekani has been set-up to work out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers. The interim report of the task force is expected by June 2011. The system will be in place by March 2012.
People’s Ownership of PSUs
29. The Government's programme to broadbase the ownership of Central Public Sector Undertakings (CPSUs) has received an overwhelming response. The six public issues of CPSUs in the current financial year have attracted around 50 lakh retail investors.
30. As against a target of `40,000 crore, the Government will raise about `22,144 crore from disinvestment in 2010-11. A higher than anticipated realisation in non-tax revenues has led us to reschedule some of the divestment issues planned for the current year. I intend to maintain the momentum on disinvestment in
2011-12 by raising `40,000 crore. Let me reiterate here that the Government is committed to retain at least 51 per cent ownership and management control of the CPSUs, as stated earlier in my Budget speech for 2009-10.
Investment Environment
Foreign Direct Investment
31. To make the FDI policy more user-friendly, all prior regulations and guidelines have been consolidated into one comprehensive document, which is reviewed every six months. The last review has been released in September 2010. This has been done with the specific intent of enhancing clarity and predictability of our FDI policy to foreign investors. Discussions are underway to further liberalise the FDI policy.
Foreign Institutional Investors
32. Currently, only FIIs and sub-accounts registered with the SEBI and NRIs are allowed to invest in mutual fund schemes. To liberalise the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes. This would enable Indian Mutual Funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market.
33. To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector, is being raised by an additional limit of US Dollar 20 billion taking the limit to US Dollar 25 billion. This will raise the total limit available to the FIIs for investment in corporate bonds to US Dollar 40 billion. Since most of the infrastructure companies are organised in the form of SPVs, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FIIs will be allowed to trade amongst themselves during the lock-in period.
Financial Sector legislative Initiatives
34. The financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. The UPA Government is committed to take this process further. Accordingly, I propose to move the following legislations in the financial sector:
(i) The Insurance Laws (Amendment) Bill, 2008;
(ii) The Life Insurance Corporation (Amendment) Bill, 2009;
(iii) The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005;
(iv) Banking Laws Amendment Bill, 2011;
(v) Bill on Factoring and Assignment of Receivables;
(vi) The State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009; and
(vii) Bill to amend RDBFI Act 1993 and SARFAESI Act 2002.
35. In my last Budget speech, I had announced that Reserve Bank of India would consider giving some additional banking licences to private sector players. Accordingly, RBI issued a discussion paper in August, 2010, inviting feedback from the public. RBI has proposed some amendments in the Banking Regulation Act. I propose to bring suitable legislative amendments in this regard in this session. RBI is planning to issue the guidelines for banking licences before the close of this financial year.
Public Sector Bank Recapitalisation
36. During the year 2010-11, the Government is providing a sum of `20,157 crore for infusion in the Public Sector Banks to maintain Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent and increase government equity in some banks to 58 per cent. I propose to provide a sum of `6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I CRAR at 8 per cent.
Recapitalisation of Regional Rural Banks
37. As a part of financial strengthening of Regional Rural Banks, an amount of `350 crore was given to these banks during this year. I propose to provide `500 crore during 2011-12 to enable them maintain a CRAR of at least 9 per cent as on March 31, 2012.
Micro Finance Institutions
38. The Micro Finance Institutions (MFIs) have emerged as an important means of financial inclusion. Creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations. I propose to create in the course of the year, "India Microfinance Equity Fund" of `100 crore with SIDBI. To empower women and promote their Self Help Groups (SHGs), I propose to create a “Women’s SHG’s Development Fund” with a corpus of `500 crore. The Committee set up by RBI to look into issues relating to micro finance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers.
Rural Infrastructure Development Fund
39. The Rural Infrastructure Development Fund (RIDF) is an important instrument for routing bank funds for financing rural infrastructure. This is popular among State Governments. I propose to raise the corpus of RIDF XVII to `18,000 crore in 2011-12 from `16,000 crore in the current year. The additional allocation would be dedicated to creation of warehousing facilities.
Micro, Small and Medium Enterprises
40. Micro and Small enterprises play a crucial role in furthering the objective of equitable and inclusive growth. Last year, `4,000 crore was provided to SIDBI for refinancing incremental lending by banks to these enterprises. For the year 2011-12, I propose to provide `5,000 crore to SIDBI for the same purpose out of the shortfall of banks on priority sector lending targets.
41. Handloom weavers have been facing economic stress. Consequently, many of them have not been able to repay debts to handloom weaver cooperative societies which have become financially unviable. I propose to provide `3,000 crore to NABARD, in phases for these cooperative societies. The initiative would benefit 15,000 cooperative societies and about 3 lakh handloom weavers. The details of the scheme would be worked out by the Ministry of Textiles in consultation with Planning Commission.
42. I am happy to report that the outstanding loans to minority communities which stood at 13 per cent of total priority sector lending at the end of last year have increased to 13.6 per cent in the current year. I have directed the Public Sector Banks to achieve the target of 15 per cent at the earliest.
Housing Sector Finance
43. To further stimulate growth in housing sector, I am liberalising the existing scheme of interest subvention of 1 per cent on housing loans by extending it to housing loan upto `15 lakh where the cost of the house does not exceed `25 lakh from the present limit of `10 lakh and `20 lakh respectively.
44. On account of increase in prices of residential properties in urban areas, I propose to enhance the existing housing loan limit from `20 lakh to `25 lakh for dwelling units under priority sector lending.
45. To provide housing finance to targeted groups in rural areas at competitive rates, I propose to enhance the provision under Rural Housing Fund to `3,000 crore from the existing `2,000 crore.
46. Credit enablement of Economically Weaker Sections (EWS) and LIG households is a serious challenge. To address this issue, I propose to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana. This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness.
47. To prevent frauds in loan cases involving multiple lending from different banks on the same immovable property, the Government has facilitated setting up of Central Electronic Registry under the SARFAESI Act, 2002. This Registry will become operational by March 31, 2011.
Financial Sector Legislative Reforms Commission
48. In pursuance of the announcement made in Budget 2010-11, the Government has set up a Financial Sector Legislative Reforms Commission under the Chair of Justice B. N. Srikrishna. It would rewrite and streamline the financial sector laws, rules and regulations and bring them in harmony with the requirements of a modern financial sector. The Commission will complete its work in 24 months.
49. The Companies Bill introduced in the Parliament in 2009 has been received from the Parliamentary Standing Committee. The proposed bill will be introduced in the Lok Sabha in the current session.
Agriculture
50. Agriculture development is central to our growth strategy. Measures taken during the current year have started attracting private investment in agriculture and agro-processing activities. This process has to be deepened further.
51. In the Budget for 2010-11, I had delineated a four-pronged strategy covering agricultural production, reduction in wastage of produce, credit support to farmers and a thrust to the food processing sector. These initiatives have started showing results but there are other issues in our food economy that require attention. The recent spurt in food prices was driven by increase in the prices of items like fruits and vegetables, milk, meat, poultry and fish, which account for more than 70 per cent of the WPI basket for primary food items. Removal of production and distribution bottlenecks for these items will be the focus of my attention this year. I propose to make allocations for these schemes under the ongoing Rashtriya Krishi Vikas Yojana (RKVY) for an early take off. The total allocation of RKVY is being increased from `6,755 crore in 2010-11 to `7,860 crore in 2011-12.
Bringing Green Revolution to Eastern Region
52. The Green Revolution in Eastern Region is waiting to happen. To realize the potential of the region, last year's initiative will be continued in 2011-12 with a further allocation of `400 crore. The program would target the improvement in the rice based cropping system of Assam, West Bengal, Orissa, Bihar, Jharkhand, Eastern Uttar Pradesh and Chhattisgarh.
Integrated Development of 60,000 pulses villages in rainfed areas
53. Government's initiative on pulses has received a positive response from the farmers. As per the second advance estimates, a record production of 165 lakh tonnes of pulses is expected this year as against 147 lakh tonnes last year. While consolidating these gains, we must strive to attain self-sufficiency in production of pulses within next three years. I propose to provide an amount of `300 crore to promote 60,000 pulses villages in rainfed areas for increasing crop productivity and strengthening market linkages.
Promotion of Oil Palm
54. The domestic production of edible oil meets only about 50 per cent demand. The gap in supply is met through imports, which are often at high prices due to the quantum of our requirement. Our recent interventions and good rains are expected to result in a higher oilseeds production of 278 lakh tonnes in 2010-11 as against 249 lakh tonnes in 2009-10. To achieve a major breakthrough, we have to pay special attention to oil palm as it is one of the most efficient oil crops. I propose to provide an amount of `300 crore to bring 60,000 hectares under oil palm plantation, by integrating the farmers with the markets. The initiative will yield about 3 lakh metric tonnes of palm oil annually in 5 years.
Initiative on Vegetable Clusters
55. The growing demand for vegetables has to be met by a robust increase in the productivity and market linkage. An efficient supply chain, to provide quality vegetables at competitive prices will have to be established. I propose to provide an amount of `300 crore for implementation of vegetable initiative to set in motion a virtuous cycle of higher production and incomes for the farmers. To begin with, this programme will be launched near major urban centres.
Nutri-cereals
56. While we ensure food for all, we must also promote balanced nutrition. Bajra, jowar, ragi and other millets are highly nutritious and are known to possess several medicinal properties. The availability and consumption of these Nutri-cereals is, however, low and has been steadily declining over recent years. A provision of `300 crore is being made to promote higher production of these cereals, upgrade their processing technologies and create awareness regarding their health benefits. This initiative would provide market linked production support to ten lakh millet farmers in the arid and semi-arid regions of the country. The programme would be taken up in 1000 compact blocks covering about 25,000 villages. This will help improve nutritional security and increase feed and fodder supply for livestock.
National Mission for Protein Supplements
57. The consumption of foods rich in animal protein and other nutrients has risen of late, with demand growing faster than production. The National Mission for Protein Supplements is being launched in 2011-12 with an allocation of `300 crore. It will take up activities to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries in selected blocks.
Accelerated Fodder Development Programme
58. Adequate availability of fodder is essential for sustained production of milk. It is necessary to accelerate the production of fodder through intensive promotion of technologies to ensure its availability throughout the year. I propose to provide `300 crore for Accelerated Fodder Development Programme which will benefit farmers in 25,000 villages.
59. Hon'ble Members may be curious as to why all these new initiatives are being launched with an allocation of `300 crore. Well, the number 3 happens to be my lucky number !
National Mission for Sustainable Agriculture
60. While the need to maximize crop yields to meet the growing demand for food grains is critical, we have to sustain agricultural productivity in the long run. There has been deterioration in soil health due to removal of crop residues and indiscriminate use of chemical fertilizers, aided by distorted prices.
61. To address these issues, the Government proposes to promote organic farming methods, combining modern technology with traditional farming practices like green manuring, biological pest control and weed management.
Agriculture Credit
62. To get the best from their land, farmers need access to affordable credit. Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2011-12, I am raising the target of credit flow to the farmers from `3,75,000 crore this year to `4,75,000 crore in 2011-12. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers.
63. The existing interest subvention scheme of providing short term crop loans to farmers at 7 per cent interest will be continued during 2011-12. In the last budget, I had provided an additional 2 per cent interest subvention to those farmers who repay their crop loans on time. The response to this scheme has been good. In order to provide further incentive to these farmers, I propose to enhance the additional subvention to 3 per cent in 2011-12. Thus, the effective rate of interest for such farmers will be 4 per cent per annum.
64. In view of the enhanced target for flow of agriculture credit, I propose to strengthen NABARD's capital base by infusing `3000 crore, in a phased manner, as Government equity. This would raise its paid-up capital to `5,000 crore. To enable NABARD refinance the short-term crop loans of the cooperative credit institutions and RRBs at concessional rates, I propose a contribution of `10,000 crore to NABARD’s Short-term Rural Credit Fund for 2011-12 from the shortfall in priority sector lending by Scheduled Commercial Banks.
Mega Food Parks
65. Despite growing production of vegetables and fruits, their availability is inadequate due to bottlenecks in retailing capacity. An estimated 40 per cent of the fruit and vegetable production in India goes waste due to lack of storage, cold chain and transport infrastructure. To address these issues, the Eleventh Plan target for number of Mega Food Parks was set at 30. So far, 15 such parks have been sanctioned. During 2011-12, approval is being given to set up 15 more Mega Food Parks.
Storage Capacity and Cold Chains
66. The years 2008 to 2010 saw very high levels of foodgrain procurement. On January 1, 2011, the foodgrain stock in Central pool reached 470 lakh metric tonnes, 2.7 times higher than 174 lakh metric tonnes on January 1, 2007. The storage capacity for such large quantities requires augmentation. Process to create new storage capacity of 150 lakh metric tonnes through private entrepreneurs and warehousing corporations has been fast tracked. Decision to create 20 lakh metric tonnes of storage capacity under Public Entrepreneurs Guarantee (PEG) Scheme through modern silos has been taken. While we will be able to add about 2.6 lakh tonnes of capacity by March 2011, based on existing sanctions, the addition will reach 40 lakh tonnes by March 2012. During 2010-11, another 24 lakh metric tonnes of storage capacity has been created under the Rural Godown Scheme.
67. Investment in cold storage projects is now gaining momentum. During this year, 24 cold storage projects with a capacity of 1.4 lakh metric tonnes have been sanctioned under National Horticulture Mission. In addition, 107 cold storage projects with a capacity of over 5 lakh metric tonnes have been approved by the National Horticulture Board.
68. To attract investment in this sector, henceforth, capital investment in the creation of modern storage capacity will be eligible for viability gap funding scheme of the Finance Ministry. It is also proposed to recognize cold chains and post-harvest storage as an infrastructure sub-sector.
Agriculture Produce Marketing Act
69. The recent episode of inflation in vegetables and fruits has exposed serious flaws in our supply chains. The government regulated mandis sometimes prevent retailers from integrating their enterprises with the farmers. There is need for the State Governments to review and enforce a reformed Agriculture Produce Marketing Act urgently.
Infrastructure and Industry
70. Infrastructure is critical for our development. For 2011-12, an allocation of over ` 2,14,000 crore is being made for this sector, which is 23.3 per cent higher than current year. This amounts to 48.5 per cent of the Gross Budgetary Support to plan expenditure.
71. Our experience with PPP model for creation of public sector assets in the country has been good. We have recently launched the National Capacity Building Programme to enhance capacities of public functionaries in identifying, conceptualising, structuring and managing PPPs. It is our endeavour to come up with a comprehensive policy that can be used by the Centre and the State Governments in further developing public-private partnerships.
72. Government established India Infrastructure Finance Company Limited (IIFCL) to provide long term financial assistance to infrastructure projects. It is expected to achieve a cumulative disbursement target of `20,000 crore by March 31, 2011 and `25,000 crore by March 31, 2012. The take out financing scheme announced in the Budget 2009-10 has been implemented and seven projects have been sanctioned with a debt of `1,500 crore. Another `5,000 crore will be sanctioned during 2011-12.
73. In order to give a boost to infrastructure development in railways, ports, housing and highways development, I propose to allow tax free bonds of `30,000 crore to be issued by various Government undertakings in the year 2011-12. This includes Indian Railway Finance Corporation `10,000 crore, National Highway Authority of India `10,000 crore, HUDCO `5,000 crore and Ports `5,000 crore.
74. To attract foreign funds for the infrastructure financing, I propose to create Special Vehicles in the form of notified infrastructure debt funds. I will come to the details in Part B of my speech.
National Manufacturing Policy
75. For sustained growth of GDP and productive employment for younger generation, it is imperative that the growth in manufacturing sector picks up. We expect to take the share of manufacturing in GDP from about 16 per cent to 25 per cent over a period of ten years. Government will come out with a manufacturing policy, which will bring down the compliance burden on the industry through self-regulation and help make Indian industry globally competitive.
76. To address the need for greater transparency and accountability in procurement policy and allocation, pricing and utilisation of natural resources, the Government has set up two committees. The recommendations will be available within three months.
77. A Group of Ministers has been set up to consider all issues relating to reconciliation of environmental concerns emanating from various departmental activities including those related to infrastructure and mining. This Group will also suggest changes in the existing statutes, rules, regulations and guidelines and make its recommendations in a time bound manner.
78. The Indian automobile market is the second fastest growing in the world and has shown nearly 30 per cent growth this year. World over, substantial investments are being made in the field of hybrid and electric mobility. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders.
79. The funding of 15,260 modern low floor and semi-low floor buses under JNNURM, besides adding to passenger comfort, has transformed the urban transport across India. In 2011-12, Delhi Metro Phase-III and Mumbai Metro Line III are proposed to be taken up. The ongoing Metro projects of Bengaluru, Kolkata and Chennai will be provided financial assistance for speedy implementation.
80. Investment in fertilizer sector is capital intensive and is considered high risk. It is proposed to include capital investment in fertiliser production as an infrastructure sub-sector.
Exports
81. The Task Force on Transactions Cost set up by the Department of Commerce to identify and suggest ways to achieve improvement in efficiency of our export processes, has completed its work. Twenty one suggestions made by the Task Force have already been implemented. Action on remaining two will be taken in next few months. This will mitigate transactions cost by about `2,100 crore.
82. To quicken the clearance of the cargo by Customs authorities and further modernise the Customs administration, I propose to introduce self-assessment in Customs. Under this, importers and exporters will themselves assess their duty liabilities while filing their declarations in the EDI system. The Department will verify such assessments on a selective system driven basis.
83. There have been considerable difficulties in the sanction of refunds relating to tax paid on services used for export of goods. I propose to shortly introduce a scheme for the refund of these taxes on the lines of drawback of duties in a far more simplified and expeditious manner. A new scheme is also being introduced by which units in SEZs will be able to obtain tax-free receipt of services wholly consumed within the zone and get their refunds in a much easier manner.
84. Mega clusters have large employment and export potential. I propose to extend the Mega Cluster Scheme for development of leather products. Seven mega leather clusters would be set up during the year 2011-12. I also propose to include Jodhpur for the development of a handicraft mega cluster.
Black Money
85. The generation and circulation of black money is an area of serious concern. To deal with this problem effectively, Government has put into operation a five-fold strategy which consists of Joining the global crusade against 'black money'; Creating an appropriate legislative framework; Setting up institutions for dealing with illicit funds; Developing systems for implementation; and Imparting skills to the manpower for effective action.
86. We secured Membership of the Financial Action Task Force (FATF) in June last year. This is an important initiative of G-20 for anti-money laundering. We have also joined the Task Force on Financial Integrity and Economic Development, Eurasian Group (EAG) and Global Forum on Transparency and Exchange of Information for Tax Purposes.
87. During the year, we have concluded discussions for 11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance Agreements (DTAAs) along with revision of provisions of 10 existing DTAAs. To effectively handle the increase in tax information exchange and transfer pricing issues, Foreign Tax Division of CBDT has been strengthened. A dedicated Cell for exchange of information is being set up to work on this agenda.
88. The amendment in our Money Laundering Legislation in 2009 has significantly increased its scope and application. The number of cases registered under this law has increased from 50 between 2005 to 2008 to over 1200 by January this year. The strength of the Enforcement Directorate has been increased three-fold to deal effectively with the increased workload.
89. The Ministry of Finance has commissioned a study on unaccounted income and wealth held within and outside our country. It would suggest methods to tax and repatriate this illicit money.
90. Trafficking in narcotic drugs is also a contributor to the generation of black money. To strengthen controls over prevention of trafficking and improve the management of narcotic drugs and psychotropic substances, I propose to announce a comprehensive national policy in the near future.
III. Strengthening Inclusion
91. The UPA Government has engineered a major directional change in public policy by its focus on inclusive development. Creation of legal entitlements for an individual's right to work has added to resilience and dynamism in our rural economy. The right to information and the right to education are effective tools of empowerment for removing social imbalances. The country has carried for long enough the burden of hunger and malnutrition. After detailed consultations with all stakeholders including State Governments, we are close to the finalisation of National Food Security Bill (NFSB) which will be introduced in the Parliament during the course of this year. The proposed allocation of ` 1,60,887 crore for social sector in 2011-12 is an increase of 17 per cent over current year. It amounts to 36.4 per cent of the total plan allocation.
Bharat Nirman
92. The UPA Government's flagship programmes have been the principal instrument for implementing its agenda for inclusive development. For the year 2011-12, Bharat Nirman, which includes Pradhan Mantri Gram Sadak Yojna (PMGSY), Accelerated Irrigation Benefit Programme, Rajiv Gandhi Grameen Vidyutikaran Yojna, Indira Awas Yojna, National Rural Drinking Water Programme and Rural telephony have together been allocated `58,000 crore. This is an increase of `10,000 crore from the current year. A plan has been finalised to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.
MGNREGA
93. In pursuance of my earlier budget announcement to provide a real wage of `100 per day, the Government has decided to index the wage rates notified under the MGNREGA to the Consumer Price Index for Agricultural Labour. The enhanced wage rates have been notified by the Ministry of Rural Development on January 14, 2011. It has resulted in significant enhancement of wages for the beneficiaries across the country.
94. The Anganwadi workers and Anganwadi helpers are the backbone of Integrated Child Development Services Scheme. I am happy to announce an increase in the remuneration of Anganwadi workers from `1,500 per month to `3,000 per month and for Anganwadi helpers from `750 per month to `1,500 per month. This will be effective from April 1, 2011. Around 22 lakh Anganwadi workers and helpers will benefit from the increase.
Scheduled Castes and Tribal Sub-plan
95. In the Budget for 2011-12, for the first time, specific allocations are being earmarked towards Scheduled Castes Sub-plan and Tribal Sub-plan. These will be shown in the Budget of the relevant Ministries and Departments under separate minor heads of account. Further, I propose to increase the Budget allocation for primitive tribal groups from `185 crore in 2010-11 to `244 crore in 2011-12.
Education
96. Our “demographic dividend” of a relatively younger population compared to developed countries is as much of an opportunity as it is a challenge. Over 70 per cent of Indians will be of working age in 2025. In this context, universalising access to secondary education, increasing the percentage of our scholars in higher education and providing skill training is necessary. For education, I propose an allocation of ` 52,057 crore, which is an increase of 24 per cent over the current year.
Sarva Shiksha Abhiyan
97. The existing operational norms of Sarva Shiksha Abhiyan have been revised to implement the right of children to free and compulsory education which has come into force with effect from April 1, 2010. For the year 2011-12, I propose to allocate `21,000 crore which is 40 per cent higher than `15,000 crore allocated in the Budget for 2010-11. A revised Centrally Sponsored Scheme “Vocationalisation of Secondary Education” will be implemented from 2011-12 to improve the employability of our youth.
98. Empowerment flows from Education. While the Scheduled Castes and Scheduled Tribes had access to post matric scholarships, there was so far a lack of pre matric scholarship scheme. In 2011-12, I propose to introduce a scholarship scheme for needy students belonging to the Scheduled Castes and Scheduled Tribes studying in classes ninth and tenth. It would benefit about 40 lakh Scheduled Caste and Scheduled Tribe students.
National Knowledge Network
99. Approved in March 2010, the National Knowledge Network (NKN) will link 1500 Institutes of Higher Learning and Research through an optical fibre backbone. During the current year, 190 Institutes will be connected to NKN. Since the core will be ready by March 2011, the connectivity to all 1500 institutions will be provided by March 2012.
Innovations
100. To move beyond the formal R&D paradigm, a National Innovation Council under Shri Sam Pitroda has been set up to prepare a roadmap for innovations in India. The process of setting up State Innovation Councils in each State and Sectoral Innovation Councils aligned to Central Ministries is underway.
101. The Government has been providing special grants to recognise excellence in universities and academic institutions. In the course of 2011-12, I propose to provide:
• `50 crore each to upcoming centres of Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala;
• `100 crore as one-time grant to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala;
• `10 crore each for setting up Kolkata and Allahabad Centres of Mahatma Gandhi Antarrashtriya Hindi Vishwavidyalaya, Wardha;
• `200 crore as one time grant to IIT, Kharagpur;
• `20 crore for Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu
• `20 crore for IIM, Kolkata, to set up its Financial Research and Trading Laboratory;
• `200 crore for Maulana Azad Education Foundation;
• `10 crore for Centre for Development Economics and Ratan Tata Library, Delhi School of Economics, Delhi; and
• `10 crore for Madras School of Economics.
Skill Development
102. I am happy to inform the House that National Skill Development Council (NSDC) is well on course to achieve its mandate of creation of 15 crore skilled workforce two years ahead of 2022, the stipulated target year. It has already sanctioned 26 projects with a total funding of `658 crore. These projects alone are expected to create more than 4 crore skilled workforce over the next ten years. In the current year, skill training has so far been provided to 20,000 persons. Of these, 75 per cent have found placements. I will provide an additional `500 crore to the National Skill Development Fund during the next year.
103. National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore will commence from May 7, 2011 in New Delhi. Important events will be held in several countries in Europe, America and Asia. A series of events are also proposed to be organized under the aegis of joint India-Bangladesh Celebrations Committee. An international award with prize money of `1 crore is being instituted for promoting values of Universal Brotherhood in the memory of Gurudev Rabindranath Tagore.
Health
104. For health, I propose to step up the plan allocations in 2011-12 by 20 per cent to `26,760 crore. The Rashtriya Swasthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers. It is now being extended to MGNREGA beneficiaries, beedi workers and others. In 2011-12, I propose to further extend this scheme to cover unorganized sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc.
Financial Inclusion
105. In my last budget speech I had advised Banks to provide banking facilities to habitations having a population of over 2000 by March, 2012. The Banks have identified about 73,000 such habitations for providing banking facilities using appropriate technologies. A multi-media campaign, “Swabhimaan”, has been launched to inform, educate and motivate people to open bank accounts. During this year, banks will cover 20,000 villages. Remaining will be covered during 2011-12.
Unorganised sector
106. I had announced a co-contributory pension scheme “Swavalamban” in the Budget 2010-11. This scheme has been welcomed by the workers in unorganised sector. Over 4 lakh applications have already been received. On the basis of the feedback received, I am relaxing the exit norms whereby a subscriber under Swavalamban will be allowed exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years, whichever is later. I also propose to extend the benefit of Government contribution from three to five years for all subscribers of Swavalamban who enroll during 2010-11 and 2011-12. An estimated 20 lakh beneficiaries will join the scheme by March 2012.
107. Under the on-going Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries, the eligibility for pension is proposed to be reduced from 65 years at present to 60 years. Further, for those who are 80 years and above, the pension amount is being raised from ` 200 at present to ` 500 per month.
Environment and Climate Change
Forests
108. Protection and regeneration of forests has great ecological, economic and social value. Our Government has launched an ambitious ten-year Green India mission. I propose to allocate `200 crore from the National Clean Energy Fund to begin its implementation in 2011-12.
Environmental Management
109. Environmental pollution has emerged as a serious public health concern across the country. I propose to allocate `200 crore from the National Clean Energy Fund as Centre's contribution in 2011-12 for launching environmental remediation programmes.
Cleaning of Rivers and Lakes
110. A number of projects under the National Ganga River Basin Authority have been approved in 2010-11. This momentum will be further stepped up. There are many rivers and lakes of cultural and historical significance that need to be cleaned. In the course of the year 2011-12, I propose to provide a special allocation of `200 crore for the clean-up of some important lakes and rivers other than the Ganga.
Some Other Initiatives
111. In order to boost development in the North Eastern Region and Special Category States, the allocation for special assistance has been almost doubled to `8,000 crore for 2011-12. Out of this, `5,400 crore has been allocated as untied Special Central Assistance.
112. The Government’s special support to Jammu & Kashmir is anchored in `28,000 crore Prime Minister's Reconstruction Plan. In addition, for the current year, about `8,000 crore has been provided for the State's development needs. A Task Force to assess infrastructure needs that can be addressed within a time horizon of 24 months for Ladakh and Jammu regions of the State has recommended projects amounting to `416 crore and `497 crore, respectively. I am providing `100 crore for Ladakh and `150 crore for Jammu for these identified projects in 2011-12.
113. To give a boost to the development of backward regions, the allocation under the Backward Regions Grant Fund has been increased from `7,300 crore to `9,890 crore amounting to an increase of over 35 per cent.
114. To address problems related to Left Wing Extremism affected districts, an Integrated Action Plan (IAP) for 60 selected tribal and backward districts has been launched in December 2010. The scheme is being implemented with 100 per cent block grant of `25 crore and `30 crore per district during the years 2010-11 and 2011-12, respectively. The allocated funds are placed at the disposal of the district level committees who in consultation with local MPs will have the flexibility to spend the amount on development schemes as per the local needs.
115. In recognition of the sacrifices made by Central Para-military Forces engaged in tackling Left Wing Extremism, a lump sum ex-gratia compensation of `9 lakh for 100 per cent disability will now be granted to personnel of the Defence and para-military forces who are discharged from service on medical grounds on account of disability attributable to or aggravated in government service. For personnel with disability ranging from 20 to 99 per cent, a proportionate amount would be given.
116. In the Budget 2011-12, a provision of `1,64,415 crore has been made for Defence services which include `69,199 crore for capital expenditure. Needless to say, any further requirement for the country's defence would be met.
117. In order to speed up delivery of justice, the Plan provision for Department of Justice for 2011-12 has been increased three-fold to `1,000 crore. The enhanced provision will help in building judicial infrastructure and the project on E-courts.
Census 2011
118. The 15th Census in the country is being conducted from 9th February. It is the largest administrative exercise in the country providing statistical data on different socio-economic parameters of population.
119. In response to the overwhelming demand for enumeration of castes other than Scheduled Castes and Scheduled Tribes in Census 2011, it has been decided to canvass ‘caste’ as a separate time bound exercise. This exercise will start in June 2011 and will be completed by 30th September 2011.
IV. Improving Governance
I now turn to some important measures being taken for improving governance.
UID Mission
120. The UID Mission has taken off and Aadhaar numbers are being generated in large numbers. So far 20 lakh Aadhaar numbers have been given and from 1st October 2011, ten lakh numbers will be generated per day. The stage is now set for realising the potential of Aadhaar for improving service delivery, accountability and transparency in governance of various schemes.
IT Initiatives
121. The backbone of an efficient tax administration is a robust IT infrastructure and its deployment for enhanced taxpayer services. Towards this objective, both the Central Boards of Direct Taxes (CBDT) and Excise and Customs (CBEC) have put in place the following measures:
• The on-line preparation and e-filing of income tax returns,
e-payment of taxes through 32 agency banks, ECS facility for electronic clearing of refunds directly in taxpayers’ bank accounts and electronic filing of TDS returns are now available throughout the country. These measures have empowered taxpayers to meet their tax obligations without visiting an income tax office.
• The Centralized Processing Centre (CPC) at Bengaluru has increased its daily processing capacity from 20,000 to 1.5 lakh returns in 2010-11. This project has won a Gold Award for
e-Governance in 2011. Two more CPCs will become operational in Manesar and Pune by May 2011 and a fourth CPC will come up in Kolkata in 2011-12.
• With the completion of its IT Consolidation Project, CBEC can now centrally host its key applications in Customs, Central Excise and Service Tax. The Customs EDI system now covers 92 locations across the country. CBEC's e-Commerce portal ICEGATE, has also been conferred a Gold Award for e-Governance.
• The 'Sevottam' concept has been adopted by both Boards. The three pilot projects of Aaykar Seva Kendras (ASKs) under CBDT have come of age. CBDT will commission eight more such centres this year. In 2011-12, another fifty ASKs will be set up across the country. CBEC has also launched a similar initiative and four of their pilot projects have been commissioned.
• The electronic filing of Tax Deduction at Source (TDS) statements has stabilized. The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source.
• CBDT will provide a separate web-based facility to enable a direct, stand-alone interface for taxpayers with the Income Tax Department so that they can report and track the resolution of their refunds and credit for prepaid taxes.
122. Mission Mode Projects for computerization of Commercial Taxes in States that I announced in my last Budget, will allow States to align with the roll out of GST. Funds have been released for 31 projects received from the States and Union Territories. Most of the States and UTs have already enabled the facility of dealers making electronic payments. A number of States have already started accepting Electronic Tax Returns and issuing forms required for inter-state trade.
123. With the development of the economy, the need to review the provisions of the Indian Stamp Act, 1899 has been felt over the years. I propose to introduce a Bill shortly to amend the Indian Stamp Act.
124. Five years ago, we took an initiative to introduce a modern and people-friendly e-stamping facility in the country. Only six States have introduced this system so far. I propose to launch a new scheme with an outlay of `300 crore to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the districts in the next three years.
125. I propose to introduce a new simplified return form 'Sugam' to reduce the compliance burden of small taxpayers who fall within the scope of presumptive taxation.
126. The increase in scope of cases admitted by the Settlement Commissions has provided relief to several taxpayers. This has also increased the workload of the Commission. To fast track the disposal of cases, three more Benches of the Commission are being set up.
127. Substantial amounts of revenue in both direct and indirect taxes, remain locked up in appeals at different levels. Both Boards also invest substantial effort and money in litigation with their employees. In keeping with the National Litigation Policy, several steps have been initiated in 2010-11 for reducing litigation and focusing attention on high revenue cases. Instructions have been issued raising limit of tax effects below which, tax disputes will not be pursued by Government in higher Courts of Appeal. These measures would enhance productivity of resources employed in raising revenue.
Corruption
128. A Group of Ministers has been constituted to consider measures for tackling corruption. The Group has been tasked with addressing issues relating to State funding of elections, speedier processing of corruption cases of public servants, transparency in public procurement and contracts, discretionary powers of Central ministers and competitive system for exploiting natural resources. The Group will make its recommendations in a time bound manner.
Performance Monitoring and Evaluation System
129. Pursuant to the recommendations of Second Administrative Reforms Commission, the Government has set up a Performance Monitoring and Evaluation System (PMES) to assess the effectiveness of Government departments in their mandated functions. It involves preparation of a Results Framework Document (RFD) by each department, highlighting its objectives and priorities for the financial year and achievements against pre-specified targets at the end of the year. This document would be available for public information on the departmental websites. In the first phase, 62 departments have been covered under PMES.
TAGUP
130. In pursuance of the announcement made in the Budget 2010-11, I had set up a Technology Advisory Group for Unique Projects (TAGUP). The Group has submitted its report and its recommendations have been accepted in principle. The modalities of implementation are being worked out.
131. Indian Rupee now has a new symbol which has been notified for use by the Central and State Governments, business entities and the general public. A new series of coins carrying this symbol will be issued shortly. The Government has approached Unicode Standards Authority for inclusion of the symbol in international standards.
V. Budget Estimates 2011-12
I now turn to the Budget Estimates for 2011-12.
132. The Gross Tax Receipts are estimated at `9,32,440 crore which is an increase of 24.9 per cent over the Budget Estimates for 2010-11. After devolution to States, the net tax to Centre in 2011-12 is `6,64,457 crore. The Non Tax Revenue Receipts for 2011-12 are estimated at `1,25,435 crore.
133. The total expenditure proposed for 2011-12 is `12,57,729 crore, which is an increase of 13.4 per cent over the Budget Estimates for 2010-11. The Plan Expenditure at `4,41,547 crore marks an increase of 18.3 per cent and the Non Plan Expenditure at `8,16,182 crore is an increase of 10.9 per cent over BE 2010-11. As 2011-12 is the last year of the Eleventh Plan, I am happy to share that Eleventh Plan expenditure in nominal terms is more than 100 per cent of the expenditure envisaged for the Plan period.
134. The total plan and non-plan transfers of `2,01,733 crore to States and UT Governments in 2011-12 have increased by 23 per cent over the Budget Estimates 2010-11. This includes grants of `13,713 crore in 2011-12 to local bodies as per the recommendation of the Thirteenth Finance Commission.
135. Hon'ble Members are aware that in the course of 2010-11, I had the opportunity to effect a further improvement in the fiscal balance, due to the higher than anticipated non-tax revenues from 3G spectrum auctions. I chose to do that and much more. While I provided additional resources of about `50,000 crore to critical infrastructure and social sectors and also to meet the expenditure on subsidies, I have brought down the fiscal deficit from 5.5 per cent to 5.1 per cent of the GDP for 2010-11. For 2011-12, I have kept it at 4.6 per cent of GDP, which improves upon my own target for 2011-12 indicated in the fiscal road map presented in the last Budget. In the Medium Term Fiscal Policy Statement being presented to the House today, the rolling targets for fiscal deficit are placed at 4.1 per cent for 2012-13, and 3.5 per cent for 2013-14.
136. There has been some concern expressed regarding the stickiness of Government's revenue deficit in the post-global crisis phase of the economy. For 2010-11 as against a target of 4 per cent, the revenue deficit is estimated at 3.4 per cent of GDP. In the past few years the transfers to States and other developmental expenditure have grown significantly. These are classified as revenue expenditure even though a considerable part of the expenditure from these transfers is in the nature of capital expenditure. In 2010-11, `90,792 crore from such revenue expenditures were in the nature of capital expenditure. Similarly, in 2011-12 grants-in-aid for creation of capital assets, which are now shown separately in the Budget documents, are about `1.47 lakh crore. Taking these budget provisions into account, the “effective revenue deficit” is estimated at 2.3 per cent in the Revised Estimates for 2010-11 and 1.8 per cent for 2011-12.
137. In my last Budget, I had stated that Government would avoid issuing bonds in lieu of subsidies to oil and fertiliser companies. I have adhered to this decision, thereby bringing all subsidy related liabilities into our fiscal accounting.
138. The fiscal deficit of 4.6 per cent of GDP in 2011-12 works out to `4,12,817 crore. Taking into account the various other financing items for fiscal deficit, the net market borrowing of the Government in 2011-12 would be `3.43 lakh crore. In addition, `15,000 crore is proposed to be financed through Treasury Bills. Accordingly, the Central Government debt as a proportion of GDP is estimated at 44.2 per cent for 2011-12 as against 52.5 per cent recommended by the Thirteenth Finance Commission.

PART - B
Madam Speaker,
I shall now present my tax proposals.
139. In the formulation of these proposals, my priorities are directed towards making taxes moderate, payments simple for the taxpayer and collection of taxes easy for the tax collector.
VI. Direct Taxes
I shall now deal with direct taxes.
140. As Government's policy on direct taxes has been outlined in the DTC, which is before Parliament, I have limited my proposals to initiatives that require urgent attention.
141. Last year I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to DTC rates, I propose to enhance the exemption limit for the general category of individual taxpayers from `1,60,000 to `1,80,000 this year. This measure will provide a uniform tax relief of `2,000 to every taxpayer of this category.
142. Senior citizens deserve our special attention. For them, I propose
• to reduce the qualifying age, from 65 years to 60 years;
• to enhance the exemption limit from `2,40,000 to `2,50,000;
• To create a new category of Very Senior Citizens, eighty years and above, who will be eligible for a higher exemption limit of `5,00,000.
143. In the case of corporates, my initiative of phasing out the surcharge continues. I propose to reduce the current surcharge of 7.5 per cent on domestic companies to 5 per cent. Simultaneously, I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 18 per cent to 18.5 per cent of book profits to keep the effective rate of the MAT at the same level. As a measure to ensure equal sharing of the corporate tax liability, I propose to levy MAT on developers of Special Economic Zones as well as units operating in SEZs.
144. To attract foreign funds for financing of infrastructure, I propose to:
• create special vehicles in the form of notified infrastructure debt funds;
• subject interest payment on the borrowings of these funds to a reduced withholding tax rate of 5 per cent instead of the current rate of 20 per cent;
• exempt the income of the fund from tax.
145. In order to promote savings and raise funds for infrastructure, an additional deduction of `20,000 for investment in long-term infrastructure bonds was notified by the Central Government in 2010-11. I propose to extend this window for one more year.
146. It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. I do hope these funds will now flow to India.
147. In order to give a boost to production in the agriculture sector, I propose to extend the benefit of investment linked deduction to businesses engaged in the production of fertilisers.
148. Considering the importance of housing, I also propose investment linked deduction to businesses which develop affordable housing under a notified scheme.
149. In this Decade of Innovation, I enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research, to 175 per cent in the last budget. I propose to further enhance this to 200 per cent.
150. In order to strengthen our system of collection of information from foreign tax jurisdictions, I propose to provide a toolbox of counter measures to discourage transactions with entities located in non-cooperative jurisdictions as may be notified by the Government.
151. My proposals on direct taxes are estimated to result in a net revenue loss of `11,500 crore for the year.
VII. Indirect Taxes
I shall now turn to my indirect tax proposals.
152. In view of the healthy growth in indirect taxes in 2010-11, I had the option to roll back the Central excise duty to levels prevailing in November 2008. I have chosen not to do so for two reasons. I would like to see improved business margins translated into higher investment rates. I would also like to stay my course towards GST. I have therefore decided to maintain the standard rate of Central excise duty at 10 per cent.
153. I propose certain changes in the Central Excise rate structure to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. At present, there are about 100 items that are exempt from Central Excise as well as State VAT. In addition, there are as many as 370 items that enjoy exemption from Central Excise duty but are chargeable to VAT. I propose to withdraw the exemption on 130 of these items that are mainly in the nature of consumer goods. The remaining 240 items would be brought into the tax net when GST is introduced.
154. A nominal Central Excise duty of 1 per cent is being imposed on the 130 items that are entering the tax net. No Cenvat credit would be available for the manufacture of these items. Basic food and fuel would continue to be exempt. This levy would also not apply to precious metals and stones. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name.
155. Most of the States have increased their merit rate of VAT from 4 per cent to 5 per cent. In line with this, I also propose to enhance the lower rate of Central Excise duty from 4 per cent to 5 per cent.
156. Ready-made garments and made-ups of textiles are currently under an optional excise duty regime. A manufacturer is required to pay duty only if he wishes to avail of Cenvat credit. Our garment and made-ups industry has come of age and has shown handsome growth in recent years. As part of base expansion, I propose to convert the optional levy into a mandatory levy at a unified rate of 10 per cent. The levy would however, apply only to branded garments or made-ups and not to those tailored or made to order for a retail customer. Credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products. Keeping in mind the fragmented nature of this industry, full SSI exemption is also being extended to these products. Export of these items would continue to be zero-rated.
157. We have a long term commitment to align our customs duty rates to those prevailing in ASEAN countries. The peak rate of customs duty has been reduced over the years and has settled at 10 per cent. In view of continued uncertainties in the global economy, I propose to hold the peak rate at its current level. However, some rationalization is being done to unify three rates namely, 2 per cent, 2.5 per cent and 3 per cent at the middle level of 2.5 per cent.
158. I now turn to proposals that are aimed at encouraging some of the thrust sectors that are in need of attention.
Agriculture & Related Sectors
159. Hon'ble Members would recall that, in the last Budget, I had announced a package of measures to improve the availability of storage and warehouse facilities for agricultural produce as well as to incentivize food processing.
I have received encouraging feedback on the impact of these measures. I propose to enlarge the scope of these exemptions by:
• extending full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure;
• including conveyor belts in the full exemption from excise duty to equipment used in cold storages, mandis and warehouses.
160. A concessional rate of basic customs duty of 5 per cent was provided to specified agricultural machinery in the last budget. This duty is being reduced further to 2.5 per cent and the concession is also being extended to parts of such machinery to encourage their domestic production.
161. Micro-irrigation is an environment-friendly and efficient means of irrigation especially for dry land farming. I propose to reduce the basic customs duty on micro-irrigation equipment from 7.5 per cent to 5 per cent.
162. De-oiled rice bran cake constitutes an important ingredient of cattle feed and its improved availability would have a positive impact on milk production. I propose to provide full exemption from basic customs duty to this item. Simultaneously, an export duty of 10 per cent would be levied to discourage its export.
Manufacturing Sector
163. For the manufacturing sector, my proposals seek to encourage domestic value addition vis-a-vis imports, to remove duty inversions and anomalies and to provide a level playing field to the domestic industry. The major proposals are to:
• reduce basic customs duty on raw silk (not thrown) from 30 to 5 per cent;
• reduce basic customs duty from 5 per cent to 2.5 per cent on certain textile intermediates and inputs for chemicals, ferro-alloys and paper;
• reduce basic customs duty on certain specified inputs for manufacture of certain technical fibre and yarn from 7.5 per cent to 5 per cent;
• fully exempt stainless steel scrap from basic customs duty;
• reduce import duties on specified raw material for the manufacture of syringes and needles to 5 per cent basic and 4 per cent CVD;
• extend the concession available to parts, components and accessories for manufacture of mobile handsets till 31st March, 2012 and to include few more items in its ambit;
• expand the raw material list for manufacture of specified electronic components that are fully exempt from basic customs duty;
• reduce excise duty (and hence CVD) on parts of ink-jet and laser-jet printers from 10 per cent to 5 per cent.
164. Iron ore attracts an export duty of 15 per cent in the case of lumps and 5 per cent in the case of fines. This is a natural resource which needs to be conserved. I propose to enhance the rate of export duty for all types of iron ore and unify it at 20 per cent ad valorem. Iron ore is also exported in a value-added, pelletized form. Full exemption from export duty is being provided to iron ore pellets to encourage the value addition process for fines.
165. As a measure of relief to cement industry, I propose to replace the existing excise duty rates with composite rates having an ad valorem and specific component with some rationalization. The basic customs duty on two critical raw materials of this industry viz. petcoke and gypsum is proposed to be reduced to 2.5 per cent.
166. To drive the financial inclusion agenda of the Government, I propose to fully exempt cash dispensers from basic customs duty. Full exemption is also being extended to parts of such machines to encourage their domestic production.
Environment
167. Full exemption from basic customs duty and a concessional rate of Central Excise duty of 4 per cent was provided to specified parts of electrical vehicles in the last Budget on actual-user basis. I propose to extend the concession to batteries imported by such manufacturers for the replacement market.
168. Fuel cell or Hydrogen cell technology is a promising green technology for the automobile sector. I propose to extend the concessional excise duty of 10 per cent to vehicles based on this technology.
169. Hybrid vehicles enjoy a concessional excise duty rate of 10 per cent. However, import dependence for their critical parts/ sub-assemblies is still quite high. It is proposed to grant specified parts of such vehicles full exemption from basic customs duty and special CVD. In addition, a concessional rate of excise duty of 5 per cent is being prescribed to incentivise their domestic production.
170. In response to the growing demand for green products, a technology has been developed indigenously for the conversion of fossil fuel vehicles into Hybrid vehicles through the fitment of a kit. I propose to reduce the excise duty on such kits and their parts from 10 per cent to 5 per cent.
171. In the last Budget, Central Excise duty on LED lights was reduced from 8 per cent to 4 per cent to promote their use. The basic component of these lights viz. the LED attracts an excise duty (hence, CVD) of 10 per cent and a special CVD of 4 per cent. The excise duty on LEDs is being reduced to 5 per cent and special CVD is being fully exempted.
172. The solar lantern enables our countrymen in far-flung villages to partake of developments in green technology. The basic customs duty on such lanterns is being reduced from 10 per cent to 5 per cent. Basic customs duty on a few more inputs used in the manufacture of solar modules/ cells is being reduced to Nil.
173. Environmental considerations demand promotion of laundry soaps which conserve water and are gentle on the soil. To this end, full exemption from basic customs duty is being provided to Crude Palm Stearin for use in the manufacture of laundry soap.
174. Pre-tanning or tanning processes in the leather industry use chemicals which are pollutants. To encourage use of green processes, full exemption from basic excise duty is being granted to enzyme based preparations for pre-tanning.
Infrastructure
175. Capital goods imported for the expansion of existing mega or ultra mega power projects enjoy a concessional basic customs duty of 2.5 per cent and full exemption from CVD. This creates a disability for the domestic suppliers who are required to pay Central Excise duty on supplies to such projects. I propose to correct this anomaly by providing a parallel excise duty exemption.
176. Bio-based asphalt is an emerging, green technology for the surfacing of roads. Full exemption from basic customs duty is being extended to bio-asphalt and specified machinery for its application in the construction of national highways. Tunnel-boring machines required for the construction of highways are also being included in this exemption.
Other Proposals
177. Works of art and antiquities are exempt from customs duties when imported for exhibition in a public museum or national institution. In recent years, many organisations have joined the cause of promoting and popularising both traditional and contemporary art. Some of them have been active in locating heritage works of Indian art and antiquities in foreign countries and bringing them back home. To encourage such initiatives, I propose to expand the scope of this exemption for works of art and antiquities to also apply to imports for exhibition or display, in private art galleries or similar premises that are open to the general public. Department of Culture will notify details of the scheme separately.
178. Full exemption from import duty is available to spares and capital goods required for ship-repair units. This exemption is being extended to imports by ship owners too.
179. The concessional basic customs duty of 5 per cent and CVD of 5 per cent, presently applicable to high-speed printing presses imported by newspaper establishments is being extended to mailroom equipment.
180. The Indian film industry has represented that colour, unexposed jumbo rolls of cinematographic film are not manufactured domestically and have to be imported. I propose to exempt jumbo rolls of 400 feet and 1000 feet from CVD by providing full exemption from excise duty.
181. I propose to provide outright concession to factory-built ambulances in place of the existing refund-based concession from excise duty. A refund-based concession is available to taxis having a seating capacity not exceeding 7 persons including the driver. I propose to extend this to vehicles upto a seating capacity not exceeding 13 persons including the driver.
182. Some of the other relief measures that I propose are:
• Reduction in basic customs duty on raw pistachio from 30 per cent to 10 per cent;
• Reduction in basic customs duty on bamboo for agarbatti from 30 per cent to 10 per cent;
• Reduction in basic customs duty on lactose for the manufacture of homeopathic medicines from 25 per cent to 10 per cent; and
• Reduction in central excise duty on sanitary napkins, baby and adult diapers from 10 per cent to 1 per cent.
183. My proposals relating to customs and Central excise are estimated to result in a net revenue gain of `7,300 crore for the year.
VIII. Service Tax
184. The actual collections of Service Tax do not reflect the full potential of this sector. While retaining the standard rate of service tax at 10 per cent, I seek to achieve a closer fit between the present service tax regime and its GST successor by:
• Bringing in a few new services into the tax net to expand the tax base while ensuring that the impact is predominantly on sections of society that have the ability to pay;
• Suitably expanding or rationalizing the scope of existing service categories;
• Rationalizing certain provisions relating to import of services and valuation;
• Modifying provisions of the Cenvat Credit scheme to achieve a more realistic balance between input credits and output tax and harmonising the provisions of the scheme across goods and services;
• Rationalizing penal provisions to reinforce the message that honest taxpayers would be facilitated and deviants would be dealt with severely; and
• Adoption of Point of Taxation rules for services which would shift the basis for tax collection from “cash” towards “accrual” basis as with Central Excise duty.
185. I propose to levy service tax on the following new services:
• Hotel accommodation, in excess of declared tariff of `1,000 per day with an abatement of 50 per cent so that the effective burden is only 5 per cent of the amount charged;
• Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill.
186. I imposed service tax in 2010-11 on health check up or treatment. This levy has resulted in differential treatment between persons who make payments themselves and others where payments are made by an insurance company or a business entity. Thus, I propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Though the tax is on high- end treatment, I propose to sweeten the pill by an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service. I also propose to extend the levy to diagnostic tests of all kinds with the same rate of abatement. However, all Government hospitals shall be outside this levy.
187. I propose to raise the service tax on air travel by `50 in the case of domestic air travel and `250 on international journeys by economy class. I also propose to tax travel by higher classes on domestic sector at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel.
188. Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs. I propose to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.
189. There are certain other changes mainly by way of rationalisation or expansion in the scope of certain services or by plugging existing loopholes. I do not wish to take the valuable time of the House in further elaboration here.
190. The strength of a good value-added-tax lies in the free flow of the credit of the tax paid at the previous stage. Due to complexities, there have been many legal disputes on the availability of credit on a number of inputs or input services. These provisions are being rationalized by laying down clear definitions so that the scope of inputs and input services that are eligible and those that are not, is clear. Allocation of CENVAT credit to exempt and taxable goods and services is also being streamlined.
191. The number of assessees in service tax has grown manifold. I find that a large number of them comprise individuals or sole proprietors with small turnovers. Any audit at their premises tends to dislocate their activities for the duration of the audit. I therefore, propose to free all individual and sole proprietor taxpayers with a turnover upto `60 lakh from the formalities of audit. This will give relief to a large number of taxpayers. I also intend to give all assessees with turnover upto `60 lakh, the benefit of 3 percentage points in interest on delayed payment.
192. In keeping with our thrust to encourage voluntary compliance, the penal provisions for Service Tax are being rationalised. A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability. Simultaneously, deliberate evaders with unrecorded business transactions will be dealt with more severely. Similar changes are being carried out in Central Excise and Customs laws. The details of the provisions are in the Finance Bill.
193. My proposals relating to service tax are estimated to result in net revenue gain of `4,000 crore for the year.
194. Many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net. Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST.
195. Copies of notifications giving effect to the changes in Customs, Central Excise and Service Tax will be laid on the Table of the House in due course.
196. My proposals on direct taxes are estimated to result in a revenue loss of `11,500 crore for the year. Proposals relating to indirect taxes are estimated to result in a net revenue gain of `11,300 crore, leaving a net loss of `200 crore in the Budget.
197. As an emerging economy, with a voice on the global stage, India stands at the threshold of a decade which presents immense possibilities. We must not let the recent strains and tensions hold us back from converting these possibilities into realities. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of developed nations.
Madam Speaker, with these words, I commend the Budget to the House.

The Islamic Economic System as an alternative

2010-07-13T15:27:00.000+05:30

Allah (swt) says:

كُنْتُمْ خَيْرَ أُمَّةٍ أُخْرِجَتْ لِلنَّاسِ تَأْمُرُونَ بِالْمَعْرُوفِ وَتَنْهَوْنَ عَنِ الْمُنْكَرِ وَتُؤْمِنُونَ بِاللَّهِ

“You are the best of the nation raised up for mankind because you enjoin what is right and forbid the wrong and believe in Allah” [Ali-Imran 3:110]

Allah (swt) has blessed us as being the best nation raised up from humanity because we enjoin the good and forbid the evil – we need to realise our responsibility of speaking our against the evil and injustice that we see globally today. One of these great evils we see around us is the economic injustice and oppression caused the world over by the current capitalist world order

The current financial crisis has seriously eroded confidence in the Western world and has exposed the free market. However the Western world when looking at alternatives only see remnants of Socialism or some state intervention in economy as feasible and workable systems. It is also this reason that allows free market ideologues to continue citing more regulation, transparency i.e. more capitalism with some tinkering as solutions. I recall a discussion with my previous economic Professor where I put forward the ills of Capitalism, after debating the points exhaustively he said, ‘Capitalism is the best of the worst’. I then went on to explain the Islamic economic system as an alternative, it became obvious that he had never considered Islam as having any alternative nor had studied it.

This crisis represents an opportunity for all Muslims to present the Islamic economic system as an alternative. We have to realise to consider that when Marx wrote his theories of Communism in the 1800’s whilst sitting in Britain, his ideas although many people disagreed with them were seen as a viable alternative, this is why Lenin later took up these ideas, formed a party based upon them and they were eventually embodied in a state. This occurred even though these were new theories that had no history of implementation. We have to then consider that unlike Marx who denied the existence of Allah and whose ideas were disproved by the clear reality of the failure of Communism, we have the truth from Allah (swt) and also have a history of the implementation of Islam.

Therefore today it is vital for us to present Islam as an alternative. It is important to show Islamic economics as much more then Islamic finance and Banking. What is known as Islamic banking and Islamic finance is about individuals or groups attempting to generate profits in the current system without breaking the shariah rules such as the prohibition of Riba. However today I’m going to focus on the Islamic economic system as a whole which is much wider than this and is the true alternative to the Capitalist system

Although no Islamic state exists today, we have the economic system of Islam derived from the Quran and the Sunnah and over a thousand years of history of its implementation. Based upon this we must initiate thinking amongst the ‘left’ and the right’ and to demonstrate to them how Islam is not just a religion like the others but is a comprehensive ideology able to deal with the current crisis’s that humanity is faced with.

The Islamic economic system

Of course in a short talk such as this it is not possible to go through the entire Islamic economic system in detail, I aim to cover its key aspects especially in relation to how an Islamic system holds the key to solving the current financial crisis.

As any economic student would learn in their first economics lesson, we have to start with the definition of the economic problem which is the fundamental view of the economy. In Capitalism they believe that there is unlimited wants and limited resources therefore the focus of the economy should be production, so they believe in producing more and more for people to consume. This has also come be known as ‘trickle down economics’ where the focus is on increasing the size of the cake, believing that it will somehow trickle down into the bellies of the hungry.

This is why they have so much emphasis on the GDP (Gross Domestic Product) or GNP (Gross National Product). This is why we saw the BJP talking about ‘India shining’ when the GNP had increased, even if that increase was in the bank accounts of the corporate’s and not reaching the common man

1. Islam focuses on the distribution of wealth not just the production.

Islam views the economic problem in a radically different way than Capitalism and Socialism. Islam focuses on the distribution of wealth not just the production. The problem of poverty will not be solved by producing more and more for the rich to consume rather it will be solved by ensuring that basic needs of every individual are satisfied completely. There are enough resources in the world to satisfy the basic needs of everyone

Islam looks at every individual by himself rather than the total of individuals who live in the country. It looks at him as a human being first, who needs to satisfy all of his basic needs completely. Then it looks to him in his capacity as a particular individual, to enable him to satisfy his luxuries as much as possible.

2. All basic needs guaranteed

The Ahkam Shari'ah have secured the satisfaction of all of the basic needs (food, clothing and housing) completely, for every citizen of the Islamic State (Khilafah).

The Prophet (saw) said, "The Son of Adam has no better right than that he would have a house wherein he may live, a piece of clothing whereby he may hide his nakedness and a piece of bread and some water" [Tirmidhi]

The Islamic state has a duty to provide for those who cannot provide for themselves or whose families cannot provide for them

Umar ibn Abdul-Aziz, the famous Khalifah, wrote to his agent in Basra, Iraq, ‘Search for the people of the covenant in your area who may have grown old, and are unable to earn, and provide them with regular stipends from the treasury to take care of their needs.’ [Abu Ubayd, al-Amwaal, p. 805]

The Islamic state used to have public baths, Musafir Khana’s where travellers could stay for free and even open kitchens – e.g. in Bosnia during the Ottoman Khilafah period there were open kitchens where the poor could go and eat for free

The first organised hospital was built under Islamic rule in Cairo in 872CE. The Ahmad ibn Tûlûn Hospital treated and gave free medicine to all patients. It provided separate bath houses for men and women, a rich library and a section for the insane. Patients deposited their street clothes with the hospital authorities for safe keeping, before donning special ward clothes and being assigned to their beds. Each patient would also have his or her own medical record.

3. Circulation of wealth is a duty

Allah (swt) emphasizes that the wealth should not circulate amongst the few, He (swt) says referring to wealth:

كَيْ لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاءِ مِنْكُمْ
“That it does not become a commodity between the rich among you.” [TMQ Al-Hashr: 7]

Islam has made the circulation of wealth between all citizens an obligation, and it has forbidden the restriction of such circulation to a certain group of people to the exclusion of others.

Hoarding/monopolizing goods is forbidden. Producers or retailers cannot hoard or monopolize goods in order to cause the price to rise. This is based on the ahadith: “The Messenger of Allah (saw) forbade that a foodstuff be monopolized.” [Athram] and “Whoever monopolized is a wrongdoer.” [Muslim].

4. Prohibition of Riba – encouragement of investment

The abolition of all interest based contracts, to be replaced by contracts which share returns and risks.

Allah (swt) says:

وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا
“Allah has permitted trade and forbidden (all) interest.” [TMQ Al-Baqarah: 275]

The prohibition of Riba (usury/interest) encourages people not to just save their money in a bank waiting for the interest – rather if there will be 2.5% Zakah charged on their unused wealth – this encourages people to spend and invest which generates economic activity and is healthy for the economy. The more spending and investment, the more jobs are created and more wealth is circulated.

I want to touch briefly here about the concept of loans and Riba – people don’t realise the exploitative nature of Riba. In Islam loans are given for ethical reasons with the intention of achieving a reward from Allah. The Prophet (saw) said: "Every loan is a sadaqah". In capitalism the one who gives the loan, shares the profit but not the loss, this is very unfair and unjust. In Islam if you want to share the profit then you must share the loss also – this is the model of Partnerships or company structures in Islam. Like Mudharabah - where someone invests and the other person works and they share the profit and loss. Islam has an equity based system when both sides share the risk and the reward is fair unlike the oppressive Riba based system

Today interest based debts are crippling people and entire nations. Ali (ra), the cousin of Allah's messenger, pointed out regarding the pre-Islamic age: "We withstood the weight of the Iron, the Stone and the Lash, but we could not endure the weight of debt."

5. The Islamic economy is real and Islam prohibits the current form of financial markets

The Islamic economy is based upon wealth generation where participants partake in investment, employment and trade in the real economy. Islam does not have a dual economy where the real economy operates alongside a financial sector. The Islamic economy focuses all participants on the real economy, through employment, company profits, utilisation of land (agriculture) and manufacturing, wealth is generated in only one sector. This brings the huge benefit of wealth only circulating in one sector - the real economy, where all can participate.

The Islamic system does not recognise the financial markets in their current form. One is able to purchase shares and transfer them without actually partaking in the running of the underlying company that the shares are meant to represent. In Islam ownership is a direct role in a company and not just a share certificate which in effect the stock market allows to be traded and re-traded. It is this ability to not have a direct role in a company that allows excessive speculation. The financial markets are different to the real economy of goods and services. As the first speaker pointed out this is in fact one of the root problems of Capitalism, the size of the world’s stock markets are estimated at $51 trillion, the world derivative markets are valued at $480 trillion, 30 times the size of the US economy and 12 times the size of the world economy!

There are many reasons as to why Public Limited Companies (PLC’s) stock markets are haram in Islam. One of the key reasons being the issue of liability. The public limited company system gives the public company a distinct quality of limited liability, aimed at protecting major capitalists and businessmen in case the company fails and incurs losses, in which case, those who have claims against it would not be able to demand from its investors any compensation no matter how large the personal assets of the investors are. The financial claims are only confined to what is left in the company in terms of assets. This system is contradictory to Shari'ah in every aspect. The Shari'ah rule obliges all to repay debts in full to the rightful owners, and it is forbidden to cut anything from them.

Al-Bukhari reported on the authority of Abu Hurayrah that the Messenger of Allah (saw) said: "He who takes money from people with the intention of paying it back Allah will pay on his behalf, and he who takes it with the intention to waste it Allah will waste him."

Ahmed also reported on the authority of Abu Hurayrah who said: The Messenger of Allah (saw) said: "You shall return the rights to their rightful owners on the Day of Judgement, even the ewe with no horns will get even with the ewe with horns by butting it back."

Hence, the Messenger of Allah (saw) has confirmed the obligation of fulfiling one's rights in full in temporal life, and if one does not he will do so on the Day of Judgement. This serves as a warning for those who devour people's rights.

Islam has its own company structures, there are 5 types which are all related to real partnerships between body and capital. These are Al-'Inan (equal), Al-Abdan (bodies), Al-Mudharaba (two or more), Al-Wujooh (faces) and Al-Mufawadha (negotiation)

Ad-Daraqutni narrated from Abu Hurairah that the Prophet (SAW) said: “The Supreme said I am the third of the two partners as long as one of them does not betray his companion. If he betrayed, I would withdraw from them.”

Islam is against monopolies and encourages competition

PLC stock market companies are able to amass huge amounts of wealth today, to the extent that some companies have more wealth than some countries. In an Islamic system this could not happen due to the prohibition of PLC’s who are able to generate this wealth by issuing shares to the public. This has a positive impact on the economy, as huge companies are able to become monopolies, duopolies or oligopolies which are able to dominate the market place such as Microsoft, Coca-Cola and Pepsi. Even Capitalist agree that monopolies are negative externalities and Adam Smith, the founding father of Capitalism dreamed of an economy with perfect competition an ideal which they can never achieve due to the free market itself. However the Islamic economic system leads to this as by applying its rules it would lead to small to medium companies competing with each other in every market which is healthy for the economy as competition decreases the price and increases quality.

E.g. Why should 3 companies dominate the entire soft drinks market in the world as is today? They completely dominate the market, have enough wealth to buy out any competitors like Coke did with ‘Thumbs Up’ in India. Monopolies have the power to sell lower grade goods to the market without us having any choice, we all remember the Pesticide scandal that took place here.

6. It is prohibited to sell what you don’t have

Unlike today where we see short selling or forward selling, where people sell what they don’t yet own

Islam makes it a requirement for traders to own currencies, instruments and commodities before selling them. It is narrated from Hakeem bin Hazam (ra) who said: “I said: O Messenger of Allah, there comes to me a man asking me to sell what I do not have to sell then I buy if from the market. He said: Do not sell what you do not have” [Ahmad]

7. Islam neither believes in a free market nor a command economy

The Islamic economic system is neither Capitalist where the market is left free to lead to the disasters that we are seeing nor Communist where everything is owned and controlled by the state. Islam distinguishes between public property, state property and private property. Islam forbids the private ownership of the large resources such as the Oil and Gas that we see the Western companies fighting over in the Muslim world.

The Prophet (saw) said:

«الناس شركاء في ثلاث الماء والكلأ والنار»
"People share in three things, fire, water and the green pastures" reported by Abu Dawud. Anas reported from Ibn Abbas adding “and its price is forbidden”.

In addition to this the Prophet (saw) used to take back lands from people if he found they contained vast resources such as a salt mine.

The huge revenue generated by public resources such as Oil and Gas in an Islamic state be utilised for the benefit of the public and not for the personal interests of the rulers who siphon off the money into their swiss bank accounts and spend it for their own pleasure as we see the rulers of the Gulf doing today. The Prophet (saw) said:

«…الإمام راع وهو مسؤول عن رعيته »
“The Imam is a shepard and he is responsible.” [Bukhari, Ahmad, Bayhaqi]

8. The Gold & Silver standard for currency

As the brother has explained in the first talk, today’s currency is fiat currency backed by no real assets, only backed by confidence. This is the reason we have increasing inflation the world over. Islam solves this problem as the basis of the currency in Islam is Gold & Silver, the currency is backed by and is interchangeable with it.

The Prophet (saw) established the basis of the Islamic currency, the Dirham and the Dinar upon these tangible things which hold real value and retain value. The Islamic rules have been set in the Quran and Sunnah in terms of Gold and Silver such as the Nisab of Zakah.

It is allowed to have paper notes as long as they are backed by Gold and Silver. So in the Islamic state you can go to the Bayt al-Mal and exchange the paper notes. Therefore inflation is eliminated as the value of gold and silver are stable. The Islamic state cannot just simply print money as they do today without any asset backing, or create money out of thin air! In fact due to the current inflation and financial crisis we can see people are turning to buying gold instead of putting their money in stocks as they know it has a real value.

Conclusion

As you would have realised the key aspects of the economic system I highlighted are much more than the current Islamic banking or Islamic finance and it should be clear that this system cannot be implemented without a true Islamic state which rules by the Shariah and unlike the Muslim world today is a truly independent state and not an agent of the West.

Instead of turning to billions of dollars of bailouts where the US and UK are spending tax payers money in order to save their collapsing financial system, people should realise that Islam offers the world a practical alternative. The next speaker will elaborate on the importance of taking the Islamic system as a whole and not separating the economic system of Islam from the other systems such as ruling or punishment.

Even many non-Muslim thinkers have recognised the progress and development that was achieved under Islamic rule in history in all fields of science and technology.

Phillip Hitti in 'Short History of the Arabs' says, "During all the first part of the Middle Ages, no other people made as important a contribution to human progress as did the Arabs, if we take this term to mean all those whose mother-tongue was Arabic, and not merely those living in the Arabian peninsula. For centuries, Arabic was the language of learning, culture and intellectual progress for the whole of the civilized world with the exception of the Far East. From the 9th to the 12th century there were more philosophical, medical, historical, religious, astronomical and geographical works written in Arabic than in any other human tongue."

The Islamic system has come for the whole of humanity

وَمَا أَرْسَلْنَاكَ إِلَّا رَحْمَةً لِلْعَالَمِينَ
“And We have sent you (O Muhammad SAW) not but as a mercy for the 'Alamîn.” [TMQ 21:107]

It is a system not thought up by the minds of men, rather it is from the creator of humankind Allah (swt) and it is the perfect system for humanity. Let us all work to re-establish this system once again.

Hasan al Basri narrated that Allah's Messenger (saw) said: "He whom death overtakes while he is engaged in acquiring knowledge with a view to reviving Islam with the help of it, there will be one degree between him and the Prophets in Paradise." [Al-Tirmidhi]

General Budget 2010-2011

2010-04-23T22:16:00.002+05:30

I rise to present the Union Budget for 2010-11.

In 2009, when I presented the interim Budget in February and the regular Budget in July in this august House, the Indian economy was facing grave uncertainties. Growth had started decelerating and the business sentiment was weak. The economy's capacity to sustain high growth was under serious threat from the widespread economic slowdown in the developed world.

2. It was not clear to us, as also to the policy makers in many other countries, how this crisis would eventually unfold. What would be its impact on the growth momentum of the Indian economy? How soon will we be able to turnaround the fortunes of our economy? The short term global outlook was bleak and the consensus was that year 2009 would face the brunt of this crisis across the world.

3. At home, there was added uncertainty on account of the delayed and sub-normal south-west monsoon, which had undermined the kharif crop in the country. There were concerns about production and prices of food items and its possible repercussions on the growth of rural demand.

4. Today, as I stand before you, I can say with confidence that we have weathered these crises well. Indian economy now is in a far better position than it was a year ago. That is not to say that the challenges today are any less than what they were nine months ago when UPA under the leadership of Mrs Sonia Gandhi was elected back to power and Prime Minister Dr. Manmohan Singh formed the Government for the second term.

5. The three challenges and the medium term perspective that I had outlined in my last Budget Speech remain relevant, even today. These would continue to engage the Indian policy-planners for the next few years.

6. The first challenge before us is to quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the 'double digit growth barrier'. This calls for imparting a fresh momentum to the impressive recovery in growth witnessed in the past few months. In this endeavour, I seek Lord Indra's help to make the recovery more broad-based in the coming months.

7. Growth is only as important as what it enables us to do and be. Therefore, the second challenge is to harness economic growth to consolidate the recent gains in making development more inclusive. The thrust imparted to the development of infrastructure in rural areas has to be pursued to achieve the desired objectives within a fixed time frame.

8. We have to strengthen food security, improve education opportunities and provide health facilities at the level of households, both in rural and urban areas. These are issues that require significant resources, and we have to find those resources.

9. The third challenge relates to the weaknesses in government systems, structures and institutions at different levels of governance. Indeed, in the coming years, if there is one factor that can hold us back in realising our potential as a modern nation, it is the bottleneck of our public delivery mechanisms. There have been many initiatives in this regard, in different sectors, at different points of time. Some of them have been effective in reforming the way the Government works in those areas. But we have a long way to go before we can rest on this count.

10. The Union Budget cannot be a mere statement of Government accounts. It has to reflect the Government's vision and signal the policies to come in future.

11. With development and economic reforms, the focus of economic activity has shifted towards the non-governmental actors, bringing into sharper focus the role of Government as an enabler.

12. An enabling Government does not try to deliver directly to the citizens everything that they need. Instead it creates an enabling ethos so that individual enterprise and creativity can flourish. Government concentrates on supporting and delivering services to the disadvantaged sections of the society.

13. It is this broad conceptualisation of the Budget that informs my speech today. I would now begin by presenting a brief overview of the economy.

Overview of the Economy

14. Yesterday, I laid on the table of the House the Economic Survey, which gives a detailed analysis of the economic situation of the country over the past twelve months. I intend to highlight only a few salient features that form the backdrop of this Budget.

15. The fiscal year 2009-10 was a challenging year for the Indian economy. The significant deceleration in the second half of 2008-09, brought the real GDP growth down to 6.7 per cent, from an average of over 9 per cent in the preceding three years. We were among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. It included a substantial fiscal expansion along with liberal monetary policy support.

16. The effectiveness of these policy measures became evident with fast paced recovery. The economy stabilised in the first quarter of 2009-10 itself, when it clocked a GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth quarter of the preceding year. It registered a strong rebound in the second quarter, when the growth rate rose to 7.9 per cent. With the Advance Estimates placing the likely growth for 2009-10 at 7.2 per cent, we are indeed vindicated in our policy stand. The final figure may well turn out to be higher when the third and fourth quarter GDP estimates for 2009-10 become available.

17. This recovery is very encouraging for it has come about despite a negative growth in the agriculture sector. More importantly, it is the result of a renewed momentum in the manufacturing sector and marks the rise of this sector as the growth driver of the economy. The growth rate in manufacturing in December 2009 was 18.5 per cent— the highest in the past two decades. There are also signs of a turnaround in the merchandise exports with a positive growth in November and December 2009 after a decline of about twelve successive months. Export figures for January are also encouraging. Significant private investment can now be expected to provide the engine for sustaining a growth of 9 per cent per annum. With some luck, I hope to breach the 10 per cent mark in not-too-distant a future.

18. A major concern during the second half of 2009-10 has been the emergence of double digit food inflation. There was a momentum in food prices since the flare-up of global commodity prices preceding the financial crisis in 2008, but it was expected that the agriculture season beginning June 2009 would help in moderating the food inflation. However, the erratic monsoons and drought like conditions in large parts of the country reinforced the supply side bottlenecks in some of the essential commodities. This set in motion inflationary expectations. Since December 2009, there have been indications of these high food prices, together with the gradual hardening of the fuel product prices, getting transmitted to other non-food items as well. The inflation data for January seems to have confirmed this trend.

19. Government is acutely conscious of this situation and has set in motion steps, in consultation with the State chief ministers, which should bring down the inflation in the next few months and ensure that there is better management of food security in the country.

CONSOLIDATING GROWTH

20. Managing a complex economy is a difficult task, more so when it is a growing economy in a globalised world. And yet, choices have to be made and they have to be well-timed.

21. After successfully managing the effects of the global slowdown, we need to strengthen the domestic macroeconomic environment to help consolidate the rebound in growth and sustain it over the medium term. We need to review the stimulus imparted to the economy and move towards the preferred path of fiscal consolidation that facilitated the remarkable growth in the pre-crisis five year period. We need to make growth more broad-based and ensure that supply-demand imbalances are better managed.

Fiscal Consolidation

22. The success of the fiscal stimulus in supporting domestic demand could be traced to its composition. The approach of the Government was to increase the disposable income in the hands of the people by effecting reductions in indirect taxes and by expanding public expenditure on programmes like the Mahatma Gandhi National Rural Employment Guarantee Scheme and rural infrastructure. Now that the recovery has taken root, there is a need to review public spending, mobilise resources and gear them towards building the productivity of the economy.

23. In shaping the fiscal policy for 2010-11, I have acted on the recommendations of the Thirteenth Finance Commission. It has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years. The Commission has recommended a capping of the combined debt of the Centre and the States at 68 per cent of the GDP to be achieved by 2014-15.

24. As a part of the fiscal consolidation process, it would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio. I intend to bring out, within six months, a status paper giving a detailed analysis of the situation and a road map for curtailing the overall public debt. This would be followed by an annual report on the subject.

Tax reforms

25. I am happy to inform the Honourable Members that the process for building a simple tax system with minimum exemptions and low rates designed to promote voluntary compliance, is now nearing completion. On the Direct Tax Code the wide-ranging discussions with stakeholders have been concluded. I am confident that the Government will be in a position to implement the Direct Tax Code from April 1, 2011.

26. On Goods and Services Tax, we have been focusing on generating a wide consensus on its design. In November, 2009 the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions. We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April, 2011.

People's ownership of PSUs

27. While presenting the Budget for 2009-10, I invited people to participate in Government's disinvestment programme to share in the wealth and prosperity of the Central Public Sector Undertakings.

28. Since then, ownership has been broad based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam. The Government will raise about Rs.25,000 crore during the current year. Through this process, I propose to raise a higher amount during the year 2010-11. The proceeds will be utilised to meet the capital expenditure requirements of social sector schemes for creating new assets.

29. Listing of Central Public Sector Undertakings improves corporate governance, besides unlocking the value for all stakeholders—the government, the company and the shareholders. Market capitalization of five companies which have been listed since October, 2004 has increased by 3.8 times from the book value of Rs.78,841 crore to Rs.2,98,929 crore.

30. The effective management of public expenditure by bringing it in line with the Government's objectives is a part of the fiscal consolidation process. This calls for proper targeting of subsidies and expenditure adjustment.

Fertiliser subsidy

31. I had announced the intent of the Government for the fertiliser sector in my Budget Speech of 2009. A Nutrient Based Subsidy policy for the fertiliser sector has since been approved by the Government and will become effective from April 1, 2010. This policy is expected to promote balanced fertilization through new fortified products and focus on extension services by the fertiliser industry. This will lead to an increase in agricultural productivity and consequently better returns for the farmers. Over time, the policy is expected to reduce volatility in the demand for fertiliser subsidy in addition to containing the subsidy bill. Government will ensure that nutrient based fertiliser prices for transition year 2010-11, will remain around MRPs currently prevailing. The new system will move towards direct transfer of subsidies to the farmers.

Petroleum and Diesel pricing policy

32. In the last Budget, the constitution of an Expert Group, to advise the Government on a viable and sustainable system of pricing of petroleum products, was announced. The Group headed by Shri Kirit Parikh has submitted its recommendations to the Government. Decision on these recommendations will be taken by my colleague, the Minister of Petroleum & Natural Gas, in due course.

33. I am very happy to inform the Honourable Members that we have not only adhered to the fiscal roadmap that I had presented as a part of the Budget documents last year, but we have improved upon it. Except for meeting the liabilities of the year 2008-09, we have not issued oil or fertiliser bonds. I shall come to the numbers when I refer to the budget estimates a little later.

Improving Investment Environment

Foreign Direct Investment

34. Foreign Direct Investment (FDI) inflows during the year have been steady in spite of the decline in global capital flows. India received FDI equity inflows of US$ 20.9 billion during April-December, 2009 compared to US$ 21.1 billion during the same period last year.

35. Government has taken a number of steps to simplify the FDI regime to make it easily comprehensible to foreign investors. For the first time, both ownership and control have been recognised as central to the FDI policy, and methodology for calculation of indirect foreign investment in Indian companies has been clearly defined. A consistent policy on downstream investment has also been formulated. Another major initiative has been the complete liberalization of pricing and payment of technology transfer fee, trademark, brand name and royalty payments. These payments can now be made under the automatic route.

36. Government also intends to make the FDI policy user-friendly by consolidating all prior regulations and guidelines into one comprehensive document. This would enhance clarity and predictability of our FDI policy to foreign investors.

Financial Stability and Development Council

37. The financial crisis of 2008-09 has fundamentally changed the structure of banking and financial markets the world over. With a view to strengthen and institutionalise the mechanism for maintaining financial stability, Government has decided to setup an apex-level Financial Stability and Development Council. Without prejudice to the autonomy of regulators, this Council would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues. It will also focus on financial literacy and financial inclusion.

Banking Licences

38. The Indian banking system has emerged unscathed from the crisis. We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services. In this context, I am happy to inform the Honourable Members that the RBI is considering giving some additional banking licenses to private sector players. Non Banking Financial Companies could also be considered, if they meet the RBI's eligibility criteria.

Public Sector Bank Capitalisation

39. During 2008-09, the Government infused Rs.1900 crore as Tier-I capital in four public sector banks to maintain a comfortable level of Capital to Risk Weighted Asset Ratio. An additional sum of Rs.1200 crore is being infused now. For the year 2010-11, I propose to provide a sum of Rs.16,500 crore to ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.

Recapitalisation of Regional Rural Banks

40. Regional Rural Banks (RRBs) play an important role in providing credit to rural economy. The capital of these banks is shared by the Central Government, sponsor banks and State Governments. The banks were last capitalised in
2006-07. I propose to provide further capital to strengthen the RRBs so that they have adequate capital base to support increased lending to the rural economy.

Corporate Governance

41. Improvement in corporate governance and regulation is an important part of the overall investment environment in the country. Government has introduced the Companies Bill, 2009 in the Parliament, which will replace the existing Companies Act, 1956. The proposed new bill will address issues related to regulation in corporate sector in the context of the changing business environment.

Exports

42. Government has provided interest subvention of 2 per cent on pre-shipment export credit up to March 31, 2010 for exports in certain sectors. I propose to extend the interest subvention of 2 per cent for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises.

Special Economic Zones (SEZs)

43. The SEZs have attracted significant flows of domestic and foreign investments. In first three quarters of 2009-10 exports from SEZs recorded a growth of 127 per cent over the corresponding period last year. Government is committed to ensuring continued growth of SEZs to draw investments and boost exports and employment.

Agriculture Growth

44. The agriculture sector occupies centre-stage in our resolve to promote inclusive growth, enhance rural incomes and sustain food security. To spur the growth in this sector, the Government intends to follow a four-pronged strategy covering (a) agricultural production; (b) reduction in wastage of produce;
(c) credit support to farmers; and (d) a thrust to the food processing sector.

45. The first element of the strategy is to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa, with the active involvement of Gram Sabhas and the farming families. For the year 2010-11, I propose to provide Rs.400 crore for this initiative.

46. In the 60th year of the Republic, it is proposed to organise 60,000 "pulses and oil seed villages" in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas. I propose to provide Rs.300 crore for this purpose. This initiative will be an integral part of the Rashtriya Krishi Vikas Yojana.

47. The gains already made in the green revolution areas have to be sustained through conservation farming, which involves concurrent attention to soil health, water conservation and preservation of biodiversity. I propose an allocation of Rs.200 crore for launching this climate resilient agriculture initiative.

48. The second element of the strategy relates to reduction of significant wastages in storage as well as in the operations of the existing food supply chains in the country. This needs to be addressed. As the Prime Minister has said recently, "We need greater competition and therefore need to take a firm view on opening up of the retail trade." It will help in bringing down the considerable difference between the farm gate prices, wholesale prices and retail prices.

49. There is wastage of grain procured for buffer stocks and public distribution system due to acute shortage of storage capacity in the Food Corporation of India. This deficit in the storage capacity is met through an ongoing scheme for private sector participation where the FCI has been hiring godowns from private parties for a guaranteed period of 5 years. This period is now being extended to 7 years.

50. The third element of the strategy relates to improving the availability of credit to farmers. I am happy to inform the honourable Members that banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2010-11, the target has been raised to Rs.3,75,000 crore from Rs.3,25,000 crore in the current year.

51. The Debt Waiver and Debt Relief Scheme for Farmers was a major initiative of the UPA Government. In view of the recent drought in some States and the severe floods in some other parts of the country, I propose to extend by six months the period for repayment of the loan amount by farmers from December 31, 2009 to June 30, 2010.

52. In the last budget, I had provided an additional one per cent interest subvention as an incentive to those farmers who repay their short-term crop loans as per schedule. I propose to raise this subvention for timely repayment of crop loans from one per cent to two per cent for 2010-11. Thus, the effective rate of interest for such farmers will now be five per cent per annum. Necessary provision in the Budget has been made.

53. The fourth element of the strategy aims at lending a further impetus to the development of food processing sector by providing state-of-the art infrastructure. In addition to the ten mega food park projects already being set up, the Government has decided to set up five more such parks.

54. As a part of the farm to market initiative, External Commercial Borrowings will henceforth be available for cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat. Changes in the definition of infrastructure under the ECB policy are being made.

Infrastructure

55. Accelerated development of high quality physical infrastructure, such as roads, ports, airports and railways is essential to sustain economic growth. While addressing the policy gaps in this sector, I propose to maintain the thrust for upgrading infrastructure in both rural and urban areas. In the Budget for
2010-11, I have provided Rs.1,73,552 crore, which accounts for over 46 per cent of the total plan allocations, for infrastructure development in the country.

56. To make a visible impact in the road sector, Government has targeted construction of national highways (NHs) at the pace of 20 km per day. To push the pace of implementation, changes have been made in the policy framework, especially in respect of projects being executed through public private partnerships (PPPs). For the year 2010-11, I propose to raise the allocation of road transport by over 13 per cent from Rs.17,520 crore to Rs.19,894 crore.

57. Honourable Members have already heard from the Railway Minister about the large investments required to modernise and expand the network. I have provided Rs.16,752 crore in the Budget for 2010-11 for Railways to lend her a helping hand. This is about Rs.950 crore more than last year, when a substantial increase was made in the budgetary support for Railways.

58. To complement the dedicated freight corridor, the Delhi-Mumbai Industrial Corridor project has been taken up for integrated regional development. Preparatory activities have been completed for creation of six industrial investment nodes with eco-friendly world class infrastructure.

India Infrastructure Finance Company Limited

59. Government established the India Infrastructure Finance Company Limited (IIFCL) to provide long term financial assistance to infrastructure projects. Its disbursements are expected to touch Rs.9,000 crore by end March 2010 and reach around Rs.20,000 crore by March 2011. IIFCL has also been authorised to refinance bank lending to infrastructure projects. It has refinanced Rs.3,000 crore during the current year and is expected to more than double that amount in 2010-11. The take-out financing scheme announced in the last Budget is expected to initially provide finance for about Rs.25,000 crore in the next three years.

Energy

60. Government accords the highest priority to capacity addition in the power sector. The framework for induction of super critical technology in large capacity power plants of National Thermal Power Corporation is now in place. The Mega Power Policy has been modified and is now consistent with the National Electricity Policy, 2005 and Tariff Policy, 2006. It will help in lowering the cost of generation and the cost of power purchased by distribution utilities. I have more than doubled the plan allocation for power sector from Rs.2,230 crore in 2009-10 to Rs.5,130 crore in 2010-11. This does not include allocations for RGGVY, which is a part of Bharat Nirman.

61. Coal is the mainstay of India's energy sector and 75 per cent of the power generation is currently coal based. It is proposed to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks.

62. Government proposes to take steps to set up a "Coal Regulatory Authority" to create a level playing field in the coal sector. This would facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance.

63. The Jawaharlal Nehru National Solar Mission envisages establishing India as a global leader in solar energy. An ambitious target of 20,000 MW of solar power by the year 2022 has been set under the mission. I propose to increase the plan outlay for the Ministry of New and Renewable Energy by 61 per cent from Rs.620 crore in 2009-10 to Rs.1,000 crore in 2010-11.

64. The Ladakh region of Jammu and Kashmir faces an extremely harsh climate and suffers from energy deficiency. To address this problem, it is proposed to set up solar, small hydro and micro power projects at a cost of about Rs.500 crore.

Environment and Climate change

65. To ameliorate the negative environmental consequences and increased pollution levels associated with industrialisation and urbanisation, I propose to take a number of proactive steps in the Budget 2010-11.

National Clean Energy Fund (NCEF)

66. There are many areas of the country where pollution levels have reached alarming proportions. While we must ensure that the principle of "polluter pays" remains the basic guiding criteria for pollution management, we must also give a positive thrust to development of clean energy. I propose to establish a National Clean Energy Fund for funding research and innovative projects in clean energy technologies. I shall outline the mode of funding for this initiative in Part B of my speech.

Effluent Treatment Plant, Tirupur

67. The textile cluster for knitwear in Tirupur in Tamil Nadu is a major contributor to the country's hosiery exports. I propose to provide a one-time grant of Rs.200 crore to the Government of Tamil Nadu towards the cost of installation of a zero liquid discharge system at Tirupur to sustain this industry, which provides livelihood to lakhs of persons, without undermining the environment.

Special Golden Jubilee Package for Goa

68. I propose to provide a sum of Rs.200 crore as a Special Golden Jubilee package for Goa to preserve the natural resources of the State by restoring Goa's beaches which are prone to erosion, and increasing its green cover through sustainable forestry.

National Ganga River Basin Authority (NGRBA)

69. The "Mission Clean Ganga 2020" under the National Ganga River Basin Authority (NGRBA) with the objective that no untreated municipal sewage or industrial effluent will be discharged into the national river has already been initiated. I propose to double the allocation for NGRBA in 2010-11 to Rs.500 crore.

70. I am happy to inform the Honourable Members that schemes on bank protection works along river Bhagirathi and river Ganga-Padma in parts of Murshidabad and Nadia district of West Bengal have been included in the Centrally Sponsored Flood Management Programme. I also propose to provide budgetary support for drainage scheme of Kaliaghai-Kapaleswari Baghai basin in the district of Purba and Paschim Midnapore, and Master Plan of Kandi sub-division in Murshidabad, West Bengal.

71. Recognising the need for developing an alternate port facility in West Bengal, it is proposed to develop a project at Sagar Island. Necessary funds will be provided in due course.

INCLUSIVE DEVELOPMENT

72. For the UPA Government, inclusive development is an act of faith. In the last five years, our Government has created entitlements backed by legal guarantees for an individual's right to information and her right to work. This has been followed-up with the enactment of the right to education in 2009-10. As the next step, we are now ready with the draft Food Security Bill which will be placed in the public domain very soon. To fulfil these commitments the spending on social sector has been gradually increased to Rs.1,37,674 crore which now stands at 37 per cent of the total plan outlay in 2010-11. Another 25 per cent of the plan allocations are devoted to the development of rural infrastructure. With growth and the opportunities that it generates, we hope to further strengthen the process of inclusive development.

Education

73. The Right of Children to Free and Compulsory Education Act, 2009 creates a framework for legal entitlements for all children in the age group of 6 to 14 years to education of good quality, based on principles of equity and
non-discrimination. In recent years, Sarva Shiksha Abhiyan (SSA) has made significant contribution in improving enrolment and infrastructure for elementary education. About 98 per cent of habitations are now covered by primary schools. I propose to increase the plan allocation for school education from Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11. In addition, States will have access to Rs.3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.

Health

74. An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11. The findings of the Survey should be of immense benefit to major public health initiatives particularly the National Rural Health Mission, which has successfully addressed the gaps in the delivery of critical health services in rural areas.

75. I propose to increase the plan allocation for the Ministry of Health and Family Welfare, from Rs.19,534 crore to Rs.22,300 crore for 2010-11.

Financial Inclusion

76. To reach the benefits of banking services to the 'Aam Aadmi', the Reserve Bank of India had set up a High Level Committee on the Lead Bank Scheme. After careful assessment of the recommendations of this Committee, and in further consultation with the RBI, it has been decided to provide appropriate Banking facilities to habitations having population in excess of 2000 by March, 2012. It is also proposed to extend insurance and other services to the targeted beneficiaries. These services will be provided using the Business Correspondent and other models with appropriate technology back up. By this arrangement, it is proposed to cover 60,000 habitations.

Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund

77. In 2007-08 the Government had set up a Financial Inclusion Fund and a Financial Inclusion Technology Fund in NABARD, to reach banking services to the unbanked areas. To give momentum to the pace of financial inclusion, I propose an augmentation of Rs.100 crore for each of these funds, which shall be contributed by Government of India, RBI and NABARD.

Rural Development

78. In the words of Mahatma Gandhi "Just as the universe is contained in the self, so is India contained in the villages". For UPA Government, development of rural infrastructure remains a high priority area. For the year 2010-11, I propose to provide Rs.66,100 crore for Rural Development.

79. Mahatma Gandhi National Rural Employment Guarantee Scheme has completed four years of implementation during which it has been extended to all districts covering more than 4.5 crore households. The allocation for NREGA has been stepped up to Rs.40,100 crore in 2010-11. Bharat Nirman has made a substantial contribution to the upgradation of rural infrastructure through its various programmes. For the year 2010-11, I propose to allocate an amount of Rs.48,000 crore for these programmes.

80. Indira Awas Yojana is a popular rural housing scheme for weaker sections. Taking note of the increase in the cost of construction, I propose to raise the unit cost under this scheme to Rs.45,000 in the plain areas and to Rs.48,500 in the hilly areas. For the year 2010-11, the allocation for this scheme is being increased to Rs.10,000 crore.

81. As a part of the strategy to bridge the infrastructure gap in backward districts of the country, the Backward Region Grant Fund has proved to be an effective instrument. I propose to enhance the allocation to this fund by 26 per cent from Rs.5,800 crore in 2009-10 to Rs.7,300 crore in 2010-11. I have also provided an additional central assistance of Rs.1,200 crore for drought mitigation in the Bundelkhand region in the Budget.

Urban Development and Housing

82. "Swarna Jayanti Shahari Rozgar Yojana" designed to provide employment opportunities in urban areas, has been strengthened with focus on community participation, skill development and self employment support structures. For the year 2010-11, I propose to increase the allocation for urban development by more than 75 per cent from Rs.3,060 crore to Rs.5,400 crore. In addition, the allocation for Housing and Urban Poverty Alleviation is also being raised from Rs.850 crore to Rs.1,000 crore in 2010-11.

83. While presenting the Union Budget for the year 2009-10, I had announced a Scheme of one per cent interest subvention on housing loans up to Rs.10 lakhs where the cost of the house does not exceed Rs.20 lakhs. I propose to extend this Scheme up to March 31, 2011. Accordingly, I propose to provide a sum of Rs.700 crore for this Scheme for the year 2010-11.

84. The Rajiv Awas Yojana (RAY) for slum dwellers and urban poor was announced last year to extend support to States that are willing to provide property rights to slum dwellers. This scheme is now ready to take off. I propose to allocate Rs.1,270 crore for 2010-11 as compared to Rs.150 crore last year. This marks an increase of over 700 per cent. The Government's efforts in the implementation of RAY would be to encourage the States to create a slum free India at the earliest.

Micro, Small & Medium Enterprises

85. Micro, Small and Medium Enterprises (MSMEs) contribute 8 per cent of the country's GDP, 45 per cent of the manufactured output and 40 per cent of our exports. They provide employment to about 6 crore persons through 2.6 crore enterprises. To resolve a number of issues which affect the growth of this sector, Prime Minister constituted a High-Level Task Force which held detailed discussions with all stake holders and drew up an agenda for action. A High Level Council on Micro and Small Enterprises will monitor the implementation of the recommendations and the agenda for action. I propose to raise the allocation for this sector from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.

86. A loan agreement for US $ 150 million has been signed between the Government of India and the Asian Development Bank on 22nd December, 2009 for implementing the comprehensive Khadi Reforms Programme. This programme will cover 300 selected Khadi institutions.

Micro Finance

87. The programme for linking Self Help Groups (SHGs) with the banking system has emerged as the major micro-finance initiative in the country. It was re-designated as the 'Micro-Finance Development and Equity Fund' in 2005-06 with a corpus of Rs.200 crore. The fund corpus is being doubled to Rs.400 crore in 2010-11.

Unorganised Sector

National Social Security Fund for unorganised sector workers

88. Recognising the need for providing social security to the workers in the unorganised sector, and as a follow up to the Unorganised Sector Workers Social Security Act, 2008, it has been decided to set up a National Social Security Fund for unorganised sector workers with an initial allocation of Rs.1,000 crore. This fund will support schemes for weavers, toddy tappers, rickshaw pullers, bidi workers etc.

89. The Government had launched Rashtriya Swasthya Bima Yojana on October 1, 2007 to provide health insurance cover to below poverty line workers and their families. It became operational on April 1, 2008 and so far more than 1 crore smart cards have been issued under this scheme. In view of the success of the scheme, it is now proposed to extend its benefits to all such Mahatma Gandhi NREGA beneficiaries who have worked for more than 15 days during the preceding financial year.

90. To encourage the people from the unorganised sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension Scheme (NPS) for such subscribers, Government will contribute Rs.1,000 per year to each NPS account opened in the year 2010-11. This initiative, "Swavalamban" will be available for persons who join NPS, with a minimum contribution of Rs.1,000 and a maximum contribution of Rs.12,000 per annum during the financial year 2010-11. The scheme will be available for another three years. Accordingly, I am making an allocation of Rs.100 crore for the year 2010-11. It will benefit about 10 lakh NPS subscribers of the unorganised sector. The scheme will be managed by the interim Pension Fund Regulatory and Development Authority.

91. I also appeal to the State Governments to contribute a similar amount to the scheme and participate in providing social security to the vulnerable sections of the society.

Skill development

92. Prime Minister's Council on National Skill Development has laid down the core governing principles for operating strategies for skill development. The Council has a mission of creating 50 crore skilled people by 2022. Of these, the target for the National Skill Development Corporation, which has started functioning from October, 2009, is 15 crore. It has completed a comprehensive skill gap study of 21 high growth sectors and approved three projects worth about Rs.45 crore to create 10 lakh skilled manpower at the rate of one lakh per annum. Other projects are in advanced stages of consideration.

93. It is proposed to launch an extensive skill development programme in the textile and garment sector by leveraging the strength of existing institutions and instruments of the Textile Ministry. The resources of the private sector will also be harnessed by incentivising training through an outcome - based approach. Through these instruments, the Ministry of Textiles has set an ambitious target of training 30 lakh persons over 5 years.

Social Welfare

94. I propose to step up the plan outlay for Women and Child Development by almost 50 per cent. Several new initiatives that were launched in 2009-10 are now ready for implementation. A mission for empowerment of women is being set up. The ICDS platform is being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls.

95. To further improve female literacy rate, the Government has recast the earlier National Literacy Mission as a new programme "Saakshar Bharat". It was launched in September, 2009 with a target of 7 crore non-literate adults which includes 6 crore women.

96. A Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women farmers is being launched. I have provided Rs.100 crore for this initiative as a sub-component of the National Rural Livelihood Mission.

97. I am happy to inform the Honourable Members that I propose to enhance the plan outlay of the Ministry of Social Justice and Empowerment to Rs.4500 crore. This amounts to an increase of 80 per cent as compared to 2009-10. This will support the programmes being implemented for the target population groups covering the Scheduled Castes, Other Backward Classes, persons with disabilities, senior citizens and victims of alcoholism and substance abuse. With this enhancement, the Ministry will be able to revise rates of scholarship under its post-matric scholarship schemes for SCs and OBC students, which is long overdue.

98. The allocation will also assist in establishing an Indian Sign Language Research and Training Centre for the benefit of the hearing impaired. District Disability Rehabilitation Centres are being set up in 50 additional districts along with two composite regional centres for persons with disabilities.

99. I also propose to raise the plan allocation for the Ministry of Minority Affairs from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11. This marks an increase of nearly 50 per cent. I am happy to inform the Honourable Members that we are close to achieving the target of 15 per cent priority sector lending to minorities in the current year. This will be maintained for the next three years.

STRENGTHENING TRANSPARENCY & PUBLIC ACCOUNTABILTY

100. The UPA Government has made a serious attempt to create an environment that supports transparency and accountability in the working of the public institutions in the country. As Honourable Members are aware, a number of legislative and administrative measures have been taken in this regard.

Financial Sector Legislative Reforms Commission

101. Most of our legislations governing the financial sector are very old. Large number of amendments to these Acts made at different points of time has also increased ambiguity and complexity. The Government proposes to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector.

Administrative Reforms Commission

102. The Administrative Reforms Commission constituted by the UPA Government in its first term has submitted 15 reports, of which 10 reports have been examined by the Government. Out of the 800 identified recommendations for implementation so far, 350 recommendations have been implemented and 450 are under implementation.

Unique Identification Authority of India (UIDAI)

103. In my last Budget Speech, I had announced the constitution of the Unique Identification Authority of India, its broad working principles and the timelines for delivery of the first UID numbers. I am happy to report that the Authority has been constituted and it will be able to meet its commitments of issuing the first set of UID numbers in the coming year. It would provide an effective platform for financial inclusion and targeted subsidy payments. Since the UIDAI will now get into the operational phase, I am allocating Rs.1,900 crore to the Authority for 2010-11.

Technology Advisory Group for Unique Projects (TAGUP)

104. An effective tax administration and financial governance system calls for creation of IT projects which are reliable, secure and efficient. IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, are in different stages of roll out. To look into various technological and systemic issues, I propose to set up a Technology Advisory Group for Unique Projects under the Chairmanship of Shri Nandan Nilekani.

Independent Evaluation Office (IEO)

105. The Government had announced the setting-up of an Independent Evaluation Office to undertake impartial and objective assessments of the various public programmes and improve the effectiveness of the public interventions. It has been decided that it would be an independent entity under a Governing board chaired by the Deputy Chairman, Planning Commission. The IEO would evaluate the impact of flagship programmes and place the findings in the public domain. It would be funded by the Planning Commission.

Symbol for Indian Rupee

106. In the ensuing year, we intend to formalise a symbol for the Indian Rupee, which reflects and captures the Indian ethos and culture. With this, Indian Rupee will join the select club of currencies such as the US Dollar, British Pound Sterling, Euro and Japanese Yen that have a clear distinguishing identity.

Security and Justice

107. Secure borders and security of life and property fosters development. I propose to increase the allocation for Defence to Rs.1,47,344 crore. This would include Rs.60,000 crore for capital expenditure. Needless to say, any additional requirement for the security of the nation will be provided for.

108. In 2009-10, the overall internal security and law and order situation in the country remained largely under control. Several new measures were taken by the Government to strengthen the security apparatus of the country. These include operationalisation of the National Investigation Agency (NIA), establishment of four NSG Hubs, augmentation of the Intelligence Bureau and its Multi-Agency Centre.

109. There was decline in violence in Jammu and Kashmir in the year 2009. We have taken a number of confidence building measures. As one more such measure, Government proposes to recruit about 2,000 youth as constables in five Central Para Military Forces in the year 2010.

110. To address the development problems of the thirty three left wing extremism affected districts, a Task Force headed by the Cabinet Secretary was formed for promoting coordinated efforts across a range of development and security measures. It has been decided that Planning Commission will prepare an integrated action plan for the affected areas. Adequate funds will be made available to support the action plan. I appeal to the misguided elements to eschew violence and join the development process.

National Mission for Delivery of Justice and Legal Reforms

111. To provide timely delivery of justice to all, the Government has approved the setting up of the National Mission for Delivery of Justice and Legal Reforms. The objective of the mission is to help reduce legal backlog in courts from an average of 15 years at present to 3 years by 2012. It would also help in improving the legal environment for business. The Thirteenth Finance Commission has provided grants amounting to Rs.5,000 crore for the States to improve the delivery of justice, including strengthening of alternate dispute resolution mechanisms.

Budget Estimates 2010-11

I now turn to the Budget Estimates for 2010-11.

112. The Gross Tax Receipts are estimated at Rs.7,46,651 crore. The Non Tax Revenue Receipts are estimated at Rs.1,48,118 crore. The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission.

113. The total expenditure proposed in the Budget Estimates for 2010-11 is Rs.11,08,749 crore, which is an increase of 8.6 per cent over the total expenditure in BE 2009-10. The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs.3,73,092 crore and Rs.7,35,657 crore, respectively. While there is a 15 per cent increase in Plan expenditure, the increase in Non Plan expenditure is only 6 per cent over the BE of previous year. With this level of Plan expenditure, I am confident that the total Plan expenditure would be very close to 100 per cent of the expenditure envisaged in the Eleventh Five Year Plan.

114. Honourable Members will agree that fiscal policy has to be guided by the required framework for fiscal prudence. In the Medium Term Fiscal Policy Statement presented along with Budget 2009-10, I had laid down a road map for fiscal deficit. I am happy to report that in keeping with my commitment, I have been able to present the Budget for 2010-11 with a fiscal deficit of 5.5 per cent. In the Medium Term Fiscal Policy Statement being presented to the House today, along with other Budget documents, the rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13, respectively. These projections improve upon the recommendations of the Thirteenth Finance Commission.

115. While presenting the Budget for 2009-10, I had expressed my concern about the high level of fiscal deficit. I had also stated that the Government will address this issue in right earnest to come back to the path of fiscal consolidation at the earliest. I am happy to report that against a fiscal deficit of 7.8 per cent in 2008-09, inclusive of oil and fertiliser bonds, the comparable fiscal deficit is 6.9 per cent as per the Revised Estimates for 2009-10. Both these deficit figures are based on the revised GDP numbers published by the Central Statistical Organisation and include what were earlier referred to as below the line items. This marks an improvement of about one per cent in fiscal deficit during the current year. I have made a conscious effort to avoid issuing bonds to oil and fertiliser companies. I would like to continue with this practice of extending Government subsidy in cash, thereby bringing all subsidy related liabilities into our fiscal accounting.

116. The fiscal deficit of 5.5 per cent of GDP in 2010-11 works out to Rs.3,81,408 crore. Taking into account the various other financing items for fiscal deficit, the actual net market borrowing of the Government in 2010-11 would be of the order of Rs.3,45,010 crore. There will be enough space to meet the credit needs of the private sector. The Government will plan the borrowing programme in consultation with the RBI.

PART - B

Madam Speaker,

I shall now present my tax proposals.

117. While formulating them, I have been guided by the principles of sound tax administration as embodied in the following words of Kautilya:

"Thus, a wise Collector General shall conduct the work of revenue collection.... in a manner that production and consumption should not be injuriously affected.... financial prosperity depends on public prosperity, abundance of harvest and prosperity of commerce among other things."

118. I had stated last year that tax reform is a process and not an event. The process I had outlined in the area of direct taxes was to release a draft Direct Taxes Code along with a Discussion Paper. In the area of indirect taxes, the reform initiative was the introduction of a Goods and Services Tax. I have presented the developments in both reform initiatives in Part 'A' of my Speech.

119. We have continued on the path of computerisation in core areas of service delivery in the administration of direct taxes. This will reduce the physical interface between taxpayers and tax administration and speed up procedures and processes. The Centralised Processing Centre at Bengaluru is now fully functional and is processing around 20,000 returns daily. This initiative will be taken forward by setting up two more Centres during the year.

120. As a part of Government's initiative to move towards citizen centric governance, the income tax department has introduced "Sevottam", a pilot project at Pune, Kochiand Chandigarh through Aayakar Seva Kendras. These provide a single window system for registration of all applications including those for redressal of grievances as well as paper returns. This year the scheme will be extended to four more cities.

121. To achieve the roll-out of GST by April 2011, the indirect tax administrations at the Centre and the States need to revamp their internal work processes based on the use of Information Technology. I am happy to inform Honorable Members that project ACES - Automation of Central Excise & Service Tax, has already been rolled out throughout the country this year. This will impart greater transparency in tax administration and improve the delivery of taxpayer services. Similarly, a Mission Mode Project for computerisation of Commercial Taxes in States has been approved recently. With an outlay of Rs.1133 crore of which the Centre's share is Rs.800 crore, the project will lay the foundation for the launch of GST.

122. I mentioned last year, that the income tax return forms should be simple and user friendly. The income tax department is now ready to notify SARAL-II form for individual salaried taxpayers for the coming assessment year. This form will enable individuals to enter relevant details in a simple format in only two pages.

123. To expeditiously resolve disputes with taxpayers I propose to expand the scope of cases which may be admitted by the Settlement Commission to include proceedings related to search and seizure cases pending for assessment. I also propose to expand the scope of Settlement Commission in respect of Central Excise and Customs so that certain categories of cases that hitherto fell outside its jurisdiction may be admitted.

124. Last year, amendments to the statute enabled Government to enter into tax treaties with specified territories besides sovereign states. We have commenced bi-lateral discussions to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad.

Direct Taxes

I shall now deal with direct taxes.

125. Last year I provided relief to individual taxpayers by enhancing the exemption limit for all taxpayers and withdrawing the surcharge on personal income tax. Taxpayers have responded positively to these concessions by contributing a higher level of taxes. There is a persuasive case for further relief by broadening the current tax slabs which I propose as follows:

Income upto Rs.1.6 lakh Nil

Income above Rs.1.6 lakh and upto Rs.5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs.8 lakh 20 per cent

Income above Rs.8 lakh 30 per cent

126. The proposed broadening of tax slabs will provide substantial relief to a large number of taxpayers.

127. To promote savings as well as to ensure their utilisation for the thrust area of infrastructure, I propose to allow a deduction of an additional amount of Rs.20,000 for investment in long-term infrastructure bonds as notified by the Central Government. This would be over and above the existing limit of Rs.1 lakh on tax savings. I am sure that these reliefs will put more money in the hands of individual taxpayers for both consumption as well as saving.

128. Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, I propose to allow contributions to the Central Government Health Scheme also as a deduction under the same provision.

129. Taking forward my initiative of phasing out surcharge, I propose to reduce the current surcharge of 10 per cent on domestic companies to 7.5 per cent. At the same time, I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 15 per cent to 18 per cent of book profits. This will further promote inter-se equity among corporate taxpayers.

130. The President, in her address to the Parliament in June 2009, had declared this decade as the Decade of Innovation. Last year, I extended the scope of weighted deduction on expenditure incurred on in-house research and development (R&D) to all manufacturing businesses except for a small negative list. To further encourage R&D across all sectors of the economy, I now propose to enhance the weighted deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per cent. I also propose to enhance the weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research from 125 per cent to 175 per cent.

131. Currently, any payment made to an approved scientific research association is eligible for weighted deduction. The income of the approved scientific research association is exempt from tax. I propose that payments made to approved associations engaged in research in social sciences or statistical research would be allowed a weighted deduction of 125 per cent. The income of such approved research associations shall be exempt from tax.

132. In my Budget Speech last year, I stated that profit linked deductions are inherently inefficient and liable to misuse. To incentivise businesses in priority sectors, I introduced investment linked deduction as an alternative to profit linked deduction. To give a boost to investment in the tourism sector which has high employment potential, I propose to extend the benefit of investment linked deduction under the Act to new hotels of two-star category and above anywhere in India.

133. To provide one time interim relief to the housing and real estate sector which was impacted by the global recession, I propose to allow pending projects to be completed within a period of five years instead of four years for claiming a deduction on their profits. I also propose to relax the norms for built-up area of shops and other commercial establishments in housing projects to enable basic facilities for their residents.

134. All businesses with a turnover exceeding Rs.40 lakh are currently required to have their accounts audited. A similar provision also applies to all professions whose receipts exceed Rs.10 lakh. I, as Finance Minister, had introduced these limits in my budget of 1984. It is high time to reduce the compliance burden on small taxpayers. I, therefore, propose to enhance these limits to Rs.60 lakh in the case of businesses and Rs.15 lakh in the case of professions.

135. To facilitate the business operations of small taxpayers, I had extended the scope of presumptive taxation to all small businesses with a turnover of up to Rs.40 lakh. To further reduce the compliance burden on small taxpayers, I now propose to enhance this limit to Rs.60 lakh.

136. The threshold limits of payments below which tax is not deductible at source have remained unchanged for a long time. I propose to rationalise these thresholds.

137. Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time up to September of the next financial year. At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date, from 12 per cent to 18 per cent per annum.

138. Last year, I had provided for the taxation of the newly introduced Limited Liability Partnership (LLP) on the same lines as exists for a general partnership firm. To facilitate the conversion of small companies into LLPs, I propose that this will not be subject to capital gains tax.

139. Under the current provisions of the Act, "the advancement of any other object of general public utility" cannot be considered as "charitable purpose" if it involves carrying on of any activity in the nature of trade, commerce or business. I have received representations from many organisations seeking some relaxation in this restriction. I propose that this restriction would not be applicable if the receipts from such activities do not exceed Rs.10 lakh in the year.

140. My proposals on direct taxes are estimated to result in a revenue loss of Rs.26,000 crore for the year.

Indirect Taxes

141. The major objectives that have guided me in the formulation of my proposals on indirect taxes are the need to achieve some degree of fiscal consolidation without impairing the recovery process and moving forward on the road to GST.

142. Unlike the time I presented the last Budget, symptoms of economic recovery are more widespread and clear-cut now. The three fiscal stimulus packages that the Government introduced in quick succession have helped the process of recovery significantly. The improvement in our economic performance encourages a course of fiscal correction even as the global situation warrants caution. Therefore, I propose to partially roll back the rate reduction in Central Excise duties and enhance the standard rate on all non-petroleum products from 8 per cent to 10 per cent ad valorem. The specific rates of duty applicable to portland cement and cement clinker are also being adjusted upwards proportionately. Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles which was reduced as part of the first stimulus package, is being increased by 2 percentage points to 22 per cent.

143. In the wake of spiralling petroleum prices, Government provided full exemption from basic customs duty to crude petroleum and proportionately reduced the basic duty on refined petroleum products in June, 2008. Compared to the international price of the Indian crude basket of US$ 112 per barrel at that time, the prices are much softer at present. In view of the pressing need to move back to a fiscal consolidation path, I propose to restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. I also propose to enhance the Central Excise duty on petrol and diesel by Re.1 per litre each.

144. Since I quit smoking many years ago, I would urge others to also follow suit, as smoking is injurious to health. To this end, I am making some structural changes in the excise duty on cigarettes, cigars and cigarillos coupled with some increase in rates. I also propose to enhance excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc. In addition, I propose to introduce a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines.

145. Let me now turn to some much-needed incentives in thrust areas for sustainable growth and development.

Agriculture & Related Sectors

146. In supporting the strategy outlined for development of agriculture earlier in my speech, I propose to address a few key areas that call for focused attention. These are:

(i) A strong supply chain for perishable farm produce to reach consumption and processing centres promptly;

(ii) Infrastructure and technology to convert such produce into value-added products; and

(iii) Infusion of technology to augment agricultural production.

147. Similar attention needs to be paid to related sectors such as apiary, horticulture, dairy, poultry, meat, marine and aquaculture.

148. For achieving these objectives, I propose to provide:

• project import status with a concessional import duty of 5 per cent for the setting up of mechanised handling systems and pallet racking systems in 'mandis' or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment.

• project import status at a concessional customs duty of 5 per cent with full exemption from service tax to the initial setting up and expansion of

» Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce ; and

» Processing units for such produce.

• full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

149. I also propose to provide:

• concessional customs duty of 5 per cent to specified agricultural machinery not manufactured in India;

• central excise exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their produce; and

• full exemption from excise duty to trailers and semi-trailers used in agriculture.

150. Concessional import duty was provided to specified machinery for use in the plantation sector in the year 2003. This exemption is to lapse in July 2010. The modernization of this labour-intensive sector is yet to reach the expected level. I propose therefore, to extend it up to March 31, 2011 along with a CVD exemption. I hope this will provide sufficient time for the sector to achieve the desired objective.

151. One of the prerequisites for agricultural productivity is access to good quality and disease-resistant seeds. I propose to exempt the testing and certification of agricultural seeds from service tax.

152. I also propose to exempt the transportation by road of cereals and pulses from service tax. Their transportation by rail would remain exempt.

153. I propose two measures under the Central Excise law to ease the cash flow position for small-scale manufacturers hard hit by the economic slowdown. First, they would be permitted to take full credit of Central Excise duty paid on capital goods in a single instalment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly basis. These measures that come into effect on the April 1, 2010 should provide them considerable relief.

Environment

154. Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognised as a credible strategy for combating global warming and climate change. To build the corpus of the National Clean Energy Fund announced earlier, I propose to levy a clean energy cess on coal produced in India at a nominal rate of Rs.50 per tonne. This cess will also apply to imported coal.

155. In pursuance of Government's resolve to implement the National Solar Mission, I propose to provide a concessional customs duty of 5 per cent to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units. I also propose to exempt them from Central Excise duty. Similarly, ground source heat pumps used to tap geo-thermal energy would be exempt from basic customs duty and special additional duty.

156. Wind energy has shown promising growth in the country in recent years. As a measure of further relief, I propose to exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.

157. LED lights are staging a debut as a highly energy-efficient source of lighting for streets, homes and offices. Central Excise duty on these is being reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.

158. Full exemption from Central Excise duty was provided to electric cars and vehicles that offer an eco-friendly alternative to petrol or diesel vehicles. The manufacturers of such vehicles have expressed difficulty in neutralising the duty paid on their inputs and components. I propose to remedy this by imposing a nominal duty of 4 per cent on such vehicles. I also propose to exempt some critical parts or sub-assemblies of such vehicles from basic customs duty and special additional duty subject to actual user condition. These parts would also enjoy a concessional CVD of 4 per cent.

159. The humble cycle rickshaw is now being acclaimed as an environment-friendly means of transport. CSIR has developed an innovative product called 'soleckshaw' to replace manually-operated rickshaws. It runs on batteries which are charged by solar power. I propose to provide a concessional excise duty of 4 per cent to this product. Its key parts and components are also being exempted from customs duty.

160. To encourage the use of bio-degradable materials, I propose to exempt the import of compostable polymer from basic customs duty.

Infrastructure

161. Strengthening the public transport system is another means of reducing dependence on fossil fuels. I propose to grant project import status to 'Monorail projects for urban transport' at a concessional basic duty of 5 per cent.

162. Full exemption from import duty is available to specified machinery for road construction projects on the condition that the machinery shall not be sold or disposed of for a minimum period of five years. In view of representations that this leads to idling of machinery, I propose to allow resale of such machinery on payment of import duty at depreciated value. It is also being clarified that the importer is free to relocate such machinery to other eligible road construction projects.

163. With the subscriber base growing at 14 million per month, India is one of the fastest growing markets for mobile phone connections in the world. Domestic production of mobile phones is now picking up in view of exemptions from basic, CVD and special additional duties granted to their parts, components and accessories. To encourage the domestic manufacture of accessories, these exemptions are now being extended to parts of battery chargers and hands-free headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, 2011.

Medical Sector

164. Medical equipment, instruments and appliances are subjected to a very complex import duty regime based on several long lists that describe individual items. Multiple rates coupled with descriptions not aligned with tariff lines, result in disputes and at times prevent state-of-art equipment from getting the benefit of exemption. I propose to prescribe a uniform, concessional basic duty of 5 per cent, CVD of 4 per cent with full exemption from special additional duty on all medical equipment. A concessional basic duty of 5 per cent is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty. Full exemption currently available to medical equipment and devices such as assistive devices, rehabilitation aids etc. is being retained. The concession available to Government hospitals or hospitals set up under a statute is also being retained.

165. The manufacturers of orthopaedic implants have represented that their inputs attract a higher rate of duty than the finished product. I propose to exempt specified inputs for the manufacture of such implants from import duty.

Infotainment

166. India is a nation of movie-goers. The film industry has been experiencing difficulties in importing digital masters of films for duplication or distribution loaded on electronic medium vis-a-vis those imported on cinematographic film, owing to a differential customs duty structure. I propose to rationalise this by charging customs duty only on the value of the carrier medium. The same dispensation would apply to music and gaming software imported for duplication. In keeping with the tradition of Indian cinema, however, I shall provide a surprise ending. In all such cases the value representing the transfer of intellectual rights would be subjected to service tax.

167. Cable transmission of infotainment is undergoing a transformation with the adoption of digital technology. The multi-service operators need to invest in "Digital Head End" equipment. To enable this, I propose to provide project import status at a concessional customs duty of 5 per cent with full exemption from special additional duty to the initial setting up of such projects.

Precious Metals

168. The prices of precious metals continue to rise. Since the customs duty is levied on these at specific rates, I propose to index the rates as follows:

• On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams.

• On silver from Rs.1,000 per kg to Rs.1,500 per kg.

169. Gems and jewellery is a traditional item in our export basket. Rhodium - a precious metal used for polishing jewellery attracts a basic customs duty of 10 per cent. This is being reduced to 2 per cent.

170. To encourage domestic refining capacity for gold, I propose to reduce the basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs.140 per 10 grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made from such ore or concentrate is being reduced from 8 per cent to a specific duty of Rs.280 per 10 grams.

Other Proposals

171. Full exemption from import duty is available to specified inputs or raw materials required for the manufacture of sports goods which are assuming importance as an item of export. This is being expanded to cover a few more items.

172. In order to incentivise the domestic production of microwave ovens, I propose to reduce the basic customs duty on one of its key components, namely magnetrons from 10 per cent to 5 per cent.

173. Presently, there is a value limit of Rs.1 lakh per annum on duty-free import of commercial samples as personal baggage. I propose to enhance this limit to Rs.3 lakh per annum.

174. Industry has represented that the exemption from special additional duty of 4 per cent based on refunds leads to substantial blockage of funds. To ease this difficulty, I propose to provide an outright exemption from special additional duty to goods imported in a pre-packaged form for retail sale. This would also cover mobile phones, watches and ready-made garments even when they are not imported in pre-packaged form. The refund-based exemption is also being retained for cases not covered by the new dispensation.

175. Toy balloons are a source of joy to millions of children. To bring a smile to their mothers' faces, I propose to fully exempt them from Central Excise duty.

176. Some of the other relief measures that I propose are as under:

• Reduction in basic customs duty on long pepper from 70 per cent to 30 per cent;

• Reduction in basic customs duty on asafoetida from 30 per cent to 20 per cent;

• Reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology to 4 per cent;

• Reduction in central excise duty on corrugated boxes and cartons from 8 per cent to 4 per cent;

• Reduction in central excise duty on latex rubber thread from 8 per cent to 4 per cent; and

• Reduction in excise duty on goods covered under the Medicinal and Toilet Preparations Act from 16 per cent to 10 per cent.

177. My proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs.43,500 crore for the year.

Service Tax

178. The service sector contributes nearly 60 per cent of the GDP. The service tax to GDP ratio however, is only around 1 per cent. This sector thus, has significant potential to augment revenue.

179. To bridge this gap, I had the option to raise the rate of service tax to 12 per cent as it was before I introduced the third stimulus package. I am not resorting to this option to maintain the growth momentum and also to bring about a convergence in the rates of tax on goods and services. I, therefore, propose to retain the rate of tax on services at 10 per cent to pave the way forward for GST.

180. I had another option - to bring all services under service tax. I am not opting for this either at this stage. I propose, however, to bring certain services, hitherto untaxed, within the purview of the service tax levy. These are being notified separately.

181. I am also proposing certain legislative changes to plug revenue leakages, to remove distortions and to clarify certain doubts that have arisen over a period of time. I do not want to waste the precious time of the House elaborating the details, as they are available in the Finance Bill and other Budget documents.

182. Export of services, especially in the area of Information Technology and Business Process Outsourcing, generates substantial employment and brings in foreign exchange. I propose to ease the process of refund of accumulated credit to exporters of services by making necessary changes in the definition of export of services and procedures.

183. Accredited news agencies which provide news feed online attract service tax. Acknowledging the yeoman services of such news agencies in disseminating news, I propose to exempt such news agencies that meet certain criteria, from service tax.

184. My proposals relating to service tax are estimated to result in a net revenue gain of Rs.3,000 crore for the year.

185. Copies of notifications giving effect to the changes in customs, central excise and service tax will be laid on the Table of the House in due course.

186. My proposals on Direct Taxes are estimated to result in a revenue loss of Rs.26,000 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of Rs.46,500 crore for the year. Taking into account the concessions being given in my tax proposals and measures taken to mobilise additional resources, the net revenue gain is estimated to be Rs.20,500 crore for the year.

187. We have emerged from the global slowdown faster than any other nation. I did not hesitate in exercising my judgement on the course of action last year and I have no hesitation in my mind now. Our actions today will determine our tomorrow.

188. This Budget belongs to 'Aam Aadmi'. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. I have placed my faith in the hands of the people who, I know, can be depended upon to rise to any occasion in national interest. I have placed my faith in the collective conscience of the nation that can be touched to scale undreamt of heights in the coming years.

189. Madam Speaker, with these words I commend the Budget to the House.

Genral Budget

2009-10-21T23:06:00.001+05:30

Mr. Speaker, Sir,

I rise to present the Interim Budget for 2009-10.

2. Five years ago the people of India had voted for change. In the words of our Prime Minister, Dr. Manmohan Singh, people had sought “a change in the manner in which this country is run, a change in the national priorities and a change in the processes and focus of the Government”. The Common Minimum Programme of the United Progressive Alliance, built around ‘Aam Aadmi’, was a response to this call for change. As indicated by Shri P. Chidambaram in July 2004, this programme spelt out seven clear economic objectives:

(i) maintaining a growth rate of 7-8 per cent per year for a sustained period;

(ii) providing universal access to quality basic education and health;

(iii) generating gainful employment and promoting investment;

(iv) assuring hundred days of employment to the breadwinner in each family at the minimum wage;

(v) focusing on agriculture, rural development and infrastructure;

(vi) accelerating fiscal consolidation and reform; and

(vii) ensuring higher and more efficient fiscal devolution.

3. As I present the sixth budget of the Government of the United Progressive Alliance which completes its tenure in a couple of months, I can say with confidence that every effort has been made by the government to deliver on the commitments made.

4. For the first four years of the UPA government, our policies ensured a dream run for the economy with Gross Domestic Product (GDP) recording increase of 7.5 per cent, 9.5 per cent, 9.7 per cent and 9 per cent from fiscal year 2004-05 to 2007-08. For the first time, the Indian economy showed sustained growth of over 9 per cent for three consecutive years. With per capita income growing at 7.4 per cent per annum, this represented the fastest ever improvement in living standards over a four year period.

5. During this period, the fiscal deficit came down from 4.5 per cent in 2003-04 to 2.7 per cent in 2007-08 and the revenue deficit declined from 3.6 per cent to 1.1 per cent.

6. Investment and savings showed significant improvement. The domestic investment rate as a proportion of GDP increased from 27.6 per cent in 2003-04 to over 39 per cent in 2007-08. The gross domestic savings rate shot up from 29.8 per cent to 37.7 per cent during this period. The gross capital formation in agriculture as a proportion of agriculture GDP improved from 11.1 per cent in 2003-04 to 14.2 per cent in 2007-08.

7. The buoyant growth of Government revenues facilitated fiscal consolidation as mandated in the FRBM Act. The tax to GDP ratio increased from 9.2 per cent in 2003-04 to 12.5 per cent in 2007-08 bringing us within striking distance of the target for fiscal correction. This also enhanced our capacity to raise resources internally to finance our growth at the rate of 9 per cent per annum during the Eleventh Five Year Plan.

8. All this would not have been possible without the guidance
of UPA Chairperson, Smt. Sonia Gandhi, the inspiring leadership of Prime Minister, Dr. Manmohan Singh and the hard work put in by my predecessor, Shri P. Chidambaram.

Mr. Speaker, Sir,

9. The growth drivers for this period were agriculture, services, manufacturing along with trade and construction. Hon’ble Members will agree with me that the real heroes of India’s success story were our farmers. Through their hard work, they ensured “food security” for the country. With record procurement of 22.7 million tonnes of wheat and 28.5 million tonnes of rice for our Public Distribution System in 2008, our granaries are full. During this four year period, the annual growth rate of agriculture rose to 3.7 per cent. The production of foodgrains increased by about 10 million tonnes each year to reach an all time high of over 230 million tonnes in 2007-08. Despite a high base, the outlook for 2008-09 is encouraging with the country receiving normal rainfall during the agricultural season. Manufacturing, registered as well as unregistered, recorded a growth of 9.5 per cent per annum in the period 2004-05 to 2007-08. Similarly, communication and construction sectors grew at the rate of 26 per cent and 13.5 per cent per annum, respectively.

10. Though our growth is based largely on domestic efforts, foreign trade and capital inflows played a catalytic role. India’s exports grew at an annual average growth rate of 26.4 per cent in US dollar terms during this period. Foreign trade increased from 23.7 per cent of GDP in 2003-04 to 35.5 per cent in 2007-08. The conscious policy to gradually integrate the Indian economy with the world, opened new opportunities for Indian corporates to build world scale plants and aim at global competitiveness.

11. In order to maintain a high GDP growth rate on a sustained basis with price stability, the Indian economy had to face two inter-related macro-economic challenges. These relate to capital inflows and global inflation. Profitable investment opportunities generated by high GDP growth attract foreign capital. In 2007-08, capital inflows spurted to an unprecedented 9 per cent of GDP, far in excess of current account financing requirements leading to large accumulation of reserves and build up of pressure on prices.

12. During 2008-09, international prices of many essential commodities particularly fuel oils, food and edible oils and metals rose to alarming levels. To cite just one example, the price of crude oil which was US $ 28 per barrel in 2003-04 shot up to US $ 147 per barrel in 2008. The sharp rise in global inflation, even with a moderated pass-through, put pressure on domestic prices. The WPI headline inflation shot up to nearly 13 per cent in the first week of August 2008. To ease supply side constraints, Government took a series of fiscal and administrative measures, in concert with monetary policy measures by the Reserve Bank of India. RBI raised the interest rates to mop up excess liquidity. This, in turn, had implications for the growth rate from the demand as well as supply side. These, along with easing of global price pressures, led to a decline in domestic prices with inflation rate falling to 4.4 per cent on January 31, 2009. We have weathered the crisis, but there is no room for complacency.

Outlook for the year 2008-09

Mr. Speaker, Sir, I now turn to the outlook for the current year and the events that have impacted its prospects.

13. The global financial crisis which began in 2007 took a turn for the worse in September 2008 with the collapse of several international financial institutions, including investment banks, mortgage lenders and insurance companies. There has been a severe choking of credit since then and a global crash in stock markets. The slowdown intensified with the US, Europe and Japan sliding into recession. Current indications of the global situation are not encouraging. Forecasts indicate that the World economy in 2009 may fare worse than in 2008.

14. A crisis of such magnitude in developed countries is bound to have an impact around the world. Most emerging market economies have slowed down significantly. India too has been affected. For the first nine months of the current year, the growth rate of exports has come down to 17.1 per cent. According to the latest figures available, the industrial production has fallen by 2 per cent year-on-year basis in December 2008. In these difficult times, when most economies are struggling to stay afloat, a healthy 7.1 per cent rate of GDP growth still makes India the second fastest growing economy in the world.

15. To counter the negative fallout of the global slowdown on the Indian economy, our Government took prompt action by providing substantial fiscal stimulus. The two packages announced on December 7, 2008 and January 2, 2009, provide tax relief to boost demand and aim at increasing expenditure on public projects to create employment and public assets. In this context, the Government renewed its efforts to increase infrastructure investments. In the period from August 2008 to January 2009 alone, the Government accorded approval for 37 infrastructure projects worth Rs.70 thousand crore.

16. In addition to expanding public sector investment in infrastructure, our Government has also taken steps to encourage private investment in infrastructure through Public Private Partnership (PPP). I am happy to say that the Government of India has been successful in attracting private investment in infrastructure sectors such as telecommunications, power generation, airports, ports, roads and railways. Under the PPP mode, 54 Central Sector infrastructure projects with a total project cost of Rs.67 thousand seven hundred crore have been given in-principle or final approval by the PPP Appraisal Committee and 23 projects amounting to Rs.27 thousand nine hundred crore have been approved for viability gap funding in 2008-09.

17. To ensure that such projects do not face financing difficulties arising from the current downturn, we have taken a new initiative for providing refinance to the banks for long term credit extended to these projects. Accordingly, the Government has decided that India Infrastructure Finance Company Ltd. (IIFCL) will refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next eighteen months or so. For this purpose, IIFCL has been authorized to raise Rs.10 thousand crore in the market by the end of March 2009. An additional Rs.30 thousand crore can be raised if required. With this, IIFCL and banks will be able to support projects involving a total investment of Rs.100 thousand crore in infrastructure. Combined with the steps we are taking to increase public investment in infrastructure, this will provide a big boost to such investment.

18. The RBI took a number of monetary easing and liquidity enhancing measures including reduction in cash reserve ratio, statutory liquidity ratio and key policy rates. The objective was to facilitate flow of funds from the financial system to meet the needs of productive sectors. Our Government has also announced specific measures to address the impact of global slowdown on India’s exports. These include extension of export credit for labour intensive exports, improving the pre and post shipment credit availability, additional allocations for refund of Terminal Excise Duty/CST and export incentive schemes, and removal of export duty and export ban on certain items. A Committee of Secretaries has been set up to address, on continuing basis, procedural problems being faced by exporters.

Mr. Speaker, Sir,

19. The favorable economic environment created by the reforms of 1990’s gradually inspired the confidence of foreign investors in our economy, leading to rise in capital inflows. India has evolved a liberal and transparent policy for Foreign Direct Investment (FDI). Except for a small negative list, FDI is allowed mostly on the automatic route. During 2007-08, we received a record US $ 32.4 billion of FDI. In spite of global financial crisis, inward FDI flows during April-November 2008 were US$ 23.3 billion, representing a growth of 45 per cent over the same period in 2007. Latest figures show a slow down. To provide an impetus to foreign investment in India, guidelines are being further simplified and made homogenous and consistent across various sectors.

20. Extraordinary economic circumstances merit extraordinary measures. Now is the time for such measures. Our Government decided to relax the FRBM targets, in order to provide much needed demand boost to counter the situation created by the global financial meltdown. Indeed, depending on the response of the domestic economy and the revival of the global economy, there may be a need to consider additional fiscal measures when the regular budget is presented by the new Government after the elections. However, the medium term objective must be to revert to the path of fiscal consolidation at the earliest. The Thirteenth Finance Commission has been asked to lay down the roadmap in this regard. The new Government will have to address it in the light of future developments in the domestic and international economic environment.

21. The recent developments have also brought out the need for accelerating the pace of policy reforms, including in the financial sector, to make the economy more competitive. The economic regulatory and oversight systems have to be made more efficient and effective to bring the economy back to the 9 per cent growth path at the earliest.

22. We also have to take note of Prof. Amartya Sen’s observation and I quote “along with old slogan of ‘growth with equity’, we also need a new commitment towards ‘down turn with security’, given the fact that occasional downturns are common - possibly inescapable - in market economies” unquote. Employment generation schemes have to be expanded and social security nets have to be strengthened to protect the vulnerable sections of our society.

Mr. Speaker, Sir,

23. Let me now briefly review the progress in some important areas.

Initiatives and Achievements

24. UPA Chairperson, Smt. Sonia Gandhi had said “To be equitable, economic growth has to be sustainable. To be sustainable, economic growth has in turn to be all inclusive. All inclusive is no longer the greatest good of the greatest number. It is actually Sarvoday or the rise of all”. In pursuance of that vision, the UPA Government in the National Common Minimum Programme had declared its intention to make growth more inclusive. The Eleventh Five Year Plan provides a comprehensive framework and strategy for making growth both faster and more inclusive. Impressive growth rates and buoyant revenues gave us the head room to fund ambitious programmes to achieve these objectives.

Agriculture

25. Never losing sight of our commitment to the welfare of Aam Aadmi and recognizing that 60 per cent of our population lives in villages, focused attention has been given by our Government to the agriculture sector:

(i) In the period between 2003-04 and 2008-09, our Government increased the plan allocation for agriculture by 300 per cent.

(ii) The Rashtriya Krishi Vikas Yojana was launched in 2007-08 with an outlay of Rs.25 thousand crore, to increase growth rate of agriculture and allied sector to four per cent per annum during the Eleventh Plan period. The scheme has encouraged State Governments to take initiatives to develop the agricultural sector.

(iii) On June 18, 2004 our Government had announced a package for doubling the flow of credit to agriculture. The credit disbursements have already gone up from Rs.87 thousand crore in 2003-04 to about Rs.2.5 lakh crore in 2007-08 marking a three fold increase. To strengthen the short-term co-operative credit structure, the Government is implementing a revival package in 25 States involving a financial assistance of around Rs.13 thousand five hundred crore. Government will continue to provide interest subvention in 2009-10 to ensure that farmers get short term crop loans upto Rs.3 lakhs at 7 per cent per annum.

(iv) The Agricultural Debt Waiver and Debt Relief Scheme for farmers, announced in the last budget speech, was implemented by June 30, 2008 as scheduled. The Scheme has been able to restore institutional credit to indebted farmers. As per early reports, the total debt waiver and debt relief so far, amounts to Rs.65 thousand three hundred crore covering 3.6 crore farmers.

(v) Our Government is committed to ensuring “food security” in the country and meeting the food requirement of the poor under the Targeted Public Distribution System (TPDS). In spite of higher procurement costs and higher international prices during the last five years, the central issue prices under the TPDS have been maintained at the level of July 2000 in case of Below Poverty Line (BPL) and Antyodaya Anna Yojana (AAY) categories and at July 2002 levels for Above Poverty Line (APL) category.

(vi) Our Government has ensured remunerative prices for the farmers for their crops. Since 2003-04, Minimum Support Price (MSP) for the common variety of paddy was increased from Rs.550 to Rs.900 per quintal for the crop year 2008-09. In case of wheat the increase was from Rs.630 in 2003-04 to Rs.1,080 per quintal for the year 2009.

Rural Development

26. Our Government has accorded highest priority to rural development. A number of programmes have been designed to help improve the living conditions of rural population.

(i) The Rural Infrastructure Development Fund (RIDF) is the main instrument to channelize bank funds for financing rural infrastructure. It is popular among State Governments. The corpus of RIDF was increased from Rs.5,500 crore in 2003-04 to Rs.14 thousand crore for the year 2008-09 ensuring greater availability of funds for its activities. A separate window for rural roads was created under RIDF with a corpus of Rs.4 thousand crore for each of the last three years.

(ii) Given the importance accorded to housing for the weaker sections in rural areas, 60 lakh houses were to be constructed under the Indira Awaas Yojana by 2008-09. In the period between 2005-06 and December 2008, 60.12 lakh houses have already been constructed.

(iii) Panchayat Empowerment and Accountability Scheme (PEAIS) is an existing scheme under the central sector plan which has been recognized as a powerful instrument to incentivise States to empower the Panchayats and put in place accountability systems to make their functioning transparent and efficient. Acknowledging the need to build in incentives for encouraging States to devolve funds, functions and functionaries and set up an institutional framework for such devolution, the Government proposes to substantially expand the scheme by making suitable allocations.

(iv) The Department of Posts has launched “Project Arrow” to revitalize its core operations and to provide new technology enabled service to the common man. So far this has been successfully implemented in 500 post offices in the country. This Project will receive full government support as it will enhance the services offered to masses and would also lay the foundation for a vibrant delivery mechanism for many social sector schemes such as pension and National Rural Employment Guarantee Scheme (NREGS).

Mr. Speaker, Sir,

Education

27. It has been said that literacy levels are a measure of a nation’s degree of commitment to social justice. A literate environment is essential for ensuring universal elementary education, reducing child mortality, curbing population growth, ensuring gender equality and acquiring essential livelihood skills:

(i) The year 2008-09 was a momentous year for secondary education when several major initiatives, including a new Centrally Sponsored Scheme to universalise education at secondary stage was launched.

(ii) Higher education is of vital importance for the country in consolidating its comparative advantage in skill and knowledge intensive services and in building a knowledge based society. Our Government has taken a decisive initiative in this direction. The outlay on Higher Education has been increased 900 per cent in the Eleventh Five Year Plan. An Ordinance has been promulgated for establishing 15 Central Universities. Six new Indian Institutes of Technology (IIT) have started functioning in Bihar, Andhra Pradesh, Rajasthan, Orissa, Punjab and Gujarat during 2008-09. Two more IITs in Madhya Pradesh and Himachal Pradesh are expected to commence their academic sessions in 2009-10. With the commencement of academic sessions in the Indian Institutes of Science Education and Research (IISERs) at Bhopal and Thiruvananthapuram, all 5 IISERs announced earlier are now functional. Two new schools of Planning and Architecture at Vijayawada and Bhopal have already started functioning. Teaching is expected to commence in four of the six new Indian Institutes of Management, proposed for the Eleventh Plan period, from the academic year 2009-10. These are in Haryana, Rajasthan, Jharkhand and Tamil Nadu.

(iii) The UPA Government has revised the Educational Loan Scheme, as a result of which the number of loan accounts has increased by more than four times during the period March 31, 2004 to September 30, 2008 from 3.19 lakhs to 14.09 lakhs. The loan outstanding during this period has increased from Rs.4 thousand five hundred crore as on March 31, 2004 to Rs.24 thousand two hundred and sixty crore as on September 30, 2008.

(iv) Following our announcement in 2004-05, nearly 500 ITIs have been upgraded into centres of excellence. As an integral part of the coordinated action plan for skill development, the Government created the National Skill Development Corporation in July 2008 with an initial corpus of Rs.1 thousand crore to stimulate and coordinate private sector participation in skill development.

Mr. Speaker, Sir,

28. I now turn to the social sector.

Social Sector

29. The UPA Government has launched many new schemes to provide steady monetary assistance to weak and downtrodden people of our society. Emphasis has also been given to the empowerment of women which has been an abiding objective of the UPA Government. I give some details of the important schemes:

(i) To further strengthen social and economic inclusion of minority communities, the new Ministry of Minority Affairs has been set up. Our Government has announced the Prime Minister's 15-point programme for the welfare of the minorities. Adequate allocations are being made to support this initiative.

(ii) The Scheduled Tribes and other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, which was notified for operation with effect from December 31, 2007, has been widely welcomed by Scheduled Tribes and other traditional forest dwellers who now have legal rights on forest land which they have been cultivating or using over generations for eking out their livelihood.

(iii) The National Safai Karamchari Finance and Development Corporation (NSKFDC) has been mandated to provide loans at concessional rates for economic development of persons engaged in unclean occupations. The authorized capital of this organization is being raised from Rs.200 crore to Rs.300 crore to enable it to effectively carry out its mandate. The scope of the pre-matric scholarship for children of those engaged in unclean occupations has been expanded and the rates of scholarships have been doubled in 2008-09. The annual ad hoc grant has also been substantially increased by almost 50 per cent as compared to the earlier rates.

(iv) Efforts of our Government and the financing institutions have led to a rapid growth of credit linked Women Self Help Groups which are now over 29 lakh in number. In this context, the Rashtriya Mahila Kosh will be strengthened by enhancing its authorized capital.

(v) In December 2008, ‘Priyadarshini Project’, which is a rural women’s empowerment and livelihood programme, was launched in U.P. with the assistance of IFAD. The project will be implemented as a pilot in the district of Madhubani and Sitamarhi in Bihar and Shravasti, Bahraich, Rai Bareli and Sultanpur in U.P.

(vi) A revised and modified scheme named ‘Indira Gandhi National Old Age Pension Scheme’ was launched on November 19, 2007. This scheme covers all persons aged 65 years and above belonging to BPL households. So far 146 lakh persons have benefited from this scheme during the current financial year.

(vii) Two new schemes - Indira Gandhi National Widow Pension Scheme and Indira Gandhi National Disability Pension Scheme - are being launched in the current year. The Indira Gandhi National Widow Pension Scheme will provide pension of Rs.200 to widows between the age groups of 40-64 years. The Indira Gandhi National Disability Pension Scheme aims to provide pension to severely disabled persons.

(viii) In order to empower young widows in the age group 18-40 and equip them to stand on their own feet, I propose to give them priority in admissions to ITIs, Women ITIs and National/Regional ITIs for Women. Government will bear the cost of their training and provide stipend of Rs.500 per month.

(ix) The Government launched Rashtriya Swasthya Bima Yojana for BPL families in the unorganized sector on October 1, 2007. Up to January 15, 2009, 22 States and Union Territories have initiated the process to implement the scheme. The Government of India also launched the Aam Aadmi Bima Yojana (AABY) on October 2, 2007. The AABY is a Scheme for death and disability cover of rural landless in the country in conjunction with the State Governments. Upto December 31, 2008, the Scheme has covered 60.32 lakh lives.

Mr. Speaker, Sir,

Public Sector Enterprises

30. We have created a strong public sector which has evolved in response to the nation’s needs and provided stability to our development efforts. When the UPA Government took charge, the turnover of Central Public Sector Enterprises (CPSEs) in 2003-04 was Rs.5 lakh 87 thousand crore which has grown by 84 per cent to Rs.10 lakh 81 thousand crore in 2007-08. During the same period, profits of CPSEs have increased by 72 per cent from Rs.53 thousand crore to Rs.91 thousand crore and their contribution to the Central Exchequer by way of dividend, interest and taxes and duties has recorded an increase of 86 per cent. The number of loss making enterprises has come down from 73 in 2003-04 to 55 in 2007-08 and the number of profit making enterprises has gone up from 143 to 158 during the same period.

31. In order to maintain ethics and probity in the functioning of CPSEs, the Government approved the implementation of Guidelines on Corporate Governance in CPSEs in June, 2007.

32. In November 2007, Government constituted the National Investment Fund into which the proceeds from disinvestment of Government equity in Central Public Sector Enterprises (CPSEs) are deposited. Three-quarters of annual income of the Fund will be used to finance select social sector schemes which promote education, health and employment. The residual 25 per cent annual income of the Fund will be used to meet the capital investment requirements of profitable and revivable CPSEs. As on December 31, 2008, the corpus of the Fund was about Rs.1815 crore.

Financial Sector Reforms

33. Over past years, technological, institutional and legal reforms in the financial sector have resulted in Public Sector Banks achieving significant improvement in their financial health. The asset quality has improved and NPAs have declined considerably from 7.8 per cent on March 31, 2004 to 2.3 per cent on March 31, 2008.

34. In the case of Regional Rural Banks (RRBs), a process of amalgamation and recapitalization of those with negative networth has been initiated. Over the last four years, 196 RRBs have been merged into 85 RRBs. The Central Government has contributed Rs.652 crore for the capitalization of RRBs upto December 31, 2008.

35. The UPA Government has undertaken a number of reforms in the last four years to deepen and widen the Securities markets and strengthen the regulatory mechanisms for these markets. The initiatives include reforms in the corporate bond market, participation of foreign institutional investors, foreign investment in stock exchanges, setting up of a dedicated training and research institute in the securities market, making PAN the sole identification number, streamlining the process and grading of initial public offering etc. Systems and practices have been put in place to promote a safe, transparent and efficient market and to protect market integrity.

36. The Government undertook a comprehensive revision of the Companies Act, 1956 to make it a compact law that, while responding to the changes in the business environment, would enable adoption of internationally accepted best practices. The Companies Bill, 2008 based on this exercise, has been introduced in Parliament.

Mr. Speaker, Sir,

Tax effort

37. In the days of financial stress, tax rates must fall and our ability to pay taxes must rise. Therefore, our Government undertook comprehensive reforms of the tax system, both the direct and the indirect tax system, with a view to improving its efficiency and equity. Distortions within the tax structure have been reduced by expanding the tax base and moderating the tax rates. The personal income-tax rates have been rationalized by increasing the threshold limit and adjusting the tax slabs to provide relief to taxpayers. Similarly, Customs Duty rates have been steadily reduced to eliminate the bias against the export sector and promote competition and efficiency in the manufacturing sector. The rates of Union Excise Duties and Service Tax have also been rationalized to enable eventual shift to the Goods and Services Tax on April 1, 2010. The Government also facilitated the introduction of the State level VAT in April 2005.

38. These structural changes were also supported by undertaking modernisation of the business processes of the tax administration through extensive use of information technology, viz., e-filing of returns, e-payment of taxes, issue of refunds through ECS and refund bankers, computer assisted selection of returns for scrutiny, establishing taxpayer information system and a computerised tax payment reporting system. These measures have enabled the tax administration to enhance its functional efficiency and provide better taxpayer service leading to increased compliance levels. To prevent movement of contraband goods across the country’s sea borders, the Government has sanctioned acquisition of 109 marine vessels for the Customs Department.

Administrative Reforms

39. The Government set up the second Administrative Reforms Commission in August 2005 with a mandate to suggest measures to achieve a proactive, responsive, accountable, sustainable and efficient administration for the country at all levels of the government. The Commission has brought out number of reports with practical recommendations, providing a starting point for improving efficiency in the delivery of public services. The enactment of the Right to Information Act in 2005 at the Centre and in many States has bridged a critical gap in the public decision-making process, ushering in greater accountability of the public servants.

40. The Sixth Central Pay Commission submitted its recommendations in March, 2008. Government considered and improved upon the recommendations of the Sixth Central Pay Commission. This has benefited over 45 lakh Central Government employees including Defence Forces and Para Military forces and over 38 lakh pensioners. It is my hope that this will not only improve the quality of administration but will also help the economy by supporting demand.

Revised Estimates 2008-09

41. Mr. Speaker, Sir, I shall now briefly go over the Revised Estimates for 2008-09.

42. The Budget Estimate for 2008-09 had placed the total expenditure at Rs.7,50,884 crore. This has now been revised to Rs.900,953 crore, showing an increase of Rs.1,50,069 crore.

43. Plan Expenditure for 2008-09 was placed at Rs.2,43,386 crore in the Budget Estimate. It has now gone up to Rs.2,82,957 crore in the Revised Estimate. The additional plan spending of Rs.39,571 crore is on account of an increase in Central Plan by Rs.24,174 crore and an increase of Rs.15,397 crore in the Central Assistance to State and UT Plans. The Central Plan expenditure has increased for Rural Development, Atomic Energy, Telecommunications, Textiles, Urban Development, Youth Affairs and Sports and Railways. The increase in Central Assistance for State and UT Plans is on account of additional Central Assistance for Externally Aided Projects, Accelerated Irrigation Benefit Programme, Roads and Bridges, National Social Assistance Programme, Jawaharlal Nehru National Urban Renewal Mission and Tsunami Rehabilitation.

44. On the Non-Plan side, the additionality of Rs.1,10,498 crore in the Revised Estimates is accounted for by an increase in the expenditure of Rs.44,863 crore on fertilizer subsidy, Rs.10,960 crore on food subsidy, Rs.15,000 crore on Agricultural Debt Waiver and Debt Relief Scheme, Rs.7,605 crore on Pensions, and Rs.5,149 crore on Police. An additional amount of Rs.9,000 crore has also been provided for Defence expenditure.

45. Non-Tax Revenues constitute an important component of our receipts. As against the Budget Estimates of Rs.95,785 crore for 2008-09, the Revised Estimates for the Non-Tax Revenues are Rs.96,203 crore.

46. In keeping with the recent trend, the actual tax collections during
2007-08 exceeded the Revised Estimates for 2007-08, both for Direct and Indirect Taxes. However, for 2008-09, the RE of tax collection is projected at Rs.6,27,949 crore as against the BE of Rs.6,87,715 crore. This shortfall is primarily on account of the Government's pro-active fiscal measures initiated to counter the impact of global slowdown on the Indian economy. A substantial relief of about Rs.40,000 crore has been extended through tax cuts, including a fairly steep across the board reduction in Central Excise rates in December, 2008. Despite this, it is expected that the tax collection in 2008-09 would exceed last year’s collection.

47. Taking into account the variations in receipts and expenditure, the current year is expected to end with a Revenue Deficit of Rs.2,41,273 crore as against the budgeted figure of Rs.55,184 crore. Accordingly, the revised Revenue Deficit stands at 4.4 per cent of GDP instead of 1.0 per cent in the Budget Estimates. Similarly, the fiscal deficit for 2008-09 has gone up from Rs.1,33,287 crore in the BE to Rs.3,26,515 crore in the RE. The revised fiscal deficit is estimated at 6 per cent of the GDP as against the budgeted figure of 2.5 per cent.

48. Constitutional propriety requires that new Government formulates the tax and expenditure policies for 2009-10. These policies, in the medium term perspective, would have to:

(a) pursue macro economic policies to sustain a growth rate of at least 9 per cent per annum over an extended period of time;

(b) strengthen the mechanisms for inclusive growth for creating about 12 million new work opportunities per annum;

(c) reduce the proportion of people living below poverty line to less than half from current levels by 2014;

(d) ensure that Indian agriculture continues to grow at annual rate of at least 4 per cent;

(e) bridge the infrastructure gap by increasing the investment in infrastructure to more than 9 per cent of GDP by 2014;

(f) support Indian industry to meet the challenge of global competition and sustain the growth momentum in exports;

(g) strengthen and improve the economic regulatory framework in the country;

(h) expand the range and reach of social safety nets by providing direct assistance to vulnerable sections and insulate them from dislocative effects of slowdown in economy;

(i) strengthen the delivery mechanism for primary health care facilities with a view to improve qualitatively the preventive and curative health care in the country;

(j) create a competitive, progressive and well regulated education system of global standards that meets the aspiration of all segments of the society; and

(k) move towards providing energy security to all by pursuing an Integrated Energy Policy.

49. The term of the UPA Government comes to an end in a few months. Therefore, I am presenting an Interim Budget for the purpose of Vote on Account to enable the Government to meet expenditure during the first four months of the next financial year.

Mr. Speaker, Sir,

50. Let me now turn to the Estimates for the Interim Budget 2009-10.

Budget Estimates 2009-10

51. I am proposing the total expenditure for fiscal 2009-10 at Rs.9,53,231 crore. This includes a provision of Rs.2,85,149 crore under plan and Rs.6,68,082 crore under non plan.

52. The plan allocation under various heads provided at this stage is limited to the provision at the BE stage last year, plus additional amounts on account of the two stimulus packages, which has been reflected in the Revised Estimates for 2008-09. It also reflects a modest increase in Central Assistance to the States to enable the States to complement their budgetary resources. The total Gross Budgetary Support (GBS) for the Plan at Rs.2,85,149 crore, is 17.16 per cent higher in nominal terms than the GBS Plan for BE 2008-09.

53. The budgetary support to the Plan for 2009-10, in comparison to BE 2008-09 has been increased for Department of Rural Development, Department of Road Transport and Highways, Railways, Ministry of Power, Department of Industrial Policy and Promotion and Department of Information Technology with a view to maintain the fiscal tempo to address the economic slowdown and meet the requirements of rural and infrastructure development. In addition, enhanced Plan allocations have been provided for Ministry of Youth Affairs and Sports and Ministry of Culture to ensure availability of adequate resources for the preparation towards hosting of the Commonwealth Games next year. I have ensured adequate allocations to our flagship programmes which directly impact Aam Aadmi:

(i) National Rural Employment Guarantee Scheme was launched in February 2006 and has now been extended to all the districts of the country. During the year 2008-09, employment of 138.76 crore person days, covering 3.51 crore households, has already been generated. The implementation of this programme has resulted in increased wage employment, enhanced wage earnings, improved equity with significant benefits flowing to SC/ST and women. This has also led to increased demand for and consumption of wage goods. I propose an allocation of Rs.30,100 crore for this Scheme for the year 2009-10.

(ii) Sarva Shiksha Abhiyan has made significant contribution in providing access to and infrastructure for elementary education. About 98 per cent of our habitations have been covered by primary schools and the focus now is to improve the quality of elementary education. Between 2003-04 and 2008-09, the allocation for this programme has been increased by 571 per cent. For the year 2009-10, I propose an allocation of Rs.13,100 crore for this programme.

(iii) The national programme of Mid-day Meals in schools is the world’s largest school feeding programme and has contributed to enhancement of school participation, reduction in class room hunger, and fostering of social and gender parity. I propose an allocation of Rs.8,000 crore to this Scheme for the year 2009-10.

(iv) In our Government’s efforts to universalize the Integrated Child Development Scheme (ICDS) in the country, it was expanded twice in the last five years to cover the hitherto uncovered habitations across the country. In our commitment to reduce the malnutrition levels in the country, the UPA Government has recently adopted the New WHO Child Growth Standards for monitoring growth of children under ICDS. I propose an allocation of Rs.6,705 crore for this Scheme for the year 2009-10.

(v) Jawaharlal Nehru National Urban Renewal Mission was launched to give focused attention to integrated development for urban infrastructure and services in mission mode, in identified cities. A major achievement of the UPA Government is development and extension of Mass Rapid Transport System (MRTS) in major cities like Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. Under Jawaharlal National Urban Renewal Mission, 386 projects amounting to Rs.39,000 crore have been sanctioned as of December 31, 2008. For the year 2009-10, I propose an allocation of Rs.11,842 crore for this programme.

(vi) Rajiv Gandhi Rural Drinking Water Mission is envisaged to supply safe drinking water to uncovered habitations and slipped back habitations. I propose an allocation of Rs.7,400 crore for this programme for the year 2009-10.

(vii) Total Rural Sanitation Programme is a continuous process. I propose an allocation of Rs.1,200 crore for this programme for the year 2009-10.

(viii) National Rural Health Mission aims to bring about uniformity in quality of preventive and curative healthcare in rural areas across the country. I propose an allocation of Rs.12,070 crore for this programme during the year 2009-10.

(ix) Bharat Nirman is a time bound plan for building rural infrastructure. It has six components namely, rural roads, telephony, irrigation, drinking water supply, housing and electrification. There has been all round progress in the implementation of this programme. During 2005-2009, the allocation to this programme has been increased by 261 per cent. For the year 2009-10, I propose an allocation of Rs.40,900 crore for this programme.

54. The UPA Government has been working on improving arrangements to ensure that development deliverables reach the intended beneficiaries. In order to do so efficiently, effectively and economically, a comprehensive system of Unique Identity for the resident population of the country has been worked out. The Unique Identification Authority of India is being established under the aegis of Planning Commission for which a notification has been issued in January 2009. A provision of Rs.100 crore has been made in the Annual Plan 2009-10 for this.

55. To ensure continuity in financing of rural infrastructure projects, I propose RIDF-XV with a corpus of Rs.14,000 crore and continuation of the separate window for rural roads with a corpus of Rs.4,000 crore.

56. To counter the negative impact on exports due to the global financial crisis, I propose to extend the interest subvention of 2 per cent on pre and post shipment credit for certain employment oriented sectors i.e. Textiles (including handloom & handicrafts), Carpets, Leather, Gem and Jewellery, Marine products and SMEs beyond March 31, 2009 till September 30, 2009. This is expected to involve an additional financial outgo of Rs.500 crore during Financial Year 2009-10.

57. Government would recapitalize the public sector banks over next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent and to ensure that credit growth continues to sustain economic growth.

58. While the proposed provisions are appropriate for a Vote-on-Account, I would like to point out that Plan expenditure for 2009-10 may have to be increased substantially at the time of the presentation of the regular Budget, if we are to give the economy the stimulus it needs to cope with the global recession that is likely to continue through the year. In the current environment, there is a clear need for contra-cyclical policy and it calls for a substantial increase in expenditure in infrastructure development where we have a large gap and in rural development where the programs such as Bharat Nirman and NREGS are playing a vital social role. Since the scope for revenue mobilization is bound to be limited in a period of economic slowdown, any increase in plan expenditure will increase the fiscal deficit. Indeed, we may have to consider additional plan expenditure of anything from 0.5 per cent to 1.0 per cent of the GDP and gear up our systems accordingly.

Mr. Speaker, Sir,

59. We are going through tough times. The Mumbai terror attacks have given an entirely new dimension to cross-border terrorism. A threshold has been crossed. Our security environment has deteriorated considerably. In this context, I propose to increase the allocation for Defence, which is a part of non plan expenditure to Rs.1,41,703 crore. This will include Rs.54,824 crore for capital expenditure. Needless to say, any additional requirement for the security of the nation will be provided for.

60. I am also making a provision of Rs.95,579 crore for major subsidies including food, fertilizer and petroleum.

61. For the fiscal 2009-10, Gross Tax Revenue receipts at the existing rates of taxation are estimated at Rs.6,71,293 crore and Centre’s net tax revenue at Rs.5,00,096 crore. With revenue expenditure estimated at Rs.8,48,085 crore, the revenue deficit amounts to 4.0 per cent of GDP. Fiscal Deficit is estimated at Rs.3,32,835 crore which is 5.5 per cent of GDP. This would be lower than in 2008-09, but higher than would be appropriate under normal circumstances. However, conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable. We will return to FRBM targets once the economy is restored to its recent trend growth path.

62. Honourable members are aware that the ceiling of fiscal deficit that the States can incur in 2008-09, in terms of the Debt Consolidation and Relief Facility set up under the Twelfth Finance Commission award has been increased by 0.5 per cent of the GSDP to 3.5 per cent. This may have to be reviewed in view of the response of the economy in the coming months.

Conclusion

63. India has arrived on the international economic scene. In the last five years, the Indian economy has grown at an impressive 8.6 per cent which is much faster than ever before. This growth has been more inclusive providing people expanded opportunities for livelihood. The creative energies of our farmers, entrepreneurs, businessmen, scientists, engineers and workers have been unleashed.

64. Increased global competitiveness of Indian enterprise, its resilience to global shocks, and a positive economic outlook has contributed to a marked change in the way the Indian economy is being viewed, within and outside the country.

65. The successful launch of Chandrayaan and the historic feat of placing the Indian tri-colour on Moon’s surface has made us members of a very select club of countries who have well developed space programmes.

66. India has made determined progress in finding its rightful place in the Comity of Nations with a credible voice that matters in the deliberations of the global political and economic order. We have succeeded in dismantling the nuclear apartheid that India was subjected to for more than three decades. This has opened up new opportunities for civil nuclear cooperation and cleared the pathways for rapid industrialization of our country.

67. For all this and more, I would like to express my deep gratitude to UPA partners and supporters who walked the extra mile with us in this journey.

68. Mr. Speaker, Sir, our people will soon be called upon to exercise their democratic right to choose the next Government. The Indian people have repeatedly shown that they can be relied upon to make sound decisions to secure the nation’s future. They have seen how the ‘Aam Aadmi’ has become the focus of the development process. They have also seen how our Government has successfully steered the country through difficult times. They have experienced the joy of being citizens of a proud nation moving ahead with confidence. I have no doubt that when the time comes, our people will recognize the hand that made it all possible. The hand that alone can help our nation on the road to peace and prosperity.

69. Sir, with these words, I commend the Interim Budget to the House.

budget speech 2008

2008-03-14T16:43:00.000+05:30

Mr. Speaker, Sir

I rise to present the Budget for 2008-09. This House and the United Progressive Alliance Government have bestowed upon me the honour of presenting all five Budgets on behalf of a Government - a rare honour that I have the privilege to share with only one of my distinguished predecessors, Dr. Manmohan Singh.

I. THE ECONOMY: AN OVERVIEW

2. Honourable Members! The India growth story, so far, has been an absorbing and inspiring tale. Beginning January 1, 2005, the economy has recorded a growth rate of over 8 per cent in 12 successive quarters up to December 31, 2007. In the first three years of the UPA Government, the Gross Domestic Product (GDP) increased by 7.5 per cent, 9.4 per cent and 9.6 per cent, resulting in an unprecedented average growth rate of 8.8 per cent. In the current year too, according to the Advance Estimates by the Central Statistical Organisation (CSO), the growth rate will be 8.7 per cent - although I am confident that we will maintain the average of 8.8 per cent. The drivers of growth continue to be "services" and "manufacturing", which are estimated to grow at 10.7 per cent and 9.4 per cent, respectively.

3. Nevertheless, 2007-08 has been the most challenging of the last four years. At the beginning of the year, the outlook for the global economy was benign. Our economy, thanks to our own policies as well as globalisation, was poised to record another year of high growth: in fact, the first half of 2007-08 returned a growth of 9.1 per cent. However, since August 2007, the financial markets in the developed countries have witnessed considerable turbulence that has not yet abated. The consequences for developing countries are also not yet clear.

4. Moreover, agriculture has struck a disappointing note. Despite a fine start in the first half of 2007-08, the growth rate for the whole year in agriculture is estimated at only 2.6 per cent.

5. There are other downside risks too. World prices of crude oil, commodities and food grains have risen sharply in the period April 2007 to January 2008. The position of crude oil is well known to this House. Among commodities, the prices of iron ore, copper, lead, tin, urea etc are elevated. The prices of wheat and rice have increased in the world market by 88 per cent and 15 per cent, respectively. All these trends are inflationary, and there is pressure on domestic prices, especially on the prices of food articles. Consequently, the management of the supply side of food articles will be the most crucial task in the ensuing year.

6. We have also witnessed capital inflows that are far in excess of the current account deficit. This poses a challenge to monetary management. The solution lies in increasing the absorptive capacity of the economy in the medium term. In the short term, it is our responsibility to manage the flows more actively. Government will, in consultation with the RBI, continue to monitor the situation closely and take such temporary measures as may be necessary to moderate the capital flows consistent with the objective of monetary and financial stability.

7. Keeping inflation under check is one of the cornerstones of our policy. Recently, the Prime Minister declared, "I think no Government in our country can be oblivious to the objective of ensuring reasonable price stability without hurting the growth process." There can be no clearer enunciation of policy. However, since the downside risks have increased worldwide, we must be vigilant and prepared to make swift adjustments in our policies to achieve the goal of growth with price stability.

8. Let me first deal with agriculture, briefly for the present, and at some length later. The Ministry of Agriculture has estimated that the total output of food grains in 2007-08 will be 219.32 million tonnes and that will be an all time record. In particular, production of rice is estimated at 94.08 million tonnes; maize at 16.78 million tonnes; soya bean at 9.45 million tonnes; and cotton at 23.38 million bales (of 170 kg each) - and each of these will be an all time record. Government is conscious that while a lot has been done, a lot more needs to be done. Since the last Budget, Government has formulated and announced the National Policy for Farmers. Besides, Government has launched the Rashtriya Krishi Vikas Yojana with an outlay of Rs.25,000 crore and the National Food Security Mission with an outlay of Rs.4,882 crore. Both schemes will be implemented during the Eleventh Five Year Plan period. We are determined to become self-sufficient in food grains. Presently, I shall place before this House a number of new initiatives in the agriculture sector.

The Growth Story: Faster and more inclusive

9. To return to the India growth story, I am of the firm belief that we owe our sustained progress to the policy of economic reforms first ushered in by a Congress Government and now carried forward by the UPA Government.

10. If 1984 and 1991 were turning points in the history of India's economy, 2004 was another turning point. Confident that high growth was sustainable, the UPA Government had declared in the National Common Minimum Programme its intention to make growth more inclusive. Sir, I ask this House, respectfully, to judge our record on inclusive growth from the following sample of facts:

• agricultural credit doubled in the first two years of this Government and is poised to reach a level of Rs.240,000 crore by March 2008.

• the National Rural Employment Guarantee Scheme has proved to be a historic measure of empowerment of Scheduled Castes and Scheduled Tribes and, especially, of women.

• the Mid Day Meal Scheme is the largest school lunch programme in the world covering 11.4 crore children.

• the National Rural Health Mission has taken improved health care to rural India by strengthening the primary health centres of which 8,756 have been made 24 x 7.

• the Kasturba Gandhi Balika Vidyalaya Scheme has enrolled 182,000 girls in residential schools, thus helping to bridge the gender gap in education.

Bharat Nirman

11. Bharat Nirman has made impressive progress in 2007-08. This ambitious programme is now over 1,000 days old. At the current pace, on each day of the year 290 habitations are provided with drinking water and 17 habitations are connected through an all weather road. On each day of the year 52 villages are provided with telephones and 42 villages are electrified. On each day of the year 4,113 rural houses are completed.

12. Mr. Speaker, just as I sat down to write this speech, I received a slim volume titled "Indira Gandhi - Selected Sayings". Within minutes, I found this gem and I quote, "The more one does, the more one attempts, the more one is capable of doing". What I have narrated so far is indeed proof of more inclusive growth, but if you ask me "can we do better?", my answer would be "we can and we should." Budget 2008-09 is about raising our sights and doing more and doing better.

II. THE ELEVENTH FIVE YEAR PLAN:

THE CRUCIAL SECOND YEAR

13. The Eleventh Plan has started on a note of robust growth. Never before did we start a Plan with a first year growth rate of 8.7 per cent. Government regards the second year of the Plan as extremely critical to the success of the Plan. 2008-09 should be a year of consolidation; of securing the ongoing programmes on firm financial foundations; of close monitoring of implementation and enforcing accountability; and of measuring the outcomes in terms of the targets achieved as well as their quality. The Plan documents assumed that the Gross Budgetary Support (GBS) in the second year would be Rs.228,725 crore. In our view, that will not be enough. Hence, I propose to increase the GBS to Rs.243,386 crore, which will represent an increase of Rs.38,286 crore over the allocation in 2007-08.

14. Out of the GBS, the allocation for the Central Plan will be Rs.179,954 crore, marking an increase of 16 per cent over 2007-08.

15. Let me assure the House that all ongoing programmes will receive ample funds.

16. For Bharat Nirman, I propose to provide Rs.31,280 crore [including the North Eastern Region (NER) component] as against Rs.24,603 crore in 2007-08.

Education: Sarva Shiksha Abhiyan

17. Education and health are the twin pillars on which rests the edifice of social sector reforms. The total allocation for the education sector (including NER) will be increased by 20 per cent from Rs.28,674 crore in 2007-08 to Rs.34,400 crore in 2008-09.

18. Of this, Sarva Shiksha Abhiyan (SSA) will be provided Rs.13,100 crore; the Mid-day Meal Scheme will be provided Rs.8,000 crore; and secondary education will be provided Rs.4,554 crore.

19. The focus of SSA will shift from access and infrastructure at the primary level to enhancing retention; improving quality of learning; and ensuring access to upper primary classes.

20. A Model School programme, with the aim of establishing 6,000 high quality model schools, will be started in 2008-09. I propose to provide Rs.650 crore for the new scheme.

Jawahar Navodaya Vidyalaya

21. Jawahar Navodaya Vidyalayas are quality schools. In order to make such schools more accessible to SC and ST students, Government plans to establish Navodaya Vidyalayas in 20 districts that have a large concentration of Scheduled Castes and Scheduled Tribes. I propose to set apart Rs.130 crore in 2008-09 for this purpose.

Kasturba Gandhi Balika Vidyalaya

22. Kasturba Gandhi Balika Vidyalayas were set up to address the issue of equity in the education of girls belonging to SC, ST, OBC and minority communities. So far, 1,754 vidyalayas have been started, and I propose to allocate funds (as part of SSA) to set up an additional 410 vidyalayas in educationally backward blocks. I also propose to provide a sum of Rs.80 crore to set up new or upgrade existing hostels attached to the Balika Vidyalayas.

National Means-cum-Merit Scholarship

23. Last year, I had announced the National Means-cum-Merit Scholarship Scheme to enable students to continue their education beyond class VIII and up to class XII. I had provided Rs.750 crore with the promise to add a like amount every year for three more years. The Scheme will be implemented by award of 100,000 scholarships beginning 2008-09. I intend to keep my promise and earmark another sum of Rs.750 crore so that a corpus of Rs.3,000 crore will be built up in four years.

Nehru Yuva Kendra

24. 123 districts do not have a Nehru Yuva Kendra. I propose to allocate Rs.10 crore in 2008-09 to set up a Kendra in each of these districts and to cover the recurring expenditure in the first year.

Mid-day Meal Scheme

25. The Mid-day Meal Scheme has been extended to upper primary classes in 3,479 educationally backward blocks. The scheme will now be extended to upper primary classes in Government and Government-aided schools in all blocks in the country. This will benefit an additional 2.5 crore children, taking the total number of children covered under the Scheme to 13.9 crore.

Institutes of Higher Education

26. Knowledge is power. It is knowledge that will drive success in the 21st century. India has the opportunity to become a knowledge society. Following the Prime Minister's announcement, an IIM at Shillong; three IISERs at Mohali, Pune and Kolkata; and an IIIT at Kanchipuram have started functioning. Government will establish one Central University in each of the hitherto uncovered States. We propose to make a beginning in 2008-09 by establishing 16 Central Universities. Besides, we propose to set up three IITs in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and Tiruvananthapuram; and two Schools of Planning and Architecture at Bhopal and Vijayawada. More institutes of higher education, as promised by the Prime Minister, will be established during the Eleventh Plan period.

27. I also propose to make a grant of Rs.5 crore to the Deccan College Post-Graduate and Research Institute, Pune which is one of the oldest institutions of modern learning in India.

Science and Technology

28. We must encourage our children to take to careers in science and research and development. Ministry of Science and Technology will introduce a scheme called Innovation in Science Pursuit for Inspired Research (INSPIRE) that will include scholarships for young learners (10-17 years), scholarships for continuing science education (17-22 years) and opportunities for research careers (22-32 years). I propose to provide Rs.85 crore in 2008-09 for this inspired contribution to building a knowledge society.

29. The recommendations of the National Knowledge Commission, submitted from time to time, are under active consideration. Some of them have been incorporated in the Eleventh Plan. Government has accepted an important recommendation to inter-connect all knowledge institutions through an electronic digital broadband network. This will encourage sharing of resources and collaborative research. I propose to provide Rs. 100 crore to the Ministry of Information and Technology for establishing the National Knowledge Network.

Health

30. Turning to the health sector, I propose to allocate Rs.16,534 crore for the sector (including NER). This will mark an increase of 15 per cent over the allocation in 2007-08.

National Rural Health Mission

31. The National Rural Health Mission (NRHM) is the key instrument of intervention by the Central Government. The goal is to establish a fully functional, community owned, decentralised health delivery system. 462,000 Associated Social Health Activists (ASHAs) and link workers have been trained and are in place. 177,924 Village Health and Sanitation Committees are functional. 323 district hospitals have been taken up for upgradation. Ambitious goals have been set for 2008-09, and I propose to increase the allocation for NRHM to Rs.12,050 crore .

HIV/AIDS

32. The National Aids Control Programme will be provided Rs.993 crore. Studies have shown that the prevalence rate of HIV/AIDS has come down from 0.9 per cent to 0.36 per cent, which is a matter of some satisfaction.

Polio

33. The drive to eradicate polio continues with a revised strategy and a focus on the high risk districts in Uttar Pradesh and Bihar. I propose to provide Rs.1,042 crore in 2008-09 for this purpose.

Rashtriya Swasthya Bima Yojana

34. Two major interventions are planned to be started in 2008-09. The first is the Rashtriya Swasthya Bima Yojana that will provide a health cover of Rs.30,000 for every worker in the unorganised sector falling under the BPL category and his/her family. I am happy to report that most of the States have agreed to join the Yojana and it will be launched in Delhi and in the States of Haryana and Rajasthan on April 1, 2008. I propose to provide Rs.205 crore as the Centre's share of the premia in 2008-09.

National Programme for the Elderly

35. The other major intervention will be for the elderly. A National Programme for the Elderly with a Plan outlay of Rs.400 crore will be started in 2008-09. Among other measures, we will establish, during the Eleventh Plan period, two National Institutes of Ageing, eight regional centres, and a department for geriatric medical care in one medical college/tertiary level hospital in each State.

Integrated Child Development Services

36. The universalization of the Integrated Child Development Services (ICDS) Scheme is underway. At the end of December 2007, 5,959 ICDS projects and 932,000 Anganwadi and mini-Anganwadi centres were functional. The beneficiary count had increased to 629 lakh children and 132 lakh pregnant and lactating mothers. I propose to enhance the allocation for ICDS from Rs.5,293 crore in 2007-08 to Rs.6,300 crore in 2008-09.

37. I am also happy to announce that the remuneration of Anganwadi workers will be increased from Rs.1,000 per month to Rs.1,500 per month. Likewise, the remuneration of Anganwadi Helpers will be increased from Rs.500 per month to Rs.750 per month. Over 18 lakh Anganwadi workers and helpers will benefit from the increase.

Flagship Programmes

38. As Honourable Members are aware, there are eight flagship programmes of the UPA Government. I have dealt with two in the education sector (SSA & MMS) and two in the health sector (NRHM & ICDS). Let me now refer to the allocations that I propose to make for the other four flagship programmes:

• The National Rural Employment Guarantee Scheme (NREGS) will be rolled out to all 596 rural districts in India. Initially, we will provide Rs.16,000 crore. Let there be no apprehension in anyone's mind: as demand rises, more money will be provided to meet the legal guarantee of employment.

• The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is the main vehicle for improving urban infrastructure. It has also succeeded in driving reforms in urban governance and urban-related laws. I propose to increase the allocation from Rs.5,482 crore in 2007-08 to Rs.6,866 crore in 2008-09.

• The goal of the Rajiv Gandhi Drinking Water Mission is to supply safe drinking water to uncovered habitations and slipped back habitations as well as to address issues of quality. I propose to enhance the allocation to Rs.7,300 crore in 2008-09 as against Rs.6,500 crore in 2007-08.

The Mission does not yet have a separate component for school children in water-deficient habitations. Our children should have good, clean drinking water. Hence, I propose to allocate funds to the Mission under a separate sub-head in order to install a standalone system to provide potable water to each school in water-deficient habitations. The cost of each system, depending on the technology and design, is estimated to be between Rs.15,000 to Rs.30,000. While a detailed plan for four years will be drawn up, I propose to make an initial allocation of Rs.200 crore in 2008-09.

• The Total Sanitation Campaign is all about changing habits and mindsets, and it is a continuous process. I propose to provide Rs.1,200 crore in 2008-09.

Desalination Plant

39. Honourable Members will recall that I had in July 2004 announced support for a desalination plant to be installed near Chennai. A proposal has now been received from the Government of Tamil Nadu to establish a plant under public private partnership. While the proposal will be examined for approval, I propose to signal the Government's support to the project by setting apart Rs.300 crore in 2008-09.

North Eastern Region

40. The North Eastern Region (NER) will continue to receive special attention and enhanced allocations. I propose to provide Rs.1,455 crore to the Ministry of Development of North Eastern Region (DONER). Including that amount, the total Budget allocation for NER, spread over different ministries/departments, will increase from Rs.14,365 crore in 2007-08 to Rs.16,447 crore in 2008-09.

41. The North Eastern Region and, especially, Arunachal Pradesh and the border areas face special problems that cannot be tackled in the usual course or through normal schemes. Hence, Government proposes to identify the urgent needs of these areas and address them through a special mechanism. In order to jumpstart the process, I propose to set apart a sum of Rs.500 crore in a fund dedicated for the purpose.

SC, ST, OBC and Minorities

42. Scheduled Castes, Scheduled Tribes, socially and educationally backward classes, and minorities will continue to receive special attention.

Development and Finance Corporations

43. Development and Finance Corporations have been set up for certain disadvantaged groups. I propose to contribute additional equity to these corporations in the following manner:

Rs. Crore

1 National Minorities Development and Finance Corporation
75.00
2 Three National Finance and Development Corporations for Weaker Sections comprising

(i) Safai Karamcharis

(ii) Scheduled Castes

(iii) Backward Classes
106.50
3 National/State Scheduled Tribes Finance and Development Corporations
50.00
4 National Handicapped Development Corporation
9.00

Scholarships

44. In previous Budgets, we had announced a slew of pre- and post-matric scholarship programmes for SC, ST, OBC and minorities. All of them will be continued in 2008-09 with adequate funds as summarised below:

Scheduled Castes Rs.804 crore

Scheduled Tribes Rs.195 crore

Other Backward Classes Rs.164 crore

Minorities (post-matric) Rs.100 crore

45. I propose to allocate a sum of Rs.75 crore in 2008-09 to the Rajiv Gandhi National Fellowship Programme. As Honourable Members are aware, this programme supports SC and ST students pursuing M.Phil and PhD courses.

Scheduled Castes and Scheduled Tribes

46. Following the practice initiated in 2005-06, I have included in the Budget documents a statement on the schemes for the welfare of SCs and STs. I have provided Rs.3,966 crore for schemes benefiting SCs and STs exclusively and Rs.18,983 crore for schemes where at least 20 per cent of the benefits are earmarked for SCs and STs.

Minorities

47. The allocation to the Ministry of Minority Affairs will be increased from Rs.500 crore in 2007-08 to Rs.1,000 crore in 2008-09. Government has taken up the report of the Justice Rajindar Sachar Committee for speedy implementation. Apart from the schemes commenced in 2007-08, it is proposed to implement the following schemes/measures in 2008-09:

• a multi-sectoral development plan for each of the 90 minority concentration districts will be drawn up at a cost of Rs.3,780 crore. The allocation in 2008-09 will be Rs.540 crore;

• a pre-matric scholarship scheme with an allocation of Rs.80 crore next year;

• a scheme for modernising Madrassa education for which a provision of Rs.45.45 crore has been made in 2008-09;

• 256 branches of public sector banks have been opened this year until December 2007 in districts with substantial minority population. 288 more will be opened by March 2008 and many more in
2008-09; and

• continuing the exercise started this year, more candidates belonging to the minority communities will be recruited to the Central Para-Military Forces.

48. I also propose to provide Rs.60 crore to enhance the corpus fund of the Maulana Azad Education Foundation.

Women and Children

49. I confess that policy makers often tend to forget that one-half of the population is constituted by women and they are entitled to an equal share - and an equal say - in all programmes and schemes. Gender Budgeting has gained wider acceptance and credibility. Four more ministries/departments have set up gender budgeting cells taking the total number to 54. Honourable Members will find in the Budget documents a statement embracing 33 demands for grants contributed by 27 ministries/departments and 5 Union Territories. According to the statement, Rs.11,460 crore has been provided for 100 per cent women-specific schemes and Rs.16,202 crore for schemes where at least 30 per cent is for women-specific programmes.

50. We will score another 'first' this year. A statement on child related schemes is included in the budget documents and Honourable Members will be happy to note that the total expenditure on these schemes is of the order of Rs.33,434 crore.

51. I propose to allocate Rs.7,200 crore in 2008-09 to the Ministry of Women and Child Development. This represents an increase of 24 per cent over the allocation in 2007-08.

Self Help Groups

52. The Life Insurance Corporation of India (LIC) runs the Janashree Bima Yojana and offers life and permanent disability cover to people in 44 categories. One of the categories is Self Help Groups, but only 35,000 SHGs have been covered so far. Considering the fact that there are over 30 lakh SHGs credit-linked to banks, I propose to single out this category for special attention. I propose to ask LIC to rapidly scale up the scheme and cover all women SHGs that are credit-linked to banks. Since one-half of the premium is subsidized through the Social Security Fund, I propose to contribute Rs.500 crore to the corpus of the fund with the assurance that annual contributions will be made as the scheme is scaled up. This scheme, together with the Rashtriya Swasthya Bima Yojana, will mark the beginning of a new deal for women by providing them life and health cover.

Supplement to GBS

53. Honourable Members will note that the allocations to various sectors and schemes are generous. I hasten to add that more can be done and more will be done subject, however, to one condition: the condition of performance. In the last Budget, I had announced a Plan 'B' and I was able to provide additional Plan funds of Rs.8,365 crore in cash through two supplementaries - and a third one will follow shortly. The nub of the problem lies in implementation - and implementation mostly is in the hands of State Governments. This year too, I intend to mobilise additional resources to the tune of Rs.10,000 crore to be used for Plan capital expenditure. This money - under Plan 'B' - will be available to ministries/departments of the Central Government and to State Governments that achieve the physical and quality targets set under different Plan schemes.

III. AGRICULTURE

54. I shall now return to the subject of agriculture.

55. I have already referred to the Rashtriya Krishi Vikas Yojana and the National Food Security Mission.

Agricultural Credit

56. Notwithstanding some shortcomings, the growth of agricultural credit has been impressive and for this I have to thank our scheduled commercial banks and Regional Rural Banks. Between them, they account for about 75-79 per cent of agricultural credit disbursed during any year. We will exceed the target set for 2007-08. For 2008-09, I propose to set a target of Rs.280,000 crore.

57. Short-term crop loans will continue to be disbursed at 7 per cent per annum and I am making an initial provision of Rs.1,600 crore for interest subvention in 2008-09.

Investment in Agriculture

58. What ails agriculture, among other things, is the fall in investment. However, there seems to be a turnaround. Gross Capital Formation (GCF) in agriculture as a proportion of GDP in the agriculture sector has improved from a low of 10.2 per cent in 2003-04 to 12.5 per cent in 2006-07. This, however, needs to be raised to 16 per cent during the Eleventh Plan to achieve the target growth rate of 4 per cent.

Water Resources

59. Government is investing heavily in the Accelerated Irrigation Benefit Programme (AIBP) and the Rainfed Area Development Programme and in the management and augmentation of water resources. Under AIBP, 24 major and medium irrigation projects and 753 minor irrigation schemes will be completed in this financial year, creating additional irrigation potential of 500,000 hectare. The outlay for 2007-08 was Rs.11,000 crore with a grant component of Rs.3,580 crore. These are being increased in 2008-09, and the estimated outlay is Rs.20,000 crore with a grant component of Rs.5,550 crore.

60. The Rainfed Area Development Programme has been finalised and will be implemented in 2008-09 with an allocation of Rs.348 crore. Priority will be given to those areas that have not been the beneficiaries of watershed development schemes.

61. The centrally sponsored scheme on micro irrigation launched in January 2006 has brought an area of 548,000 hectare under drip and sprinkler irrigation within two years. I propose to allocate Rs.500 crore for the scheme in 2008-09 with a target of covering another 400,000 hectare.

62. Agreements have been signed with the World Bank by the Governments of Tamil Nadu, Andhra Pradesh and Karnataka under the project to repair, renovate and restore water bodies. The three agreements are for a total sum of US$738 million that will benefit a command area of 900,000 hectare. I am confident that similar agreements will be signed soon between the World Bank and the Governments of Orissa, West Bengal and some other States.

Irrigation and Water Resources Finance Corporation

63. While these ongoing programmes will raise the level of investment in agriculture, I think that we need an ambitious scheme of a much larger proportion. Government is of the view that massive investments are required to be made in irrigation projects. Recently, Government has approved 14 projects that satisfy certain criteria as national projects and three of them alone would require Rs.7,000 crore during the Eleventh Plan period. Having regard to the magnitude of the challenge, I propose to establish the Irrigation and Water Resources Finance Corporation (IWRFC) with an initial capital of Rs.100 crore contributed by the Central Government. State Governments and other financial institutions will be invited to contribute to the equity. It is our intention to mobilise the very large resources that will be required to fund major and medium irrigation projects. I hope to be able to incorporate IWRFC as a company before March 31, 2008.

National Horticulture Mission

64. The National Horticulture Mission (NHM) now covers 340 districts in 18 States and two Union Territories. An area of 276,000 hectare has been brought under horticulture crops and an area of 56,000 hectare of old plantations has been rejuvenated. Special thrust is being given to the revival of crops such as coconut, cashew and pepper. NHM will be provided Rs.1,100 crore in 2008-09.

65. 500 soil testing laboratories will be set up in the public and private sectors during the Eleventh Plan period with Government assistance of Rs.30 lakh per laboratory. In addition, I propose to make a one-time allocation of Rs.75 crore to the Ministry of Agriculture in order to provide one fully-fitted mobile soil testing laboratory each to 250 districts of the country before March 2009.

Plantation Crops

66. The Special Purpose Tea Fund set up last year for re-plantation and rejuvenation will be provided Rs.40 crore in 2008-09. I propose to provide funds for similar support to other plantation crops such as cardamom (Rs.10.68 crore), rubber (Rs.19.41 crore) and coffee (Rs.18 crore). A crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom will be introduced next year.

67. In order to promote research on matters concerning the plantation sector, I propose to make a one-time grant of Rs.5 crore to the Centre for Development Studies, Tiruvananthapuram. The Tocklai Experimental Station at Jorhat of the Tea Research Association will celebrate its centenary in 2010. It is in the process of upgrading its facilities and expanding its activities to cover other North Eastern States, North Bengal and Darjeeling. I propose to make a special centenary grant of Rs.20 crore to the Tea Research Association.

68. The National Plant Protection Training Institute at Hyderabad will be converted and upgraded into an autonomous National Institute of Plant Health Management with budgetary support of Rs.29.4 crore.

Crop Insurance

69. Pending a decision on an alternative crop insurance scheme that is acceptable to the farmers as well as viable to the insurer, the National Agriculture Insurance Scheme (NAIS) will be continued in its present form for Kharif and Rabi 2008-09. I propose to provide Rs.644 crore for the scheme.

70. In addition, the Weather Based Crop Insurance Scheme that is being implemented as a pilot scheme in selected areas of five States will be continued. I intend to provide Rs.50 crore for this purpose in 2008-09.

71. Government will continue to provide fertilisers to farmers at subsidized prices. Government is examining proposals to move to a nutrient based subsidy regime and alternative methods of delivering the subsidy.

Cooperative Credit Structure

72. The Prof. Vaidyanathan Committee's report on reviving the short-term cooperative credit structure is under implementation in 17 States. So far, a sum of Rs.1,185 crore has been released by the Central Government to four States. I am happy to report that the Central Government and the State Governments have reached an agreement on the content of the package to implement the Prof. Vaidyanathan Committee's report on reviving the long-term cooperative credit structure. The cost of the package is estimated at Rs.3,074 crore, of which the Central Government's share will be Rs.2,642 crore or 86 per cent of the total burden.

Debt Waiver and Debt Relief

73. Sir, while I am confident that the schemes and measures that I have listed above will give a boost to the agriculture sector, the question that still looms large is what we should do about the indebtedness of farmers. Honourable members will recall that Government had appointed a Committee under Dr. R. Radhakrishna to examine all aspects of agricultural indebtedness. The Committee has since submitted its report and it is in the public domain. The Committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans. However, Government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers. Having carefully weighed the pros and cons of debt waiver and having taken into account the resource position, I place before this House a scheme of debt waiver and debt relief for farmers:

(i) All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme.

(ii) For marginal farmers (i.e., holding upto 1 hectare) and small farmers (1-2 hectare), there will be a complete waiver of all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. In respect of other farmers, there will be a one time settlement (OTS) scheme for all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. Under the OTS, a rebate of 25 per cent will be given against payment of the balance of 75 per cent.

(iii) Agricultural loans were restructured and rescheduled by banks in 2004 and 2006 through special packages. These rescheduled loans, and other loans rescheduled in the normal course as per RBI guidelines, will also be eligible either for a waiver or an OTS on the same pattern.

(iv) The implementation of the debt waiver and debt relief scheme will be completed by June 30, 2008. Upon being granted debt waiver or signing an agreement for debt relief under the OTS, the farmer would be entitled to fresh agricultural loans from the banks in accordance with normal rules.

(v) Government estimates that about three crore small and marginal farmers and about one crore other farmers will benefit from the scheme. The total value of overdue loans being waived is estimated at Rs.50,000 crore and the OTS relief on the overdue loans is estimated at Rs.10,000 crore.

I appeal to Honourable Members - as well as to the people of India - to give their unqualified support to the scheme and help Government implement this momentous decision.

IV. INVESTMENT, INFRASTRUCTURE, INDUSTRY AND TRADE

74. Since 2005-06, there has been an unmistakable boom in investment. Two indicators tell the story. The saving rate and the investment rate in 2003-04 were 29.8 per cent and 28.2 per cent, respectively. According to estimates made by the Economic Advisory Council to the Prime Minister, they will be 35.6 per cent and 36.3 per cent, respectively, by the end of 2007-08. The trend is reflected on the foreign investment side too. During the period April-December 2007-08, foreign direct investment amounted to US$12.7 billion and foreign institutional investment to US$18 billion. Our policy is to encourage all sources of investment, domestic and foreign, private and public.

75. In 2008-09, Government will provide Rs.16,436 crore as equity support and Rs.3,003 crore as loans to Central Public Sector Enterprises (CPSEs). 44 CPSEs are listed today. It is the policy of the Government to list more CPSEs in order to unlock their true value and improve corporate governance.

Rural Infrastructure Development Fund

76. The Rural Infrastructure Development Fund (RIDF) is the main instrument to channelize bank funds for financing rural infrastructure, and it is quite popular among State Governments. Therefore, I propose to raise the corpus of RIDF-XIV in 2008-09 to Rs.14,000 crore. I also propose to operate a separate window under RIDF-XIV for rural roads with a corpus of Rs.4,000 crore.

Manufacturing Sector

77. There has been some moderation in the index of production of the six core infrastructure industries as well as in the overall index of industrial production for the period April-December 2007-08. The decline has been somewhat sharp in the case of consumer goods, especially consumer durables. The silver lining is that the growth in capital goods is still very high at 20.2 per cent, indicating that industry continues to make huge capital investments and has a positive outlook about the future. Manufacturing industries that have grown more slowly than the average include food products, cotton textiles, textile products including apparel, paper and transport equipment. Among the reasons for the moderation are a rise in interest rates and the appreciation of the Rupee. There are limits to monetary policy accommodation, especially when the need is to maintain price stability. However, some steps can be taken on the fiscal side and I shall, presently, place before the House some proposals in order to stimulate industrial growth. Our goal is to take the manufacturing growth rate to a double digit. This will also call for more reforms in the coal and electricity sectors as well as confronting oligopolistic tendencies in the cement and steel sectors.

Power

78. The Eleventh Plan target for additional power generation capacity is 78,577 MW which is more than the total capacity added in the previous three Plans. By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period. Government will redouble its efforts to ensure that the ambitious target for the Eleventh Plan is achieved.

79. The fourth Ultra Mega Power Project (UMPP) at Tilaiya will be awarded shortly. It is possible to bring five more UMPPs in Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu to the bidding stage provided the States extend the required support. I urge them to do so.

80. Government has approved the continuation of the Rajiv Gandhi Grameen Vidyutikaran Yojana during the Eleventh Plan period with a capital subsidy of Rs.28,000 crore. I propose to allocate Rs.5,500 crore in 2008-09 for the Yojana (including NER).

81. I propose to provide Rs.800 crore in 2008-09 for the Accelerated Power Development and Reforms Project. However, it is the poor state of transmission and distribution (T&D) that is a drag on the sector. Huge investments are required to be made in T&D, but linked to fundamental reforms. Hence, I propose to create a national fund for transmission and distribution reform. The details of the scheme will be worked out and announced very soon.

Roads

82. All phases of the National Highway Development Programme continue to make progress. The completion ratio in the Golden Quadrilateral is 96.48 per cent and in the North South, East West Corridor project is 23.36 per cent. Special attention is being paid to SARDP-NE, a programme devised for the North Eastern region. 180 kms of roads were completed in 2007-08 and the target for 2008-09 is 300 kms. I propose to enhance the allocation for the NHDP from Rs.10,867 crore in 2007-08 to Rs.12,966 crore next year.

Oil and Gas

83. The 7th round of bidding under the New Exploration Licensing Policy (NELP) was launched in December 2007 and bids have been invited for 57 exploration blocks. It is estimated that the round will attract investment of the order of US$3.5 billion to US$8 billion for exploration and discovery.

Coal

84. 53 coal blocks with reserves of 13,842 million tonnes have been allotted during April-January 2007-08 to Government and private sector companies. A new Coal Distribution Policy was notified in October 2007. A coal regulator will be appointed.

Information Technology

85. Government's forward looking policy is driving the growth of Information Technology and Information Technology Enabled Services. I propose to enhance the allocation to the Department of Information Technology from Rs.1,500 crore in 2007-08 to Rs.1,680 crore in 2008-09. A scheme for establishing 100,000 broadband internet-enabled Common Service Centres in rural areas and a scheme for establishing State Wide Area Networks (SWAN) with Central assistance are under implementation. A new scheme for State Data Centres has also been approved. I propose to provide Rs.75 crore for the common service centres, Rs.450 crore for SWAN and Rs.275 crore for the State Data Centres.

Textiles

86. The two principal schemes of the Ministry of Textiles - the Scheme for Integrated Textile Parks (SITP) and the Technology Upgradation Fund (TUF) - will be continued in the Eleventh Plan period. All 30 integrated textile parks have been approved and 20 units in four parks have commenced production. I propose to maintain the provision for SITP at Rs.450 crore in 2008-09. The provision for TUF will be increased from Rs.911 crore in the current year to Rs.1,090 crore in 2008-09.

87. The cluster approach to the development of the handloom sector has made rapid progress. 250 clusters are being developed. 443 yarn banks have been established. By March 2008, over 17 lakh families of weavers will be covered under the health insurance scheme. I propose to increase the allocation to Rs.340 crore in 2008-09.

88. In order to scale up both infrastructure and production, it is proposed to take up six centres for development as mega-clusters. Varanasi and Sibsagar will be taken up for handlooms, Bhiwandi and Erode for powerlooms, and Narsapur and Moradabad for handicrafts. Each mega-cluster will require about Rs.70 crore. I propose to start the process with an initial provision of Rs.100 crore in 2008-09.

Micro, Small and Medium Enterprises

89. Micro, small and medium enterprises will continue to receive support from the Government. I wish to remove certain wrong perceptions about the sector. In the four years ending 2006-07, for which figures are available, there has been a secular rise in the number of registered units, the number of unregistered units, production, employment and exports. In order to give a fillip to the sector, I propose to create a risk capital fund in the Small Industries and Development Bank of India (SIDBI). As on January 31, 2008, the Credit Guarantee Trust with SIDBI had extended guarantees to 89,129 units for an amount of Rs.2,479 crore. SIDBI will reduce the guarantee fee from 1.5 per cent to 1 per cent and the annual service fee from 0.75 per cent to 0.5 per cent for loans up to Rs.5 lakh.

Foreign Trade

90. Merchandise exports have come under some pressure due to the appreciation of the Rupee and may fall just short of the target of US$ 160 billion, although the growth rate was strong at 21.8 per cent during April-December 2007-08. Relief was given to exporters in three tranches amounting to over Rs.8,000 crore. I may note that the interest cost of sterilization through market stabilization bonds (MSS), estimated at Rs.8,351 crore for the whole year is, in a sense, subsidy to the export sector. Government is sensitive to the needs of the export sector and will continue to respond sympathetically as the situation demands.

V. FINANCIAL SECTOR

91. Government's policy of a careful and calibrated opening of the financial sector has proved successful. We shall continue to take measured steps.

92. The final report of the Committee on Financial Inclusion has been received. To begin with, I propose to accept two recommendations:

• to advise commercial banks, including RRBs, to add at least 250 rural household accounts every year at each of their rural and semi-urban branches; and

• to allow individuals such as retired bank officers, ex-servicemen etc to be appointed as business facilitator or business correspondent or credit counsellor.

93. Banks will be encouraged to embrace the concept of Total Financial Inclusion. Government will request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members, namely, (a) income generation activities, (b) social needs like housing, education, marriage etc and (c) debt swapping.

NABARD, SIDBI and NHB

94. Financial inclusion can be taken forward by expanding the reach of NABARD, SIDBI and NHB. Hence, in order to increase the resource base of these three banks, I propose to tap into the resources of scheduled commercial banks to the extent that they fall short of their obligation to lend to the priority sector. Accordingly, it is proposed to create the following funds:

(i) a fund of Rs.5,000 crore in NABARD to enhance its refinance operations to short term cooperative credit institutions;

(ii) two funds of Rs.2,000 crore each in SIDBI - one for risk capital financing and the other for enhancing refinance capability to the MSME sector; and

(iii) a fund of Rs.1,200 crore in NHB to enhance its refinance operations in the rural housing sector.

Each of these funds will be governed by the general guidelines that are now applicable to RIDF with some modifications.

95. Last year, I enhanced the limit of the loan that could be extended under the Differential Rate of Interest (DRI) scheme to the weaker sections of the community engaged in gainful occupations. However, I did not enhance the eligibility criteria which still stand at levels fixed in 1986. This needs to be corrected. Hence, I propose to fix the borrower's eligibility criteria as annual family income of Rs.18,000 in rural areas and Rs.24,000 in urban areas.

Capital Markets

96. In my Budget Speech of 2006, I had informed the House that, on the basis of the R.H. Patil Committee Report, we shall take steps to create an exchange-traded market for corporate bonds. Both Bombay Stock Exchange and National Stock Exchange have created platforms for trading in corporate bonds.

97. I intend to move forward by taking some more measures to expand the market for corporate bonds. Hence, I propose to:

• take measures to develop the bond, currency and derivatives markets that will include launching exchange-traded currency and interest rate futures and developing a transparent credit derivatives market with appropriate safeguards;

• enhance the tradability of domestic convertible bonds by putting in place a mechanism that will enable investors to separate the embedded equity option from the convertible bond and trade it separately; and

• encourage the development of a market-based system for classifying financial instruments based on their complexity and implicit risks.

98. The fear of the Permanent Account Number (PAN) has virtually disappeared. PAN is now the sole identification number for all participants in the securities market. I propose to extend the requirement of PAN to all transactions in the financial market subject, however, to suitable threshold exemption limits.

99. Our stock exchanges provide national electronic trading platforms for securities transactions. Yet, we do not have a seamless national market for securities because of differences among States on the scope and applicability of rates of stamp duty. Hence, I propose to request the Empowered Committee of State Finance Ministers to work with the Central Government to create a truly pan Indian market for securities that will expand the market base and enhance the revenues of the State Governments.

VI. OTHER PROPOSALS

100. India is poised to reap a 'demographic dividend' because the size of its working age population will increase from about 77.5 crore in 2008 to a likely peak of 95 crore in 2026. The 'dividend' can prove illusory if the workforce does not acquire the skills to support a knowledge and technology driven economy.

Skill Development Mission

101. Today, skill development programmes are diffused and administered by a number of ministries/departments. I have no intention of interfering with these sector-specific programmes. However, there is a compelling need to launch a world-class skill development programme, in mission mode, that will address the challenge of imparting the skills required by a growing economy. Both the structure and the leadership of the mission must be such that the programme can be scaled up quickly to cover the whole country. Hence, I propose to establish a non-profit corporation and entrust the mission to that corporation. It is my intention to garner about Rs.15,000 crore as capital from Governments, the public and private sector, and bilateral and multilateral sources. I shall begin by putting Rs.1,000 crore as Government's equity in the proposed non-profit corporation.

Industrial Training Institutes

102. The upgradation of ITIs is proceeding apace. Under the World Bank assisted scheme, 238 ITIs are undergoing upgradation. Under the PPP scheme, 309 ITIs in 29 States have been identified with corresponding industry partners and agreements have been signed in 244 cases. In anticipation of upgrading 300 more ITIs in 2008-09, I have set apart Rs.750 crore.

Sainik Schools

103. I am concerned by the rate of attrition in the defence forces, especially at the officer level. Sainik Schools have played a unique role as recruiting and training ground of future leaders of the defence forces. I propose to make an allocation of Rs.44 crore at the rate of Rs.2 crore each to the 22 Sainik Schools for immediate improvement of infrastructure including classrooms, laboratories, libraries and facilities for physical education.

Public Distribution System

104. A sum of Rs.32,667 crore is being provided next year for food subsidy under the Public Distribution System (PDS) and other welfare programmes. Strengthening the PDS would mean adequate supplies, reasonable subsidies and efficient delivery of the subsidized food. An idea that has been growing is to deliver subsidies to the target group through smart cards. Finally, I have found two willing partners - the State of Haryana and the Union Territory of Chandigarh. They will introduce, on a pilot basis, a smart card based delivery system to deliver food grains under the PDS in Haryana and Chandigarh, respectively. I thank the Chief Minister of Haryana and the Administrator of Chandigarh and promise them full support and cooperation in making a success of the pilot scheme.

Unorganised Sector Workers

105. The Unorganised Sector Workers' Social Security Bill, 2007 is before Parliament. In anticipation of the Bill being made into law, Government has introduced three schemes that are designed to provide social security to workers in the unorganised sector in a phased manner. These are:

• the Aam Admi Bima Yojana that will provide insurance cover to poor households. I am happy to announce that, in the first year of the Yojana, LIC will cover one crore landless households by September 30, 2008. I have already placed Rs.1,500 crore with LIC. In order to cover another one crore poor households in the second year, I propose to place an additional sum of Rs.1,000 crore with LIC in 2008-09;

• the Rashtriya Swasthya Bima Yojana that will be implemented with effect from April 1, 2008; and

• the Indira Gandhi National Old Age Pension Scheme that was enlarged with effect from November 19, 2007 to include all persons over 65 years falling under the BPL category. Consequently, the coverage has expanded from 87 lakh to 157 lakh beneficiaries. I propose to allocate Rs.3,443 crore in 2008-09 as against Rs.2,392 crore in 2007-08.

Housing for the Poor

106. Housing for the poor is one of the six elements of Bharat Nirman and is implemented through the Indira Awas Yojana (IAY). Against a target of 60 lakh houses, 41.13 lakh houses have been constructed up to December 2007 and the cumulative number will be 51.77 lakh houses by end March 2008. Reflecting the higher cost of construction, I propose to enhance the subsidy per unit in respect of new houses sanctioned after April 1, 2008 from Rs.25,000 to Rs.35,000 in plain areas and from Rs.27,500 to Rs.38,500 in hill/difficult areas. The subsidy for upgradation of houses will be increased from Rs.12,500 per unit to Rs.15,000. A beneficiary will still need own funds to complete the house. Public sector banks will be advised to include IAY houses under the differential rate of interest (DRI) scheme and lend up to Rs.20,000 per unit at an interest rate of 4 per cent.

Defence

107. I propose to increase the allocation for Defence by 10 per cent from Rs.96,000 crore to Rs.105,600 crore. I have assured the Raksha Mantri that any further amount needed for the Defence Forces, especially for capital expenditure, will be provided.

Backward Regions Grant Fund

108. The Backward Regions Grant Fund was given Rs.5,800 crore in the current year. Having regard to the pace of expenditure, I propose to keep the allocation for the next year at the same level. I may add that nearly 45 per cent of the amount is likely to be allocated to the States of Bihar, Orissa and Uttar Pradesh.

Climate Change

109. In the Budget Speech last year I had announced the decision of the Government to appoint an expert committee to study the impact of climate change on India and identify the measures that we may have to take in the future. Work is in progress. Even while adhering to the principle of "common but differentiated responsibility" we can - and we must - do a number of things in our self-interest. We can promote clean technology products; we can review fuel emission and efficiency regulations; we can replace wood by solar as the fuel of common use; we can encourage the use of gas which is the most benign hydrocarbon; we can set up a trading platform for carbon emissions; we can build sustainable greenfield cities; and we can do more. In order to explore and implement these and other ideas, Government proposes to establish a permanent institutional mechanism that will play a development and coordination role. Details of the institutional mechanism will be announced shortly.

Sixth Central Pay Commission

110. I have been informed that the Sixth Central Pay Commission will submit its report by March 31, 2008. I am confident that the report will meet the legitimate expectations of Government employees.

Commonwealth Games

111. The Commonwealth Games are only 947 days away. As promised, we shall provide Rs.624 crore in 2008-09. I would urge the authorities concerned to adhere to the strict timelines and the quality standards.

Institutions of Excellence

112. For the fourth year in succession, I propose to make a special grant of Rs.100 crore each to three institutions of excellence. The awards for 2008-09 go to: (i) Mahatma Phule Krishi Vidyapeeth, Rahuri, Maharashtra; (ii) University of Mysore, Mysore; and (iii) Delhi University, Delhi.

India's Soft Power

113. India's music, literature, dance, art, cuisine and especially films are attracting huge interest around the world. This is the 'soft power' of India, and it must be projected in a sophisticated and subtle manner. I propose to provide Rs.75 crore to the Indian Council of Cultural Relations to design and implement a programme to achieve this objective.

Tiger Protection

114. The number 1,411 should ring the alarm bells. That is the number of tigers in India. The tiger is under grave threat. In order to redouble our effort to protect the tiger, I propose to make a one time grant of Rs.50 crore to the National Tiger Conservation Authority. The bulk of the grant will be used to raise, arm and deploy a special Tiger Protection Force.

Monitoring and Evaluation

115. Robust economic growth has thrown up many new challenges, among them the need to put in place effective monitoring, evaluation and accounting systems for the large sums of money that are disbursed by the Central Government to State Governments, district level agencies and other implementing agencies. I think we do not pay enough attention to outcomes as we do to outlays; or to physical targets as we do to financial targets; or to quality as we do to quantity. Government therefore proposes to put in place a Central Plan Schemes Monitoring System (CPSMS) that will be implemented as a Plan scheme of the Planning Commission. A comprehensive Decision Support System and Management Information System will also be established. The intended outcome is to generate and monitor scheme-wise and State-wise releases for about 1,000 Central Plan and centrally sponsored schemes in 2008-09.

116. Government also intends to strengthen evaluation. Some ministries have started concurrent evaluation. This needs to be supplemented by independent evaluations conducted by research institutions. The Planning Commission will authorise such evaluations of the major schemes and complete the task by the time of the mid-term review of the Eleventh Plan.

VII. BUDGET ESTIMATES

117. I shall now turn to the Budget Estimates for 2008-09.

118. The estimate of Plan Expenditure is placed at Rs.243,386 crore. As a proportion of total expenditure, it will be 32.4 per cent.

119. Non-Plan Expenditure is estimated at Rs.507,498 crore.

Revenue Deficit and Fiscal Deficit

120. It is widely acknowledged that the fiscal position of the country has improved tremendously. I am happy to report that the revenue deficit for the current year will be 1.4 per cent (against a BE of 1.5 per cent) and the fiscal deficit will be 3.1 per cent (against a BE of 3.3 per cent).

121. Further progress will be made in 2008-09. The revenue receipts of the Central Government for 2008-09 are projected at Rs.602,935 crore and the revenue expenditure at Rs.658,119 crore. Consequently, the revenue deficit is estimated at Rs.55,184 crore, which amounts to 1.0 per cent of GDP. The fiscal deficit is estimated at Rs.133,287 crore which is 2.5 per cent of GDP. Honourable Members will note that not only will I achieve the target for fiscal deficit under the FRBM Act, I have also left for myself some headroom. In the case of revenue deficit, I will meet the target of annual reduction of 0.5 per cent. However, because of the conscious shift in expenditure in favour of health, education and the social sector, we may need one more year to eliminate the revenue deficit. In my view, this is an entirely acceptable deferment.

Revisiting the Roadmap for Fiscal Adjustment

122. I acknowledge that significant liabilities of the Government on account of oil, food and fertilizer bonds are currently below the line. This accounting arrangement is consistent with past practice. Nevertheless, our fiscal and revenue deficits are understated to that extent. There is a need to bring these liabilities into our fiscal accounting. As a first step, I have shown these liabilities clearly in 'Budget at a Glance'. After the obligations on account of the Sixth Central Pay Commission become clear, I intend to request the Thirteenth Finance Commission to revisit the roadmap for fiscal adjustment and suggest a suitably revised roadmap.

PART - B

VIII. TAX PROPOSALS

123. Mr. Speaker, I shall now present my tax proposals.

124. Many people are surprised by the buoyancy in tax revenues, especially in direct taxes. I am not. I have always maintained that moderate and stable tax rates coupled with a tax administration that shows no fear or favour will bring high revenues to the exchequer.

125. The UPA Government inherited a tax to GDP ratio of 9.2 per cent in 2003-04. At the end of 2007-08, that ratio would have risen to 12.5 per cent.

126. High growth rates have helped. Changes in attitude have also helped. Above all, information systems and technology have helped most. And, if I may add in a lighter vein, having a lucky Finance Minister may have also helped! We are on course to achieve the Budget Estimates of indirect taxes and exceed the Budget Estimates of direct taxes. I take this opportunity to thank all tax payers and I promise them an efficient and tax payer-friendly administration.

Indirect Taxes

127. I shall begin with customs duties.

128. The peak rate for non-agricultural products was 20 per cent in January 2004 and now stands at 10 per cent. The collection rate is the closest approximation to the level of protection to domestic industry, and that rate for all imports stood at 10 per cent in 2006-07. Since April 2007, the Rupee has appreciated against the Dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at this stage is very weak. Hence, I propose to make no change in the peak rate of customs duty.

129. However, I find that in some cases it is necessary to reduce the customs duty in order to provide a fillip to that industry or to promote value addition or to remove inversion or any other anomaly. I shall refer to a few such cases.

130. I propose to reduce the customs duty on Project Imports from 7.5 per cent to 5 per cent. However, I also propose to impose the 4 per cent special CVD on a few specified projects in the power sector.

131. In order to improve the supply of raw material, I propose to reduce the duty on steel melting scrap and aluminium scrap from 5 per cent to nil.

132. On certain specified life saving drugs and on the bulk drugs used for the manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5 per cent as well as to totally exempt them from excise duty or countervailing duty.

133. In order to reduce the cost of manufacture of cattle and poultry feeds, I propose to reduce the duty on vitamin premixes and mineral mixtures from 30 per cent to 20 per cent and on phosphoric acid from 7.5 per cent to 5 per cent.

134. The duty on bactofuges will be reduced from 7.5 per cent to nil. This will increase the shelf life of milk and benefit the dairy industry.

135. I propose to fully exempt from duty specified parts of set top boxes and specified raw materials for use in the IT/electronic hardware industry.

136. To establish parity between devices used in the information/ communication sector and the entertainment sector, I propose to reduce the duty on convergence products from 10 per cent to 5 per cent.

137. To provide a fillip to the manufacture of sports goods, I propose to reduce the duty on specified machinery from 7.5 per cent to 5 per cent. I also propose to exempt from duty specified raw materials for sports goods.

138. The gem and jewellery industry has responded well to the duty reductions made last year. In order to encourage value addition and exports, I propose to exempt from duty rough cubic zirconia and to reduce the duty on polished cubic zirconia from 10 per cent to 5 per cent. Similarly, the duty on rough coral will be reduced from 10 per cent to 5 per cent.

139. To facilitate training of helicopter pilots, I propose to remove the duty on helicopter simulators.

140. In order to support domestic fertiliser production, I propose to reduce the customs duty on crude and unrefined sulphur from 5 per cent to 2 per cent.

141. Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and naphtha is imported by manufacturers of polymers, leading to price distortions and revenue losses. I propose to correct the situation by withdrawing the duty exemption on naphtha for use in the manufacture of polymers and subject it to the normal rate of 5 per cent. However, naphtha imported for the production of fertilisers will continue to be exempt from import duty.

142. Finally, in order to conserve chrome ore and make it available for value added manufacture in India, I propose to increase the export duty from Rs.2,000 per metric tonne to Rs.3,000 per metric tonne.

143. I shall now deal with excise duties.

144. The manufacturing sector is the backbone of any economy. It is consumption that drives production and it is production that drives investment. Having carefully studied current trends of production and consumption, I believe there is a need to give a stimulus to the manufacturing sector. Hence, I propose to reduce the general CENVAT rate on all goods from 16 per cent to 14 per cent.

145. I have looked at specific sectors where growth is flagging. These sectors are important because they are growth and employment drivers. Some of them also have large externalities. Therefore, I propose to:

• reduce the excise duty on all goods produced in the pharmaceutical sector from 16 per cent to 8 per cent;

• reduce the excise duty on buses and their chassis from 16 per cent to 12 per cent;

• reduce the excise duty on small cars from 16 per cent to 12 per cent and on hybrid cars from 24 per cent to the general revised rate of 14 per cent;

• reduce the excise duty on two wheelers and three wheelers from 16 per cent to 12 per cent; and

• reduce the excise duty on paper, paper board and articles made therefrom manufactured out of non-conventional raw materials by units not having an attached bamboo/wood pulp making plant from 12 per cent to 8 per cent with a further reduction on clearances up to 3,500 MT from 8 per cent to nil. Furthermore, excise duty on certain varieties of writing, printing and packing paper will be reduced from 12 per cent to 8 per cent.

146. There are a number of products which are goods of mass consumption. There is also the need to have tax parity on similar goods. Taking into account requests from a number of industries, I propose to reduce the excise duty from 16 per cent to nil on a few items including composting machines, wireless data cards, packaged coconut water, tea and coffee mixes, and puffed rice.

147. Further, I propose to reduce the excise duty from 16 per cent to 8 per cent on a few items including water purification devices, veneers and flush doors, sterile dressing pads, specified packaging material, and breakfast cereals.

148. I propose to totally exempt from excise duty the anti AIDS drug, Atazanavir, as well as bulk drugs for its manufacture.

149. To further encourage cold chain facilities, I propose to exempt from excise duty, on end-use basis, refrigeration equipment (consisting of compressor, condenser units, evaporator etc) above 2 TR (tonne refrigeration) utilising power of 50 KW and above.

150. I propose to bring parity in the excise duty rates on bulk cement and packaged cement. Accordingly, bulk cement will now attract excise duty of Rs.400 per Metric Tonne or 14 per cent ad valorem, whichever is higher. Cement clinkers will be liable to excise duty of Rs.450 per Metric Tonne.

151. Similarly, I propose to increase the excise duty on packaged software from 8 per cent to 12 per cent to bring it on par with customised software which will attract a service tax of 12 per cent.

152. Non-filter cigarettes are more toxic than filter cigarettes, yet they enjoy a favourable tax regime, which is iniquitous. I propose to tax both filter and non-filter cigarettes on par by applying - as Honourable Members may have guessed - the higher rates.

153. In order to remove a source of misinformation, I propose to abolish the ad valorem part of the excise duty on unbranded petrol and unbranded diesel and replace the same by an equivalent specific duty of Rs.1.35 per litre. Henceforth, there will be only a specific duty of Rs.14.35 per litre on unbranded petrol and Rs.4.60 per litre on unbranded diesel. There will be no impact on retail prices.

154. An excise duty of 1 per cent called NCCD is now imposed on polyester filament yarn, which is the only yarn suffering this excise duty. I propose to remove that duty and shift the levy to cellular mobile phones.

155. Finally, I turn to my proposals on service tax.

156. 55 per cent of the GDP is contributed by the services sector, which is a growing sector that must contribute its legitimate share to the exchequer. I propose to bring under the service tax net four services. They are:-

(i) asset management service provided under ULIP, to bring it on par with asset management service provided under mutual funds;

(ii) services provided by stock/commodity exchanges and clearing houses;

(iii) right to use goods, in cases where VAT is not payable; and

(iv) customised software, to bring it on par with packaged software and other IT services

157. I also propose to remove unwarranted doubts raised in respect of certain services and clarify that they are liable to service tax. These include money changers, persons running games of chance, and tour operators using contract carriage vehicles.

158. There are some miscellaneous changes but I do not wish to burden the House with the same.

159. Finally, I am happy to announce that the threshold limit of exemption for small service providers will be increased from Rs.8 lakhs per year to Rs.10 lakh per year. As a result, about 65,000 small service providers will go out of the tax net.

Direct Taxes

160. I shall now deal with direct taxes.

161. I recall the Budget Speech of 1997. I believe that boldness pays. I also believe that trust will beget trust, moderation will beget revenues and fairness will beget compliance. Income tax payers have made out a persuasive case for some relief. Accordingly, I propose to make some changes in the slabs for personal income tax. I propose to increase the threshold limit of exemption:

• in the case of all assesses, from Rs.110,000 to Rs.150,000, thus giving every assessee a relief at a minimum of Rs.4,000. Consequently, the four slabs and rates will be as follows:

Up to Rs.150,000 NIL

Rs.150,001 to Rs.300,000 10 per cent

Rs.300,001 to Rs.500,000 20 per cent

Rs.500,001 and above 30 per cent

• in the case of a woman assessee, from Rs.145,000 to Rs.180,000;

• in the case of a senior citizen, from Rs.195,000 to Rs.225,000.

162. I do not propose to make any change in the corporate income tax rates.

163. No change is proposed in the rate of surcharge.

164. I propose to add the Senior Citizens Savings Scheme 2004 and the Post Office Time Deposit Account to the basket of saving instruments under Section 80C of the Income Tax Act.

165. I propose to allow an additional deduction of Rs.15,000 under Section 80D to an individual who pays medical insurance premium for his/her parent or parents.

166. The Reverse Mortgage Scheme was notified by the National Housing Bank in the current financial year. In order to clarify the tax issues arising out of the scheme, I propose to amend the Income Tax Act to provide that:

(i) reverse mortgage would not amount to "transfer"; and

(ii) the stream of revenue received by the senior citizen would not be "income";

167. Agricultural income is exempt from income tax. However, courts have ruled that growing saplings or seedlings on land is agriculture but growing them in pots is not agriculture. This does not seem fair. Hence, I propose to exempt from tax income arising from saplings or seedlings grown in a nursery.

168. Companies engaged in certain businesses are allowed a weighted deduction of 150 per cent on any expenditure on in-house scientific research. I propose to add the business of production of seeds and manufacture of agricultural implements to this list.

169. In order to promote outsourcing of research, I propose to allow a weighted deduction of 125 per cent on any payment made to companies engaged in research and development.

170. I propose to extend the benefit of amortisation of certain preliminary expenses under Section 35D to assesses in the services sector.

171. To supplement measures that I announced earlier in respect of the corporate debt market, I propose to exempt from TDS corporate debt instruments issued in demat form and listed on recognised stock exchanges.

172. I propose to make some changes in the provisions of law pertaining to Fringe Benefit Tax (FBT) that will give some relief to corporates and firms. Crèche facilities, sponsorship of an employee-sportsperson, organising sports events for employees, and guest houses will be excluded from the purview of FBT.

173. At present, a domestic company is liable to pay Dividend Distribution Tax (DDT). As a result, the distributed dividend is sometimes taxed twice in the hands of a subsidiary company and its parent company, causing hardship. In order to remove the hardship, I propose to allow a parent company to set off the dividend received from its subsidiary company against dividend distributed by the parent company, provided that the dividend received has suffered DDT and the parent company is not a subsidiary of another company.

174. I propose to insert a new sub-section (11C) in Section 80-IB to grant a five year tax holiday to encourage hospitals to be set up anywhere in India, except certain specified urban agglomerations, and especially in tier-2 and tier-3 towns in order to serve the rural hinterland. This window will be open for the period April 1, 2008 to March 31, 2013, during which the hospital must commence operations.

175. Having regard to the significant rise in tourist arrivals, especially for cultural tourism, I propose to grant a five year holiday from income tax to two, three or four star hotels that are established in specified districts which have UNESCO-declared 'World Heritage Sites'. The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013.

176. I am happy to announce that the Coir Board will be included in Section 10(29A) and exempt from income tax.

177. Dividends that are distributed attract a tax of 15 per cent. Short term capital gains attract a tax of 10 per cent under Section 111A. There is merit in equating the rates and hence I propose to increase the rate of tax on short term capital gains under Section 111A and Section 115AD to 15 per cent. This will also encourage investors to stay invested for a longer term.

178. At present, Securities Transaction Tax (STT) paid is allowed as a rebate against tax liability. Further, STT on options is levied on the aggregate of the strike price and the option premium and is borne by the seller. I propose to make some changes. Henceforth, STT paid will be treated like any other deductible expenditure against business income. Further, the levy of STT, in the case of options, will be only on the option premium where the option is not exercised, and the liability will be on the seller. In a case where the option is exercised, the levy will be on the settlement price and the liability will be on the buyer. There will be no change in the present rates.

179. Transactions in commodity futures have come of age. Hence, I propose to introduce the Commodities Transaction Tax (CTT) on the same lines as STT on options and futures.

180. "Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organisations will not in any way be affected.

181. The Banking Cash Transaction Tax (BCTT) has served a very useful purpose in enlarging the information system of the Income Tax Department. Since the information is also being gathered through other instruments introduced in the last few years, I propose to withdraw this tax with effect from April 1, 2009.

182. My tax proposals on direct taxes are revenue neutral. On the indirect taxes side, the proposals are estimated to result in a loss of Rs.5,900 crore.

CST and a Roadmap towards GST

183. Following an agreement between the Central Government and the State Governments, the rate of Central Sales Tax was reduced from 4 per cent to 3 per cent in this financial year. It is now proposed to reduce the rate to 2 per cent from April 1, 2008. Consultations are underway on the compensation for losses, if any, and once agreement is reached the new rate will be notified. I am also happy to report that there is considerable progress in preparing a roadmap for introducing the Goods and Services Tax with effect from April 1, 2010.

IX. CONCLUSION

184. Mr. Speaker, Sir, once upon a time India, together with China, accounted for 50 per cent of the world's output. We must regain our position and it is within our capacity to do so.

185. Our work in Government is, every day and every hour, a discovery of the path to reach our goals: full employment, abolition of poverty and elimination of inequality. "These goals can only be achieved by a considerable increase in national income and our economic policy must, therefore, aim at plenty and equitable distribution. We must produce wealth, and then divide it equitably. How can we have a welfare state without wealth?" Those are not my words; they were uttered in 1955 by Pandit Jawaharlal Nehru. Although Jawaharlal Nehru did not use the phrase inclusive growth, he actually spelt out the conditions for inclusive growth.

186. Those words will guide the UPA Government. As always, I turned to my muse, Saint Tiruvalluvar, for guidance and reassurance. 2,000 years ago he set the benchmark for good governance in the following immortal words:

"Kodai Ali Sengol Kudi Ombal Nangum

Udaiyanam Vendharkku Oli"

[Generous grants, compassion, righteous rule

and succour to the downtrodden

Are the hallmarks of good governance]

We have tried to remain true to this philosophy. The four years to 2007-08 have been the best years so far but, may I say with humility, that the best is yet to come.

187. Sir, with these words I commend the Budget to the House.

indian monetry policy

2007-05-30T15:57:00.004+05:30

Assessment of Macroeconomic and Monetary Developments during the First Half of 2006-07

Overall Assessment44. In the Indian economy, aggregate supply conditions appear to have strengthened in the first half of 2006-07, invigorated by the pick-up in activity in all constituent sectors of the economy. While growth in agriculture in the first quarter seems to have benefited mainly from the rabi season of 2005-06 (which came to a close in June 2006), the prospects for agriculture in the rest of 2006-07 seem to have improved. Hence, a resumption of trend growth in agriculture appears realisable for the current year, despite some setbacks on account of floods in various parts of the country and somewhat deficient rainfall in foodgrains growing areas. 45. Industrial production appears to be performing better than consensus expectations, propelled by growth in manufacturing which touched a ten-year high in April-August, 2006. The industrial climate is characterised by buoyant corporate sales/profitability and record tax collections. This is supported by the strength of domestic and export demand, resilient business confidence and improvement in financing conditions, particularly in sustained growth in bank credit. The momentum of industrial activity, if sustained, is likely to impart an upside bias to expectations of overall macroeconomic performance. 46. Lead indicators point to continued bright prospects for growth in services. There has been a sustained improvement in railway revenue earnings in freight traffic and in import/export cargo handled by civil aviation. Foreign tourist arrivals as well as passengers handled at domestic air terminals have recorded increases during the first half of 2006-07. Furthermore, there has been a noticeable addition to switching capacity under both telephone and cell phone connections. Accordingly, all sub-sectors under services, which account for about 70 per cent of overall GDP growth, display dynamism. 47. Turning to aggregate demand conditions, there seems to be some evidence of pressures firming up in the form of high growth in capital goods output, an upturn in investment in infrastructure and a quickening of the capital expenditure cycle. There are indications that strengthening investment demand is beginning to drive the economy. More importantly, consumption demand, which accounts for over two-thirds of aggregate domestic demand, also seems to be gathering strength. This is evident from high retail credit and double-digit growth in the production of consumer durables in the first five months of 2006-07. Consumer non-durables have shed their earlier sluggishness and picked up in July and August. Demand pressures are also visible in the expansion of money supply and reserve money which has been sizeably higher than anticipated. 48. The demand for bank credit has been growing at above 30 per cent for the third year in succession. Available information points to high growth in credit extended by banks to fast growing sectors such as housing, commercial real estate and retail loans. Asset prices remain at elevated levels and current levels of commodity prices make an overall assessment a complex task. 49. Against this background, it is critical to be watchful for early signs of overheating. An overheating economy is one which is growing rapidly and its productive capacity cannot keep up with resulting demand pressures. Emergence of inflationary pressures is usually seen as the first indication of overheating. In this context, policy makers keenly analyse the behaviour of the output gap, i.e., the excess of current output over potential or full capacity output. In the context of setting monetary policy, judging how close an economy is to operating at full capacity is crucial. If the monetary authority senses that there is unutilised capacity, the increase in demand generated by growth can be accommodated without inflationary pressures and, therefore, the need to act against overheating may not arise. On the other hand, if demand is running ahead of full capacity, there is a case for tightening of monetary policy with a view to slowing down the economy and heading off overheating. 50. Globally, there seems to be increasing difficulty in identifying the symptoms of overheating. There is some evidence of a blurring of the relationship between output gaps and inflation. Moreover, the size and direction of an economy’s potential output is becoming increasingly difficult to diagnose. In particular, globalisation has expanded the supply potential of various economies, especially emerging economies. In the recent period, it appears that the current positive supply shock has made the concept of potential output fuzzier than in the past. For a developing economy like India, the concept of overheating is less of a guide for monetary policy than in advanced economies on account of the existence of large unemployment/underemployment of resources and the absence of a clear assessment of potential output. Furthermore, it is difficult to obtain a clear judgement of potential output in an economy that is undergoing structural transformation. Nevertheless, recent developments, in particular, the combination of high growth and consumer inflation coupled with escalating asset prices and tightening infrastructural bottlenecks underscore the need to reckon with dangers of overheating and the implications for the timing and direction of monetary policy setting. While there is no conclusive evidence of overheating in the Indian economy at the current juncture, the criticality of monitoring all available indications that point to excess aggregate demand is perhaps more relevant now than ever before. 51. Monetary policy operates with lags that can be long and variable, depending on the specifics of the country situation. It is in this context that the setting of monetary policy is required to be forward looking with the full impact of current policy actions coming into play 12 to 18 months later. In India, the key policy signalling rates embodied in the LAF repo/reverse repo rates have been raised since October, 2004 by a cumulative 100/150 basis points, supported by a 50 basis points increase in the CRR. This calibrated withdrawal of accommodation is in the process of working itself through the various sectors of the economy. Hence, in addition to current signs of demand pressures, the evolution of demand conditions in the next few months is critical for considering the possible emergence of overheating, if any, with concurrent implications for both price and financial stability. 52. In the domestic financial markets, there seems to be some evidence of moderation in volatility in the second quarter of 2006-07 within an overall re-pricing of risks. Money markets continue to be characterised by conditions of excess liquidity, interrupted by brief spells of temporary tightness in the second half of September on account of advance direct tax outflows and balance sheet requirements. Short-term rates have generally evolved in alignment with policy rates and have responded favourably to the policy stance in June and July. In the foreign exchange market, the exchange rate of the rupee has exhibited two-way movements. Since end-July, however, the market sentiment has turned upbeat, mirrored in a modest nominal appreciation. In the Government securities market, yields have come off mid-July highs and have corrected substantially. 53. Inflationary pressures, as exhibited in wholesale and consumer prices warrant continued special focus. Despite recent easing, it will be prudent to presume that oil prices at current levels may still contain some elements of a ‘permanent’ component which is yet to be matched by full pass-through. Hence, the possible risks for inflation in the months ahead need to be viewed against this background. It is desirable to watch for incipient pressures building up on prices of manufactures with the quickening of domestic industrial activity and the elevated levels of international commodity prices. It is also necessary to monitor the seasonal movements in prices of food articles in the remaining part of the year, given their criticality for inflation perceptions and consequently, inflation expectations. In the months ahead, it is difficult to assess whether productivity gains and competitive conditions will be able to head off the squeeze on margins that seems to be setting in. Furthermore, it is possible to hold that positive base effects that have couched the impact of upside pressures on price changes so far would wear off and this could amplify measured inflation towards the close of 2006-07. 54. Fiscal spending has picked up in the first five months of 2006-07 and the Centre’s gross fiscal deficit has been running higher on an annual basis in relation to budget estimates. The buoyancy in tax revenues may, however, mitigate the expansionary impact if it gets entrenched in the remaining months of the year. Consumer prices for all categories have been rising through the first half of 2006-07, reflecting the impact of heightened primary product prices, including those of essential commodities. The wedge between consumer prices and wholesale prices remains larger than before. While a combination of fiscal and monetary measures seems to have reinforced each other and helped to mitigate the inflationary risks, there are reasons to be vigilant on this front. In particular, looking ahead, it may be appropriate to hold that the outlook for inflation in India is more likely to be driven by demand conditions rather than by the strong positive supply-side effects noticed in the recent past. 55. In an economy-wide sense, the faster growth of aggregate demand relative to aggregate supply during 2006-07 has begun to be manifested, to some extent, in the external sector. The merchandise trade deficit and the current account deficit have expanded despite buoyant export growth and some moderation in the growth of non-oil imports. So far, the high prices of international crude seem to have been driving the widening of the trade deficit. Softening of these prices in the months ahead could offset such pressures. Merchandise export growth has remained reasonably strong. Gross invisible earnings have expanded rapidly in recent years and are poised to equal merchandise exports. Fast growth in earnings from travel, software and other business service exports has complemented the stable support from inward remittances which is being increasingly regarded as a ‘permanent’ component of India’s external balance sheet. Capital flows seem to have recovered from the turbulence of May-June and have resumed strongly with debt flows in April-June, 2006 increasing to US $ 5.2 billion from US 1.0 billion a year ago. On the whole, it is reasonable to expect that, as in the recent past, capital flows will enable financing of the current account deficit and some continuing accretion to the level of foreign exchange reserves. 56. In recent months, there are some indications of a shift in the patterns of global growth. First, the US economy, which has powered the recent phase of global expansion, seems to be beginning to slow, driven down primarily by the contracting housing market. Second, activity appears to have gathered momentum in the Euro area and Japan but it is unclear as to whether or not this recovery is self-sustained. Third, the onus for sustaining global growth seems to be shifting to the emerging economies, particularly low per capita income countries. Financial upheavals right up to May-June this year are a reminder that market conditions in emerging economies have been relatively volatile in response to exogenous developments. Fourth, shifts in the pattern of international trade are also discernible. China’s rising importance has been paralleled by a reduced reliance of major emerging economies on the US as an important export destination. 57. Globally, inflation risks remain, though incipient at the current juncture. While headline inflation rates are moderating, core inflation, especially in the US, has remained firm, indicating that upside pressures from oil and commodity prices persist across advanced and emerging economies, especially at the producer level. Potential risks from the possible full indirect effects of elevated and uncertain oil/commodity prices, some possible tightening of global production capacities and the remaining overhang of global liquidity continue to weigh upon the setting of monetary policy worldwide. There are also signs of wage pressures setting in. While some deceleration in economic activity in recent months seems to have induced a pause in the policy tightening cycle of several important central banks, the persistent threats of inflation constrain monetary authorities from possible moves towards a more neutral stance in an aggressive fashion. 58. Global imbalances have continued to widen during 2006. With some central banks actively reassessing their stance now, the potential drainage of global liquidity would test the resilience of world financial markets and weigh upon the outlook on the global economy. Globally, the concerns are not about the existence of current account deficits or surpluses per se, but the persistence of large deficits and surpluses, particularly in large and systemically important economies. It is in this context that the IMF’s projection of the U.S. current account deficit at about 7 per cent of GDP in 2007 with large surpluses continuing in Japan, emerging Asia and oil-exporting countries is disturbing. The sharp rise in the net foreign liability position of the US raises the risks of abrupt and disorderly adjustment of major currencies as the global imbalances unwind. However, there is an interesting lull in the serious concerns expressed both by policy makers and financial markets in regard to the global imbalances, possibly on the assumption that universal recognition of the problem would per se lead to harmonised actions that would avoid hard landing. 59. Global financial markets have revised expectations in response to the changes in the magnitude and pace of monetary tightening between June and September, 2006. In the money markets, there appear to be widening expectations that, at best, interest rates are expected to rise only gradually from now on. On the other hand, these revisions in expectations have coincided with falling long-term interest rates in the US, the Euro area and Japan leading to inversion/flattening of yield curves. Global equity markets have recovered some of the losses suffered in May and June with those markets that recorded the largest losses gaining the most. Spreads in corporate credit markets have remained tight, broadly unchanged from late June. A boom in global mergers and acquisitions has been underway and has been financed, to some extent, by increased leverage. Changes in expected short-term interest rate differentials have emerged as important drivers of foreign exchange markets, enabling a moderate strengthening of the euro. The yen’s role as a funding currency for carry trades remains significant. The pound sterling has strengthened in the wake of the increase in the policy rate by the Bank of England. Currencies of emerging economies have benefited from a reversal of May-June portfolio outflows. Renewed strength in commodity prices has also played a role in foreign exchange markets. Nevertheless, geopolitical risks remain a key factor in determining the evolution of major currency movements. It is also important to recognise the potential risks emanating from the possible moderation of liquidity and oil surpluses on account of the impact of monetary policy action as well as the likelihood of the ebbing of oil prices. 60. Credit markets, particularly in developing countries, have been experiencing heightened activity since 2004. During 2006, there seems to be growing evidence that a synchronised upswing in bank credit is taking hold across emerging economies in Asia and Latin America in an environment of strong growth and excess liquidity in banking systems. This recent surge is accompanied by compositional shifts on the assets side of banks’ portfolios. Households, not corporates – historically the most important borrowers from banks – have absorbed a significant portion of the credit growth. There seem to be some risks to sustainability of the recent rapid pace of bank credit growth to households. First, households could become overextended as reflected in credit card busts in several emerging economies. Second, large accumulation of debt could leave households prone to future interest rate/exchange rate shocks since banks have, in effect, transferred a large part of their market risks to households. Third, excessive reliance on debt-financed consumption could turn out to be a serious problem if refinancing options dry up. Fourth, moral hazard and adverse selection is a constant challenge facing banks. Fifth, housing markets continue to remain overheated and, therefore, a source of risk. 61. In the overall assessment, while global growth has been strong and broad-based, there seem to be some indications of moderation in recent months. There are also perceptions of risks to growth from the cooling of the housing market in the US and the potential drainage of liquidity from financial markets. While global inflation conditions have not worsened, concerns relating to potential price pressures persist, particularly in the context of the firming up of food and metal prices, the uncertainty surrounding international crude prices and the monetary overhang. While geopolitical risks continue to cast a shadow, it is necessary to recognise that global risks have not changed significantly from the time of the First Quarter Review of July, 2006. Domestic developments exhibit strength and resilience with some downside risks. There is a pick-up in the momentum of growth which also appears to be spreading across all constituent sectors of the economy. Domestic financial markets have exhibited stable and orderly conditions. In the external sector, there are signs of abiding strength and the current account deficit has been well-managed so far. On the other hand, there are indications of growing demand pressures and potential risks from rapid credit growth and strains on credit quality. High levels of monetary expansion and the evolution of the liquidity situation will need to be continuously monitored for any signs of risks to inflation. The elevated levels of asset prices also represent a risk to the outlook for macroeconomic and financial stability. In brief, at the current juncture, for policy purposes, the two major issues that exert conflicting pulls are exploration of signs of overheating firming up to warrant a policy response, and, the impact of lagged effects of earlier policy action on the evolution of macroeconomic developments.

Question about islamic system

2007-05-30T15:57:00.003+05:30

Islam & the Economic Question
In order to address the economic system in Islam, we first of all need to clarify the position of Islam in relation to the quest for material well being. This is because the word dunya, which is associated with material wealth or worldly matters has become a dirty word for many Muslims. The separation of deen from dunya (secularism) is a Western-Christian concept that has recently become widely internalised amongst Muslims. Consequently, seeking to increase in economic or worldly matters is frowned upon, - while continuous engagement in prayer and other personal ibadat is regarded as meritorious. As such, many people get confused and conduct a double life. On the one hand, money talks, it gives status and makes life comfortable, so they seek it vigorously. On the other, they feel guilty, thinking that their effort should be spent on 'religious' duties. This is due to a misunderstanding of the position of the economic question in Islam. There is no doubt that Islam is opposed to monasticism and views the economic activities of man as quite lawful and sometimes even obligatory and necessary. We find many injunctions in Islam that allude to this. For example, Allah (SWT) says in the Qur'an: 'Disperse through the land and seek the bounty of Allah' (TMQ-62:10), He also says, 'Allah has permitted trade'(TMQ-2:275), And even more directly, Allah(SWT) says: 'Seek the other world by means of that which Allah has bestowed upon you, and do not be negligent about your share in this world.' (TMQ-28:77) These are all in reference to economic activity. In the sunnah, we find that one of the most commonly said du'as that the Prophet(SAW) taught us is: 'our lord give us the good in this life and the good in the hereafter'. But despite this, we find expressions in the Qur'an which state: 'The life of this world is but a delusion' -3:185 ; 'The mutual rivalry for piling up the good things of this world diverts you from the more serious things. - 102:1; and many others, stating that man has lust and greed for wealth(89:20) and that he is violent at this greed (100:8) and that he becomes boastfull and proud (11:10) and so on. This apparently sounds like a contradiction in terms. But actually, what we are taught by Islam is that the real objective of our existence is to worship Allah(SWT) through righteous conducts by living as humans in this world. So all those things that are necessary for this life become essential for man. It is one thing to say that material well being is important and even compulsory but it is quite another to say that it is the ultimate goal and centre of thought and action in life. This is where the confusion arises about the Islamic economic question. The fundamental difference between Islamic economics and all materialist ones is precisely this. The materialists view that economic well being is the ultimate end of human life, while Islam says that these things may be necessary and indispensable, but cannot be the true purpose of life. Economic endeavours only become an allurement or delusion if man loses sight of his real purpose in their pursuit.The right path to follow therefore is to fully engage into worldly economic life in the manner prescribed by Allah(SWT) and His Prophet(SAW), both at societal and individual level. The prophet said: 'Work for your worldly life as you were going to live forever, but work for the life to come as if you were going to die tomorrow.'The economic problem in Islam.Unlike the current world view as pushed by the capitalist west, Islam considers that the main economic problem that mankind will ever have is that of distribution of wealth and not of production. In the eyes of the capitalist West, there is relative scarcity of resources available in the world, and peoples demands for these resources are endless. Hence each nation and in fact the world should concentrate on more and more production. The higher the amount of wealth produced, the higher the number of people that will satisfy their demands through the process of economic activity. Islam distinguishes between basic needs which include food, clothing and shelter, and luxurious wants which includes all those things that are not necessities in life. It views that there are enough resources to satisfy the basic needs of all people all the time and to satisfy some of the luxurious wants of people and that economic problem is that of distribution and not production. There are enough resources to feed, clothe and house everybody in the world fully as can be seen by the food mountains of Europe and the excesses of the few rich in each country, including the 3rd world countries. In accordance with their capitalist philosophy of maximising profit, we find governments paying farmers to produce less as in the EC countries, or to destroy what has already been produced as happened in poor Latin America where a huge amount of coffee was burnt. Far more wealth leaves the poor countries of Africa for the rich West than vice versa due to unjust economic deals. Even at the height of the Ethiopean famine crises in the late eighties, the country was exporting millions of dollars worth of resources to the West. Allah (SWT) says in the Quran, 'It is Allah who created the heavens and the earth, and sent down from heaven water wherewith He brought forth fruits to be your sustenance. And He subjected to you the sea at His commandment; and He subjected to you the rivers and He subjected to you the sun and the moon constant upon their courses, and He subjected to you the night and the day, and gave you of all that you asked Him. If you count Allah's blessing, you will never number it; surely man is sinful, unthankful. (4:32-34). In another verse He says: 'Verily, thy lord doth provide sustenance in abundance for whom He pleases and He straiten it, for He doth know and regard all his creatures.' (17:30). These verses among many others show that Allah(SWT) has pooled in this universe all the needs and beneficial things for man, and has provided sufficient resources to satisfy material need of man. In Islam, a distinction is made between economic science, which is to do with the means of production and economic system is concerned with the problem of distribution of wealth, namely the rules by which wealth can be acquired, used and disposed of. It is through the economic system that is specific to Islam that wealth is distributed equitably, while economic science is not particularly specific to Islam as such but can be acquired from any other people or developed as seen fit.Objectives of the Islamic economic systemThe objectives of the Islamic economic system can be classified as follows:1) To satisfy the basic needs of each and every individual in the Islamic state completely2) To provide the citizens of the Islamic state with the means to satisfy their luxurious needs 3) To achieve 1) and 2) through a naturally workable system with due incentives for economic activity and an equitable system of distribution.Principles and policies to achieve the objectives1) Ownership. Ownership constitutes one of the important incentives for engaging into economic activity as the owner of wealth has the right to use or dispose of it. The means of acquiring such rights is one of the fundamental principles through which the objectives of the Islamic economic system are achieved.In the Islamic economic system, it is understood that the real owner(Creator) of all wealth is Allah(SWT). We only 'own' wealth by proxy as guardians. Some of us acquire wealth by engaging in the production process and hence have a direct access to wealth. These include the factors of production as defined by Islam. Others have an indirect access to wealth simply because Allah(SWT) as the real owner of wealth has stipulated that those with direct access to wealth through engagement in the production process must pass some of it on to them as He made clear in the Qur'an: 'Give to them from the property of Allah(SWT) which He has bestowed upon you.' 24:33. This usually takes the form of Zakat, kaffarat, sadaqat-ul-fitr, inheritance, etc. which are given to the poor, the needy and later generations. It is the duty of the government to ensure that such wealth is duly transferred by law.Notwithstanding this, Islam does not impose a limit on the amount of wealth that one can own. Rather, it controls the means of ownership such that people acquire the right to wealth in a just manner. This excludes speculation, forward transactions, lottery, and dealing with interest among other things. Additionally, Islam also stipulates in accordance to the ahadith of the prophet(SAW) that certain properties are to be collectively owned for the use of all citizens. These include sources of energy, pastures and natural resources including water. Through these ownership principles, Islam ensures that everyone gets what is rightfully due to him from his creator, unlike the capitalist system where only those who take part in the production process have the right to wealth. At the same time, it gives full incentives to individuals to fully participate in the economy by not imposing a limit on how much they can own. 2) Economic enterprises and the prohibition of interest and hoardingInterest rates form the backbone of the capitalist system in many ways. It is used as a tool to regulate economic growth and monetary supply by acting as an 'incentive' for those who have surplus money to save/hoard. In Islam both interest and hoarding are prohibited. Allah(SWT) says in the Qur'an: 'And those who hoard up gold and silver and do not spend in the way of Allah, announce to them a painful chastisement. (9:34). He also says: 'Allah has permitted trade and forbidden interest.' (2:275). Owners of capital therefore have to invest it either in the form of private business or partnership. The most fundamental criteria that must be met by all companies of partnership are that there must be offer and acceptance between two or more parties, and that once they become partners they have equal say in the running of the company. In addition to these criteria, the manner of sharing profit and loss is dependent on the type of company. In the Company of Equals (Anan) where partnership is formed by the wealth of two or more parties, any loss suffered by the company would be shared among the partners in proportion to the capital they put. In the Company of Persons (Abdan) where partnership is based on services provided by the partners, loss is shared according to the salaries/wages of the partners. In the company of Mudharaba where partnership is based on capital from one party and labour from another, loss is incurred by the owner of capital while the provider of labour loses their wage/salary. From these elementary rules and structures, many other forms of companies can be formed. In all cases, profit is shared according to mutual agreement independent of the amount of capital or service/labour provided. Through this arrangement, continuous business investment keeps employment level high and both the rich and the poor get richer.The role of the stateThe government plays an important role in the economic system of Islam.Islam makes it the responsibility of the state to provide food, clothing, shelter,education, health and security to every individual. It is also the responsibility of the state to enable citizens with the means of getting luxurious needs in addition to these basic needs by themselves. The state achieves this through the management of public property , through the use of income from other sources and through provision of good economic environment so that people satisfy their needs due to their involvement in economic activity. Sources of revenue for the state1) TaxationFai - Property captured from the enemy without fightingGhanima - BootyUshr - Land Tax on unconquered landKharaj - Land Tax on conquered landJizya - Head-tax on non-Muslims2) Others- Revenues from natural resources- Fines levied3) Facilitating luxurious needsIt is also the responsibility of the state to provide adequate infrastructure for the supply of such commodities to the people.The most fundamental aims of the economy of any nation is to provide adequate supply of goods and services for its citizens and to enable each citizen to acquire and use them to raise their standard of living. This requires that wealth be created in the form of usable goods and services and that people get the means of owning and/or using these goods or services. The degree to which these aims and objectives are met and the efficiency with which the citizens of the state participate depends on the specific rules of engagement, namely the economic system which the nation implements.Apart from the general ideological framework upon which the economic system is based, the key ingredients for the economic success of any nation include:1) Confidence in and stability of the system2) Workability of the system by providing appropriate economic incentives for wealth creation and distribution3) A just method of distribution.Although only the capitalist economic system is practised in the world today, the Islamic economic system gives the best rules of engagement in economic activity and would be the most successful towards raising the standard of living of any nation.a) On confidence and stabilityEconomic activity by its very nature is risky as those who partake in it directly can gain or lose wealth. Hence in all economic systems, there is always an understanding by those who participate that they may lose their capital or effort . However, there other phenomena that adversely affect the economic life of a nation by artificially creating an atmosphere of insecurity, and thereby reduce the level of economic activity. These arise because of the specific economic system implemented and include the followings:i) Booms and Busts: In the capitalist system, periods of good and bad trade have become evident from the records. Although opinions differ widely among economists on the conditions responsible for trade fluctuations, a common feature is that root cause of these conditions stems from the foundations of the capitalist economic system.ii) Runaway inflation: The fact that money continually loses its value has become an intrinsic part of capitalist economies. Here again there are quite a few opinions from economists as to what causes runaway inflation. But the recipe for runaway inflation lies at the heart of established financial controls in the capitalist system.iii) Money market crashes: These occur irregularly in the form of sudden exaggerated changes in foreign exchange rates and sudden fall in share prices. The most fundamental characteristics of the capitalist economic system which form the root of these phenomena are speculation and false representation. These are manifested in :The artificial creation of money: There is nothing to prevent governments from literally creating money at will. Excessive creation of paper money which cannot be represented by real wealth is the root cause of inflation.In addition, high street banks can lend money that is not existent by crediting peoples accounts on paper. This is false representation that is meant to keep the system going actually creates more artificial money. In conclusion, the above points clearly outline certain fundamental differences between the capitalist economic system and the Islamic economic system. The inherent failing of capitalist economies can be seen today throughout the world, even in the Muslim countries, where it has been forcibly applied by corrupt rulers. The details of Islamic economics should fill us with confidence that Islam provides solutions to the ‘economic’ problem’, which the world around us currently faces.

islamic economic system

2007-05-30T15:57:00.002+05:30

“Creditors have better memories than Debtors”
The proverb in the title has an unfortunate reality. Many Muslims are finding themselves increasingly in debt. Creditors have to persistently remind the debtor of the loan they have ‘forgotten’ to pay. It is extremely rare, that you find the debtor reminding the creditor of his own debt. Often the relationship between the creditor and the debtor turns sour because Islamic principles are not the basis for their financial dealings and disputes. This article discusses the Shariah rules pertaining to loans and debts. Indeed, Islam is very strict upon the Creditor’s motive and the Debtor repaying back what he has borrowed.Characteristics of the LenderThe Prophet (saw) said: "Every loan is a sadaqah".Islam encourages those who have enough wealth to give loans to those who request it. However it is important that the creditor or the lender should not seek any material benefit from giving a loan. He must seek the ethical value when advancing money as a loan and not expect anything material in return. Hence the lender is enhancing his personal quality of generosity and trying to remove any traits of stinginess from his soul. This is the definition of a loan in Islam. The motive is to help a person in need and seek only the reward and pleasure of Allah (swt).This is often overlooked and sometimes the creditor may expect a material favour in return of his loan. Such a mentality by the lender is extremely dangerous, as the intent of a loan is not to seek the material value. This way of thinking produces a despicable being that thrives on personal greed and interests. This mentality of seeking a material benefit in every single action in life is a product of the Capitalist ideology that we unfortunately live under and sadly many Muslims are behaving in a similar manner.The source of our inclinations must come from the pure Islamic Aqeedah and not the Secular Creed of Capitalism. Only by referencing the divine sources for our mentality and inclinations can we say that we have an Islamic personality. Take the example of Abu Hanifah he indeed exhibited an Islamic personality. Once Imaam Abu Hanifah attended a Janaazah on an extremely hot day. The only shade in the vicinity was the shadow of a wall belonging to his debtor. However, Imaam Abu Hanifah remained standing in the blazing hot sun. When people insisted that he stand in the shade, he said: "The owner of the house is my debtor. It is not permissible for me to derive any gain from him because the benefit produced by every qardh (loan) is riba (interest)."Characteristics of the DebtorThe Prophet(saw) said: “All the sins of a Shahid (martyr) are forgiven except debt.”The above hadith clearly shows the severity of not paying back debts. The Muslim who dies before paying back his debt will be a sinner earning the displeasure of Allah(swt) in the life hereafter. The debtor or borrower must honour his promise of paying back what he has borrowed.Borrowers must appreciate the help they receive and try as best as they can to ensure repayment on time. Unfortunately, it is often the case that friends or relatives abuse the kindness given to them. In financial dealings, people often do not honour their promises. Many of us can relate stories that we, or some close relatives of ours experienced, and all confirm that many people are ready to request loans and credits, but they shy away when it is time for them to settle such debts.When trying to retrieve the loan back, some debtors act in a manner contrary to the etiquette of Islam. At times, the borrower is ready to insult the creditor who asks him for repayment and some will even go so far in persistently lying to the creditor to try and extend the repayment date or even not pay the debt at all.Narrated by Aisha,“Allah’s Messenger (saw) used to invoke Allah in the prayer saying, “ O Allah, I seek refuge with you from all sins, and from being in debt.” Someone said, O Allah’s Messenger! (I see you) very often you seek refuge with Allah from being in debt. He (saw) replied, “ If a person is in debt, he tells lies when he speaks, and breaks his promises when he promises.”What can be upsetting to the creditor is when the borrower has agreed to pay on a particular date but does not pay the amount due on time nor even contact the creditor. Weeks and months or even years can pass by without the borrower picking up the phone and explaining why he has not paid back the money he had borrowed. Long periods of non-communication by the debtor will only build suspicion and ill feeling towards the borrower.Such a mentality by the debtor is unacceptable and he must take the necessary steps to reassure the creditor that he is doing all he can to pay back what he has borrowed. He does not know when death will reach him and the debt will still be hanging on his neck even in the grave.It has been narrated:A dead person was brought to the Prophet so that he might lead the funeral prayer for him. He asked, "Is he in debt?" When the people replied in the negative, he led the funeral prayer.Another dead person was brought and he asked, "Is he in debt?" They said, "Yes." He (saw) refused to lead the prayer and said, "Lead the prayer of your friend." Abu Qatada said, "O Allah's Apostle! I undertake to pay his debt." Allah's Apostle then led his funeral prayer.”Unfortunately this has led many Muslims to refrain from the good deed of extending loans even to their immediate relatives because of their bitter experiences. When such a common mentality is widespread it clearly indicates a problem in society. The business environment can be extremely hostile and even abusive when the creditor is trying to retrieve his money from the debtor. This often will lead to Muslims falling out with each other and perhaps never talking to one another again. Often both parties will slander one another to the point that the creditor will eventually take legal proceedings against the debtor.This mentality of lying and giving excuse after excuse by the Muslim debtor is a result of the office environment that breeds the benefit mentality. Such atmospheres are driven to obtain the maximum amount of profit and benefit in any way they can, having no regard for honesty and fair-trading.Take for example a Muslim who owes money to somebody but delays the payment because he ‘perceives‘ that the lender is rich and that he is not in need of it urgently. The creditors financial status, i.e. whether he is rich or poor, should not be questioned nor should it be the reason for repaying a debt early or late. The moment the debtor has the capability of paying, he is obliged to do so from Shara’a. He would be sinful for holding onto something that doesn’t belong to him.Narrated Abu Huraira: Allah’s Messenger said: “ Procrastination (delay) in repaying debts by a wealthy person is injustice.”This illustrates how society is moulding his inclinations and not the divine texts.Thus if a lender anticipates that giving a loan to a Muslim will sow the seeds of discord then he would be prudent to refrain from giving a loan to such a person. Only until the borrower aligns his disposition in accordance with the divine text would it be safe to enter a loan agreement.Divine Rules regarding loan (Al Qardh) TransactionsIt is extremely important that the loan agreement fulfils the basic principles of contracts in Islam. These principles are as follows:§ Both parties should be legally from Shar’a capable to enter into the qardh contract.Islam obliges (fard) that the parties must fulfil the following requirements. Those entering the agreement must be:Baligh ( reached the age of puberty )'aqil ( sane )rashid ( of sound judgement )Allah (swt) says,"Make trial of orphans until they reach the age of marriage; if then you find sound judgement in them, release their property to them." [Al-Nisa : 6].This ayat states that the age of marriage and sound judgement is the age of maturity, and thereby a mature person is capable to enter into any transaction validly.The Prophet (saw) said,"The pen is raised for three groups (of people) that is, they will not be responsible for their actions: the insane until they become sane, those who are sleeping until they are awaken, and the youth until they reach puberty."The above hadith makes it clear that a person, who has not attained the age of puberty, may not be a responsible party for al-qardh agreement.§ Ijab (offer) and qabul (acceptance) of the qardh must be clearly made before entering into the loan contract:Both parties must be extremely clear on their agreement i.e. what is being offered and what is being accepted. The ijab and qabul should be clearly expressed and indicated in the contract, otherwise the loan contract might create a dispute in the future.§ The date of payment should be specifiedIt is recommended (mandoub) the date of payment should be mentioned in the loan agreement. If no date is specified, the transaction may lead to ambiguity and dispute in the future between the lender and the borrower."Whoever enters into a contract of salam should specify the date of delivery and the amount of subject matter."§ The loan contract should be written down.It is mandoub that both parties agree to write down the loan agreement. This will ensure that future disputes are avoided.Allah(swt) says,"O you who believe! When you deal with each other in transactions involving future obligations for a fixed period of time reduce them in writing." [Al-Baqarah : 282]Unfortunately, some of us think that if they are requested to write down the loan agreement, then such a request means that the creditors do not trust them, when it is Allah(swt) that has made this a recommendation.§ Getting two witnesses.It is mandoub that both parties agree upon witnesses being present. This will ensure that future disputes are avoided.Allah(swt) tells us that two male witnesses should be present, if two men are not available, then one man and two women will have the same effect."And get two witnesses out of your own men and if there are not two men, then a man and two women." [Al-Baqarah : 282]Being patient with the struggling DebtorThe Prophet (saw) said, "Whoever relieves a believer from a difficulty in this world, Allah will relieve him from his difficulty and Allah will facilitate him in this world and the world hereafter."Taking all the above considerations into account will not guarantee your loan being returned on time. A debtor may be struggling to repay his debt despite his promise to pay it back on a particular date. He is doing all he can within his capability to pay it back. He keeps in regular contact with the lender to update him on his efforts to pay back what he borrowed. He is conscious of the severity of not paying the loan back and he makes a plea to Allah(swt) to aid him in his difficult times. Such a person who exhibits ikhlas khalis (pure sincerity) deserves help and the lender must be patient with him and understanding of his difficult circumstances.The Prophet (saw) said, "Once a man died and was asked, 'What did you use to say (or do) (in your life time)?' He replied, 'I was a businessman and used to give time to the rich to repay his debt and (used to) deduct part of the debt of the poor.' So he was forgiven (his sins.)"The Debtor showing his appreciation towards the CreditorThe Creditor is forbidden to ask for anything extra from his loan, as this is clearly Riba (interest). However it is perfectly acceptable for the Debtor to give something more than he received, as a token of appreciation for the creditors good deed.The Prophet(saw) said,A man demanded his debts from Allah’s Messenger in such a rude manner that the Companions of the Prophet intended to harm him, but The Prophet (saw) said: “ Leave him, no doubt, for he (the creditor) has the right to demand it (harshly). Buy a camel and give it to him.” They said, “ The camel that is available is older than the camel he demands. The Prophet (saw) said “ Buy it and give it to him, for the best among you are those who repay their debts handsomely.”ConclusionEthical trading is absent from the Capitalist mentality. This corrupt way of thinking is firmly embedded in the Aqeedah of Capitalism. Morality does not enter the financial world because there is nothing to gain materially from ethical trading in Capitalist societies. Hence the relationship between the Muslim Creditor and Muslim Debtor must at all times be based on the pure Islamic Aqeedah. The Creditor must ensure his motive is free from any material gain, he must be patient and compassionate with the sincere struggling debtor if he wishes to earn a place in Jannah. The Debtor must be honest, sincere and appreciative for the kindness shown to him. His attempt to repay his loan on time must be serious and genuine if he too wishes to enter Jannah.Muslims must abandon this benefit mentality and adopt the Islamic mentality in their financial dealings. This is paramount when dealing with your Muslim brother or a Non-Muslim. Indeed the Muslim must adopt the purity of Islamic trading, as this will demonstrate to the non-Muslims the stark difference in our personality to that of the Capitalist personality.By S. al-Baruchi

2007-05-30T15:57:00.001+05:30

Insurance prohebited in islam

2007-05-30T15:57:00.000+05:30

The prohibition of Insurance in Islam
The following is a translation of a section from the excellent book 'The Economic System of Islam' by Sheikh Taqi ud-deen an-Nabhani.Insurance (Ta’meen)Insurance whether on life, goods, property or any of its numerous types is a contract. It is a contract between the insurance company and the insuring person in which the latter asks the insurance company to give him a promise that it will compensate him for that (‘Ayn) which is spoilt or destroyed or for its price with regard to goods or property, or a certain sum of money with regard to life and the like. This takes place if the accident occurs within a defined period, in exchange for a certain amount of money (premium); and the (Insurance) company accepts this.Based upon this offer and acceptance, the insurance company undertakes to compensate the insuring person, within certain conditions approved by the two sides, either for the thing which he loses or its price when an accident occurs, or a sum of money which they have agreed upon e.g. in the event of his goods being destroyed, his car being damaged, his house being burnt down, his property being stolen, him dying or the like occurred during a certain period of time, he will be compensated, in exchange for a certain amount of money (premium) which the insuring person pays to the company during that defined period of time.It appears from the above that insurance is an agreement between the insurance company and the insuring person over the type of insurance and its conditions, so it is a contract. However, according to this contract which was concluded between the two sides . i.e. the agreement . the company gives an undertaking to compensate or to pay a certain amount of money within the agreed conditions. So if an accident occurred to the insuring person upon which the terms of the contract apply, then the company becomes obliged to compensate him for the destroyed thing orits price according to the market price at the time of the accident. The company is free to pay the price or to compensate for the loss to the insuring person or to others. This compensation becomes a right due to the insuring person, in the company’s responsibility (Dhimma) once the matter mentioned in the contract has occurred, provided the insurance company is convinced that he deserves it or if the court gave such a verdict.The term ‘insurance’ has been used in this matter. Insurance could be to the benefit of the insuring person, or to the benefit of others such as his children, wife, inheritors, or any other person or group (beneficiary) assigned by the insuring person. Calling this contract ‘life insurance’, or insurance on goods, the voice or any other asset is aimed to market this transaction to the people. Otherwise, the fact of the matter is that the insuring person does not insure his life. He, rather, insures that a certain sum of money will be paid to his children, wife or inheritors or to any other named beneficiary designated by him, when his death occurs. Similarly he does not insure his goods, car, property etc: rather, he insures so as to be compensated for the insured object or its price in case it is injured or damaged. So it is, in fact, a guarantee (Dhamaan), for him or others to obtain a certain sum of money or compensation if something occurred to him that took his life or damaged his property, and therefore it is not a guarantee for his life or his property. This is the reality of insurance. The accurate study of it shows it to be invalid (Batil) from two angles:Firstly: It is a contract because it is an agreement between two parties, and it includes offer and acceptance, where the offer is from the insuring party and the acceptance is from the company. So in order that this contract be legitimately valid from the Shar’a (divine revelation) point of view, it must contain the Shar’a conditions of the contract. If it contains such conditions it becomes valid, otherwise not. From the Shar’a point of view, the contract should apply upon an object or a benefit. So if it did not apply upon either a thing or benefit it would be invalid, because it would not apply upon a matter that makes it a legitimate contract. This is so because the legitimate contract applies either to a thing in exchange for something else as is the case with selling, forward buying/advance sale (Salam), company and the like; or it applies upon a thing without an exchange like the gift; or it applies upon a benefit in exchange for compensation like leasing; or to a benefit without compensation like lending. Thus the legitimate contract must apply upon something.The insurance is not a contract that applies upon an object or a benefit; rather it is a contract that applies upon a pledge i.e. guarantee (Dhamana). The pledge or the guarantee does not represent an object for it cannot be consumed nor its benefit be used; nor does it represent a benefit, because no benefit derives from that guarantee itself either by leasing or by lending. As for obtaining money based upon this guarantee, this is not considered its benefit; rather it is a result of a transaction. Therefore, the insurance contract is not considered to apply upon a thing or a benefit, and it does not include all of the conditions required by the Shar’a in a legitimate contract, so it is void.Secondly: The company gives a pledge to the insuring person within certain conditions, so it is a form of guarantee (Dhamaan). Accordingly, the conditions required by Shar’a in relation to the guarantee have to be applied to the insurance contract so as to be considered a legitimate guarantee. If it contained these conditions it would be legitimate, otherwise not. Referring to the guarantee we find:The guarantee is where the guarantor (Dhaamin) joins his responsibility (Dhimma) to the responsibility of the person guaranteed for (Madhmoon ‘Anhu) in committing oneself to a certain right (Haqq). So it must include joining one’s responsibility to another’s responsibility; also there must be a guarantor, a person guaranteed for and a person guaranteed (Madhmoon Lahu). So the guarantee is the mandatory commitment (Iltizam) of a right as one’s responsibility without compensation. A condition of the guarantee’s validity is that it should be with regard to a financial right which is already due (for repayment) or which will become due. So if the pledge was not in respect of a due right or a right that will become due, the guarantee is not valid. This is so because a guarantee is the joining of one’s responsibility to another’s responsibility in relation to its fulfilment, so if there is no right in the responsibility of the person guaranteed for, then there is no joining of responsibilities. This is quite clear in the due right.As for the right which will become due later, as for example when a man says to a woman: ‘Marry this person and I guarantee your dowry’, the guarantor has joined his responsibility to the responsibility of the person guaranteed for such that the guarantor will be bound like the guaranteed for, and that which is proved in the responsibility of the guaranteed for is similarly proved in the guarantor’s responsibility. Whereas, if there is no right due upon anyone or a right that will become due later, then there is no meaning to the guarantee as there is no joining of responsibilities; such a guarantee therefore is not valid. Therefore, if the right was not due upon the neck of the person guaranteed for or it does not become due later, the guarantee is not valid. This is because it is a condition that the person guaranteed for has a guarantor for an object if it is damaged or destroyed, or he is responsible for a debt whether the matter is actual in the case where the right was due and proved to be his responsibility or he is potentially responsible in the case where the right will become due later. So, if the person guaranteed for was not responsible, whether immediately or potentially, the guarantee is invalid because whatever is not due upon the person guaranteed for is not due upon the guarantor. So, for example, in the case of a person who receives clothes from (e.g. cleaner), and somebody told another person: ‘Send your clothes to him and I will guarantee them.’ If the clothes were then damaged, would the guarantor be responsible for the price of the clothes on behalf of the person who received them? The answer is as follows: If the clothes were damaged without his (i.e. the cleaner’s) action or negligence, then the guarantor guarantees nothing because, in the first place, the person guaranteed for (the cleaner) bears no responsibility for the damage. Since the principal (Aseel) is not liable for the damage then, with greater reason, neither is the guarantor. Therefore, there should be a right due to the person guaranteed for from other people, or it will become due later, in order that the guarantee becomes valid. So establishing the right for the person guaranteed for, whether immediately or potentially, is a condition for the validity of the guarantee. However, it is not a condition that the person guaranteed for (Madhmoon ‘Anhu) nor the guaranteed person (Madhmoon Lahu) be named; thus the guarantee will be valid if these were unknown (i.e. not named). So if a person said to another: ‘Give your clothes to a cleaner,’ and the latter said: ‘I am afraid that he will damage them.’ Then the former responded: ‘Give your clothes to a cleaner and I guarantee them if they are damaged’ without specifying the cleaner, the guarantee is valid. So if he gave them to a cleaner and they were damaged, the guarantor would be responsible even if the person guaranteed for was not named. Similarly, if he said: ‘so and so is a good cleaner, and I guarantee him against any damage for any person who gives to him his clothes,’ the guarantee is valid though the guaranteed person is unknown.It is clear in the evidence of the guarantee that there is a joining of one’s responsibility to another’s responsibility, and it is a guarantee of a right due upon the responsibility (Dhimma). It is also clear that there is a guarantor, a person guaranteed for and a guaranteed person. It is also clear that it is given without compensation, and that the person guaranteed for and the guaranteed person could be unknown. The evidence for that is what Abu Dawud narrated from Jabir who said: “The Prophet (saw) would not pray over any person who died while indebted. A dead man was brought. He (saw) said: ‘Is he indebted?’ They said: ‘Yes, two dinars.’ He (saw) said: ‘Pray for your companion.’ Abu Qatadah al-Ansari said: ‘O Messenger of Allah, they are upon me.’ The Messenger of Allah (saw) then prayed over him. When Allah (swt) opened the land (i.e. conquests in Jihad) for the Messenger of Allah (saw), he (saw) said: ‘I am more entitled to (i.e. responsible for) every believer than his own soul. So if anyone leaves a debt it is upon me to repay, and whoever leaves wealth it is for his inheritors.”’ It is clear in this Hadith that Abu Qatadah had joined his responsibility to the responsibility of the dead man in committing a financial right due upon the debtor. And it is clear in the Hadith that the guarantee includes a guarantor, a person guaranteed for and a guaranteed person; and the guarantee which each of them (the dead person and the guarantor) guaranteed to pay was a right due upon the responsibility (of the deceased) and it was given without compensation. It is also clear that the person guaranteed for i.e. the deceased and the guaranteed person i.e. the owner of the debt were unknown at the time of the guarantee. So the Hadith contained the conditions for the validity of a guarantee, and the conditions for its contracting (In’iqad).This is the guarantee in view of the Shar’a. By applying the pledge of insurance which is definitely a guarantee, upon it, we find that insurance is devoid of all the conditions which the Shari’ah enunciated regarding the validity and contracting of the guarantee. In insurance, there is no joining of a responsibility to a responsibility in any way. The insurance company did not join its responsibility to the responsibility of another to commit itself in paying money due to the insuring person so there is no guarantee; thus the insurance is void. In insurance, there is no financial right due to the insuring person from anyone that the insurance company committeditself to pay. This is because the insuring person has no financial right against anyone that the company guaranteed, so insurance is devoid of the financial right. So the insurance company did not commit itself to any financial right so as to validate it as a guarantee in Shar’a. Moreover, what the company was committed to pay of compensation, price or money, was not a right due to the guaranteed person from other people at the time of concluding the insurance contract, whether immediately or potentially, so as to validate it as a guarantee. So the insurance company has guaranteed that which is not due either immediately or potentially, making the guarantee invalid and the insurance consequently becomes void. Furthermore, insurance does not include a person guaranteed for, because the insurance company did not guarantee for anyone a right due upon him so as to be called a guarantee; thus the insurance contract was devoid of an essential element required to exist in the view of Shar’a, namely the presence of the person guaranteed for. This is because it is essential that there should exist in the guarantee, a guarantor, a person guaranteed for, and a guaranteed person. Since the insurance contract did not include a person guaranteed for, it is void. Additionally, when the insurance company pledged to compensate for the object or pay its price if it was damaged, or pay money in case an accident occurred, it pledged to make this payment in return for a certain amount of money (or premium). So this is a commitment (Iltizam) in return for compensation which is not allowed, as one of the conditions for the valid guarantee is that it is without compensation. Thus the presence of compensation (premium for the insurance company) invalidates it. This clarifies the extent to which the contract of insurance is devoid of the conditions of guarantee which Shar’a has stated, and its failure to satisfy the conditions for concluding the guarantee and the conditions for its validity. Therefore, the pledge document (Sanad) which the company gives, guaranteeing thereby compensation and price or guaranteeing property is void from its basis, such that insurance, in its totality, is void in the view of Shar’a.Therefore, insurance in its totality is prohibited by Shar’a, whether it is insurance on life, goods, property or any other thing(s). The reason for its prohibition is that its contract is void in the view of Shar’a; and the pledge which the insurance company gives according to this contract is void according to Shar’a. So taking money because of this contract and this pledge is prohibited, and it is considered to be the earning of money illegitimately which is included as illicit money (Mal as-Suht).

hadith

2007-04-16T14:35:00.000+05:30

Prophet (peace be upon him) said:
"The signs of a hypocrite are three:
Whenever he speaks, he tells a lie.
Whenever he promises, he always breaks it (his promise).
If you trust him, he proves to be dishonest. (If you keep something as a trust with him, he will not return it.)"

Narrated Abu Huraira Sahih Hadith Volume 1 : 32

few diffrence between money and knowledge

2007-04-16T14:24:00.000+05:30

A FEW DIFFERENCES BETWEEN MONEY & KNOWLEDGE
From the first moments after birth, a child begins to learn. Some children speak at the age of two and some; well before. But how does a baby learn when it doesn't know the difference between right and wrong? Knowledge is not only gained by mentally assigning yourself, it is also gained through features given by Allah Taa'la, i.e. the eyes and the ears etc. The correct use of these bounties that Allah Taa'la has bestowed upon us is another way of thanking Allah Taa'la for them. Many people question the importance of knowledge. In a Hadith it states: "It is compulsory on every Muslim to seek knowledge." This Hadith clarifies that to seek and obtain knowledge is compulsory for every Muslim, but what knowledge is regarded here? Each human who can afford to study, complete their studies finishing with PhDs and Masters in particular subjects, the Hadith states, "On every Muslim." What will be the difference between a Muslim and a non-Muslim if we all acquire the same knowledge? The emphasis on, "On every Muslim" in this Hadith indicates knowledge specific to a Muslim, which infers the Deen (Religion) of Allah. MONEY/WEALTH Every human needs food, requires shelter, clothing etc. Each person must earn in order to fulfil their necessities. It is clear that humans need to earn for their necessities, but what is the difference between a Muslims earnings and a non-Muslims earnings? Muslims know that they have to earn money the 'Halaal Way', i.e. that they have to work rightly for their living, they must not steal, deceive or work in such a manner wherein the rules of Islam are broken, i.e. in Pubs, nightclubs, or by gambling money etc. Once the earner has earned enough money to match the requirements of Zakaah – the conditions for which are covered specifically elewhere – then he must pay his Zakaah, which is also compulsory if the conditions are met. THE DIFFERENCE The differences – listed below – are mentioned by our pious predecessors and generally explain the difference between those who run after money and neglect the Deen (Religion) of Allah Taa'la and those who spend their lives in the path of Allah Taa'la, just for His pleasure. Once a person came to Hadhrat Ali Radhiallaho Anhu and questioned him, "What shall I gain; knowledge or wealth?" Hadhrat Ali Radhiallaho Anhu answered "Gain knowledge because it is more beneficial then gaining wealth". The person then asked for some benefits of gaining Knowledge over wealth, Hadhrat Ali Radhiallaho Anhu replied: • Knowledge is the inheritance of the Prophets (alayhisalaam) , and wealth is the inheritance of Fir'awn (Pharaoh) and Qaroon, • The more knowledge you gain, the more beloved you become in the eyes of people and the more wealth you gain, the more people hate you out of jealousy… • As time passes, the value of money decreases and the value of knowledge increases, • Wealth needs to be looked after, whereas knowledge protects you, • You will always fear the theft of money, but knowledge cannot be stolen from the heart, • On the Day of Judgement, Allah Taa'la will ask you two questions regarding your wealth; how it was earned and how it was spent. These are two separate questions regarding Wealth whereas one question regarding knowledge will be asked: How much you acted upon it, • Knowledge helps you gain money but money cannot buy you knowledge, • Excess money brings pride. Once Hadhrat Mohammad Shafee questioned his students, "What is the meaning of knowledge?" One of them replied, "It is to know," Another said, "It is 'to recognise'." Like this the other students said the different things they thought knowledge meant. Hadhrat Mohammad Shafee remained in disappointment to the answers he received from his students. After some time, a student asked Hadhrat Mohammad Shafee, what he recalled the meaning of knowledge in which Hadhrat replied, "Knowledge is that light, which once it is gained; you cannot resist acting upon it, and until you don't act upon it; you are not content. This is the meaning of knowledge, or else knowledge is a burden." The difference between people who run after money and those who go into the path of Allah Taa'la and gain his knowledge is briefly explained above. The moral of this topic is not so that one stops earning so that he may gain knowledge, as to earn for one's family is equally as important. The main point is to recognise that excess money could ruin you in this world, and in the next. Also, if you can take some time out and study the Deen (Religion) of Allah Taa'la, Inshallah it will be of great benefit in both worlds. What will we do with all that excess money earned? After we die, it is going to be inherited by others and the State in the form of Inheritance Tax. How will this benefit us and help us in the Hereafter? Whereas the knowledge we earn will help us to pass this life peacefully and help us in our afterlife whilst answering the Angels etc. Those who earn money can make their Hereafter good, by spending it in the correct manner; by helping the poor and giving it whereever it is needed most in the world through reputable Islamic Charities. You are part of the Ummah and people are in need.

failurity of capitalism

2007-03-29T10:40:00.000+05:30

The Era of Democracy" is the slogan used worldwide by the official media to define the 21st Century CE. With 118 of the world's 193 countries currently implementing some form of democracy (or the trappings thereof), the reporters do have a point. But they only reveal half of the story.

In addition to democracy, other ideas have spread even faster throughout the world until they have just about encompassed the entire planet. We are speaking, of course, about the principles of "capitalism". Almost every country in the world today orders its economic affairs, and in some cases its social affairs, through a capitalist or mixed capitalist system. This has not, however, received the same kind of press attention that "democracy" has enjoyed. One has to wonder why this is so.

The western leadership will say for public consumption that democracy and capitalism are unavoidably linked: when they mention one concept, they automatically mean the other as well. If, they argue, a nation implements a democratic political system, it must attain a stable society, based on the rule of law, which in turn leads to stable free market capitalism. Or vice versa, having a free market economy will lead to a higher standard of living, which over time will lead to a demand for democracy. Thus, many political analysts in North America remain confident that China will "liberalize," just as South Korea and Taiwan have done. This is very similar to the thinking of the old Marxists, who boasted of scientific proof that their system would prevail. But in the real world, these "theories" don't work as well as they claim.

There is a better way to explain why western leaders and their colleagues in the media focus mainly on the "spreading of democracy," yet remain silent about the capitalism part. In truth, over the past 150 years and more, capitalism by itself has earned a terrible reputation. Just saying the word "capitalism" calls up images of "oppression," "colonialism," or "the widening gulf between rich and poor." During the Cold War, when Communism and Socialism were providing serious challenges to the American Way, the word was never used by Washington's propagandists, who preferred to distance themselves from the name by coining more comfortable terms like "the free enterprise system." For a while, it actually worked: eventually, any activist speaking openly about "capitalism" was identified at once as a dangerous pinko subversive.

But such criticism of capitalism remains warranted, as we will see later. It will be clear as well that democracy and capitalism are indeed closely linked: democracy is simply the human mask of capitalism and its devastating effects.

Before we can understand how this is so, we must start by analyzing capitalism's core ideas.

Sets of core ideas are the basis for every government or politico-economic system. Before the system drafts, establishes, and enforces a legal code, it must first identify the problems that the laws are to solve. These problems are defined by a system's core ideas that relate to everything the system does.

In the world as capitalists see it, the fundamental problem is the issue of "scarcity." The core ideas operating here define human beings as suffering unlimited wants, but there are only limited resources in the earth to satisfy them all. Imagine all the world's goods and services as one big pool, with men and women having to drink from this one pool that is not large enough for everybody.

Capitalist economic thinkers tell us that their whole system centers on making laws to ameliorate the "problem." "Free market economies" supposedly attack scarcity by doing everything possible to increase the production of goods and services (i.e., increase the pool). It is believed that if the government successfully adds enough to the pool, then the benefits of doing so would trickle to all the people and take care of them. But does this solution really work?

The best way to know is by looking at capitalism's most important indicator of "how well" a society is doing, its GDP (Gross Domestic Product). A country's GDP is the total market value of all the goods & services it produces within a specified period. In other words, a country's GDP is directly related to the people's well being: if the GDP goes up, then the pool for satisfying wants in that country is bigger-and everyone should be better off.

Let us look at some real data to see if this is actually true. Take India as an example: in 2004, their GDP increased by 8.17% from the previous year, which is exceptionally high. To put this large number in perspective, the US as the world's strongest economy had an increase of only 4.4% that same year. But according to the BBC, India still houses one quarter of the world's poor; and half of all Indian children are still undernourished.

Or look at Brazil. This country is the one of the world's top producers of a variety of products including sugar, orange juice, coffee, soybeans, ethanol, etc. It had an impressive GDP growth of 5.2% in 2004. Yet Brazil is considered amongst the world's poorest countries, with a massive gap between the rich and poor measuring 60.7 % on the Gini index. *

These numbers show clear contradictions. According to Capitalism, countries like India and Brazil supposedly are doing things right; but why then are the majority of the people in these countries still living in hunger and misery?

Of course, the answer goes back to capitalism's core ideas.

Capitalist economies are not designed to take care of all the people: there have to be wealthy winners and wretched losers. The concept of scarcity prevents capitalists' minds from understanding the economic problem as Islam sees it: how to make sure that everybody gets the basic necessities of life, such as sufficient food, shelter and clothing? In addition, capitalists generally deny that the elimination of poverty in itself should be part of government's goals. Instead, their primary focus is taking care of big business by giving it the means to increase production and profits. In return, big business promises somewhat to provide jobs that pay enough to satisfy a few wants; and that's all. No wonder 51 of the world's 100 hundred wealthiest entities are corporations (Institute for Policy Studies, November 2000).

In the classroom where economics is the study of imaginary models, universal scarcity sounds like a valid idea; and it probably exists for some goods and services. But in the real world, scarcity is not the global problem they say it is; and in many cases, capitalism actually creates it. The truth is, the only forces that actually benefit from a capitalist economy are big business, rich countries that control extensive resources overseas, and the top 5 to 10% of the people in poorer lands.

This article was the first part in a series that will cover capitalism, God willing. Our intention is exposing the cancers in this system, one at a time. We will look not only at economic problems aggravated by capitalism, but their social effects as well. Then we will take a look at what Islam's sources have to say.

Remember, we Muslims claim to have an answer for everything from Qur'an and Sunnah; and we claim to be right, while every other system is wrong. If that is true, it's our duty to study and expose the dominant system that casts a shadow over all lands. If we don't, who will?

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* Gini index (or coefficient) is a measure of income inequality within a country. A country's Gini rating is between 0 and 100, with 0 indicating perfect equality and 100 indicating absolute inequality. In this example, it would mean that the poorest 20%of Brazil's population receives only 2.2% of all the income that runs through Brazil, while the richest 20% receives over 64% of all the income

Bio data

2007-03-23T16:34:00.001+05:30

ANAYATULLAH NAYAJI
________________________________________________________________________
Email ID: anayatullah@rediffmail.com Mob. No.:9718543511, 9873576272
________________________________________________________________
Career Objective:

A responsible & challenging position in finance where my education, experience & skills would be fully utilized & future developed.

Key Skills

Statistical Analysis, Mathematical Approach in Economics and Computer Applications in Economics.

Education

 Awarded UGC-NET Degree in 2009

 Completed M.A in Economics from Jamia Millia Islamia, New Delhi. (2007-09)
Subjects opted in economics : Micro Economic Analysis, Quantitative Methods, Industrial Economics and Investment Analysis, International Trade, Econometrical Method, Macro Economics, Economic Growth and Development, Indian Economy, International Finance and Banking, Computer Application in Economics.

 B.A. in Economics from Jamia Millia Islamia New Delhi Passed in year 2007.

 XII std. (Commerce stream) from Jamia Millia Islamia Passed in year 2004.

 X std. From B.S.E.B. Patna Passed in the year 2001.

Areas of Interest

R & D- Social Sciences, Banking & Finance, Trade, Insurance and Real Estate.
Dissertation Topic Undertaken in M.A. Economics:
EVALUATION OF MID DAY MEAL SCHEME (A CASE STUDY OF DELHI)

Computer Skills

 Working knowledge of MS-office, Internet
 Working knowledge of SPSS, STATA and E-views

Extra Curricular Activities

� Participated in the national seminar on “National environment policy” in 2006
� Class Representative in B. A. (H) Economics, 3rd year

PERSONAL DETAILS

Father’s Name : Mr.Md Mushtaque Salfi
Date of Birth : 5th January 1986
Sex : Male
Marital Status : Single
Language Known : English, Hindi & Urdu
Permanent Address : At-Nazra
P O Meghwan Via: Basaitha
Distt. -Madhubani
(Bihar), Pin Code-847102

Date: / /
Place: New Delhi (ANAYATULLAH NAYAJI )