Union Budget 2003-2004

Budget Speech

Mr. Speaker,

1. I am greatly honoured to present the sixth successive budget of the

Government of the National Democratic Alliance (NDA), under the premiership

of Shri Atal Behari Vajpayee.

2. I wish to place on record high appreciation of my distinguished

predecessor, Shri Yashwant Sinha, who so ably steered the country’s finances

in the earlier budgetary exercises. That has made my task so much easier

today.

II. THE CHALLENGE AND THE RESPONSE

3. At the core of our economic endeavour and management of the country’s

finances are the interests of our citizens; all this effort is for their

total well being. That is our central objective, towards which the NDA

government has a non-negotiable commitment. Through Budget 2003-2004, the

Government, therefore, addresses the following five objectives, as ‘Panch

Priorities’, for our citizens and for the economic security of our country,

though these are not listed in any hierarchial order of importance:

a) poverty eradication; addressing the ‘life time concerns’ of our citizens,

covering health, housing, education and employment;

b) infrastructure development;

c) fiscal consolidation through tax reforms and progressive elimination of

budgetary drags, including reform of the additional excise duty,

introduction of service tax, and introduction of Value Added Tax (VAT) from

April 1, 2003 at the State level.

d) agriculture and related aspects including irrigation; and

e) enhancing manufacturing sector efficiency, including promotion of exports

and further acceleration of the reform process.

4. Permit me to share the conceptual underpinning of these ‘panch priorities

’. Let us, to start with readily acknowledge that the essential

entrepreneurial character and the creative genius of our citizens is our

greatest asset. This energy has to be released. For that, and for converting

the liability of want into the asset of ability, eradication of poverty is

crucial; that is the moral and economic issue of our times. Too often it is

observed that budgetary exercises float over the wide mass of India,

relating only to a few. This is not so here. And that is why a closely

interrelated concern is renewed progress on the front of agriculture; our

nation’s life blood. A second revolution, to follow the earlier Green

Revolution is the vital need of today.

5. But neither in agriculture, nor in industry, shall we be able to attain

our objective, if infrastructure, both physical and social, is not rapidly

and efficiently developed. For this, private and public interest must

combine so as to generate maximum social welfare. Upon these foundations,

and through encouraging specific manufacturing sectors, particularly

activities where knowledge is industry, we will enhance growth, improve

incomes, generate employment and promote exports. For our growth to be

sustained, fiscal consolidation is the basis; it is the central pillar.

Government has to totally eliminate budgetary drags, and be rid of the

self-laid traps; they retard both the pace and the robustness of our growth.

What is needed is a continuous and self-reliant progression of accelerating,

all round growth, with a wider distributive spread of national wealth and

greater spending power in the hands of all our citizens. We have to

recognise the need to address a reduction of not just our social but

economic inequalities, too. This cannot be postponed. That is why reforms

are so critical. And, our reform agenda must not be held hostage; either to

yesterday’s debates, or to subjective and selective interpretations of it.

This is a collective need, for the nation’s growth, which all of us have to

address together.

6. Mr. Speaker, there is palpable impatience in the country for progress and

growth. The nation can not afford the luxury of prolonged periods of

reflection, or a leisurely implementation schedule. The world will otherwise

pass us by. Beyond deregulation, it is more and ever more

de-bureaucratisation that is needed, as much of systems as of the mind. Of

course, institutions matter, correct design and application of rules, too,

but all in the service of our national objectives; not either as obtuse

abstractions or as partisan goals. The core need in the country is of

releasing national creativity. The Budget 2003-2004, of the NDA Government

endeavours to do just that. This is our economic and social compact.

III. THE BACKDROP

7. I want to now briefly share with Hon’ble Members the backdrop in which we

address our responsibilities.

Geo-politics

8. The circumstances in which we meet are defined by the current global

uncertainties; their vortex lies over the Gulf, and Iraq is at the very core

of it, even as the Israel-Palestine conflict smoulders. Vast naval armadas

crowd the waters of the North Arabian Sea, and land and air forces prepare

for battle. Nearer, our neighbour Afghanistan, torn by decades’ old

violence, continues to struggle with post-Taliban tremors. In North-East

Asia, old animosities are flared to near criticality through irresponsible

external assistance. And, our immediate western neighbour, riven internally

by multiple fault lines, spews venomous terrorism from the cauldron of its

compulsive hostility for India.

Macroeconomic circumstances

9. Despite all this, and despite the present volatility in international oil

prices, alongside a continuing sluggishness in global recovery, uncertain

markets, a 9-month long military stand-off on our borders; the simultaneous

challenge of combating externally aided and abetted terrorism; and the worst

drought that we have faced in three decades; objectively, the country’s

macroeconomic circumstances have never been better for attaining our

developmental objectives of enhanced and sustainable growth, poverty

eradication, employment generation, and improving the quality of life.

Economic performance: 2002-03

10. Sir, the overall economic performance in 2002-03 has been reported in

detail in the Economic Survey. I do not wish to repeat all that except to

highlight that despite the agricultural GDP decline of an estimated 3.1 per

cent, caused entirely by a large decline in crop output, the country,

registered a real growth of 4.4 per cent in GDP, net of inflation. Growth

rates of industry (6.1 per cent) and services (7.1 per cent) accelerated

very encouragingly, as did exports by a healthy 20.4 per cent.

11. From 1956 onward, continuously, we have endured serious foreign exchange

constraints. Not any longer. After a gap of 24 years, our current account

turned into a surplus in 2001-02, and continued to be in surplus during the

first two quarters of the current year. Our reserves’ build up during the

last year has been the highest ever in a single year, with reserves crossing

$75.5 billion in the third week of February. In early-February, the

Government decided to prepay $3 billion of its external loans. India is now

an exporter of grain to 15 countries, and donor of hard currency aid to a

dozen, alongwith rupee aid to another dozen countries. The rupee, with

foreign assets to currency ratio of 124.8 per cent, is stable. Gross

domestic savings, as a proportion of GDP at market prices, have also

improved and stand at around 24 per cent. In the course of the last four

years, our interest rates on Government securities, have rapidly gone down

from 12 to around 7 per cent, thus setting the stage for growth of

investment.

The Tenth Five-year Plan

12. The National Development Council, in December 2002, approved the Tenth

Five Year Plan, with a bold and ambitious target of 8 per cent annual growth

on the average. One of the crucial aims of the Tenth Plan is to promote a

balanced and equitable regional development and to advance the necessary

policy and administrative reforms at the State level. The allocation for

2003-04 includes several additional initiatives such as promoting

infrastructure by leveraging public money through private sector

partnership, provision of 2 lakh hand-pumps in water-scarcity areas and

schools, rejuvenation of 1 lakh traditional water sources in villages,

research and development (R&D) support in pharmaceuticals, wind and solar

energy, among others.

13. Permit me, Sir, to now address the ‘Panch Priorities’.

IV. ANTYODAYA AND LIFE-TIME CONCERNS

Antyodaya Anna Yojana

14. For eliminating poverty, it is only reforms that result in sustained

growth and high employment that are the durable solution. However, given our

comfortable food stock, there is both scope and a need for a direct attack,

too.

15. Mr. Speaker, Sir, I am sure you agree that the disadvantaged must always

be the first charge on our exchequer. This is our belief, it is our creed;

this is also at the heart of ‘integral humanism’. Therefore, it has been

decided, and I want this to be the first announcement that is made, that the

Antyodaya Anna Yojana will be expanded from April 1, 2003, to cover an

additional 50 lakh families raising the total coverage to more than a

quarter of all BPL families during the year 2003-04. The additional

budgetary expenditure on this account will be Rs.507 crore.

16. Sir, may I, in humility, say that this does cover the first part of my

assurance: "Garib ke pet me dana,….".

17. Rural development, rural industries and artisans, and poverty

alleviation in urban areas are addressed severally through various schemes

in different ministries. A need has, therefore, been felt for sometime that

all these schemes, of the same genre, be rationalised. To do that, a

Committee headed by the Deputy Chairman, Planning Commission, is proposed.

It will examine all schemes having a bearing on poverty alleviation and

rural development, and recommend their practical convergence.

Life-time concerns

18. The Prime Minister had on Independence Day, 2002, announced the

Government’s commitment to improving national well-being by addressing the

‘life-time concerns’ of our citizens, a noble and holistic objective.

Housing

19. Of these, I take housing first. It is a basic necessity. While promoting

the all important employment-generating activity of construction, it also

stimulates demand for core industries like steel and cement. To maintain its

present momentum of growth, it is proposed that interest deductible under

income tax up to Rs.1,50,000, for construction or purchase of a

self-occupied house property, be continued. In addition, it is proposed that

income from housing projects for construction of residential units, of

prescribed specification, approved by the local authorities up to March 31,

2005, will now be exempt from income tax. Thus, not only has the limitation

with regard to the year of sanction, earlier frozen at March 31, 2001, now

been extended, but the benefits of the scheme also made available

irrespective of the year of completion. The Finance Ministry is further

examining what additional incentives can be given to basic infrastructural

developments that must accompany slum upgradation, sewerage system laying

and green-field housing projects.

Education

20. Education is the central vein of our ‘life-time concerns’. Therefore, at

the level of the citizen taxpayers, as a first step education expenses up to

Rs.12,000 per child for two children, will be made eligible for rebate under

Section 88 of the Income Tax Act.

21. India is a highly creative, knowledge-based society; but authorship of

books has never been sufficiently rewarded, certainly not monetarily.

Therefore, royalty income up to Rs.3 lakh per annum, received by authors of

literary, artistic and scientific books shall henceforth be fully exempt; as

will be royalty received by individuals from exploitation of patents. This

is in addition to the other existing exemption benefits.

22. I declare, Mr. Speaker, a possible, personal benefit here as an author

of some books, with variable but always modest royalty income. There,

however, is no conflict of interest, Sir, because this measure has not been

announced with any personal benefit in mind.

Games and sports

23. Games and sports are a necessity, as much for recreation as for

developing sound bodies and minds. They must be encouraged. But, for a

nation of a billion plus, sports facilities available to our young are

woefully inadequate. Therefore, development of sports infrastructure will

now be supported through direct funding of public-private joint initiatives.

Guidelines in this regard will be issued shortly.

Health

24. With three principal objectives in mind: to contribute to enhanced

national health; to promote India as a global health destination; and to

enable easier access to health facilities to our disadvantaged citizens, a

number of additional measures are now proposed.

25. In order to encourage private hospitals to either establish new or to

expand existing medical facilities, it is proposed to extend the benefit of

Section 10(23 G) of IT Act to such financial institutions as provide

long-term capital to private hospitals with 100 beds or more.

26. In view of the rapid strides made in R&D in medical equipment, there is

recognisable need to frequently upgrade and replace the existing equipment

with the more ‘state of the art’. It is therefore, proposed to increase the

rate of depreciation from the present 25 per cent to 40 per cent in respect

of life saving medical equipment.

27. To assist citizens with impaired vision, the basic customs and excise

duties on rough ophthalmic blanks shall be reduced from 25 to 5 per cent,

and from 16 to 8 per cent, respectively. To help people give up their

addiction to tobacco and its products, excise duty on Nicotin Polacrilex gum

shall be reduced from 16 to 8 per cent.

28. It is also proposed to reduce the customs duty on specified life saving

equipment from 25 per cent to 5 per cent, and also exempt them from CVD

(additional duty of customs). In respect of life saving equipment already

exempt from CVD, it is proposed to exempt them from excise duty as well, so

as to encourage indigenous manufacturers.

29. A large number of life saving drugs are either exempt from customs duty

or attract a nominal 5 per cent duty. It is proposed to extend the

concessional duty rate of 5 per cent to some more drugs. Life saving drugs

currently attracting nil or 5 per cent customs duty will also be exempt from

excise duty. Basic customs duty on glucometers and glucometer strips used by

diabetics, will be reduced from 10 per cent to 5 per cent; and they will be

exempt from excise duty as well. Cyclosporine will be exempted from excise

duty. This reduction of excise duty to nil, wherever imports are exempt from

CVD, will certainly make our domestic industry more competitive, as also

better enable them to face the new intellectual property right regime from

2005.

Health insurance

30. For a large majority of our less advantaged citizens, easy access to

good health services is just not there. In order to correct this and offer

health protection, of some choice, the public sector general insurance

companies have been encouraged to design a community-based universal health

insurance scheme during 2003-04. Under this scheme, a premium equivalent to

Re.1 per day (or Rs.365 per year) for an individual, Rs.1.50 per day for a

family of five, and Rs.2 per day for a family of seven, will entitle

eligibility to get reimbursement of medical expenses up to Rs.30,000 towards

hospitalisation, a cover for death due to accident for Rs.25,000, and

compensation due to loss of earning at the rate of Rs.50 per day up to a

maximum of 15 days. To make the scheme affordable to BPL families, the

Government has decided to contribute Rs.100 per year towards their annual

premium. Full details will be publicized shortly.

31. I request Hon’ble Members to give this scheme the widest possible

coverage in their constituencies. The benefits Sir, are real.

32. In the first phase, at least an additional 50 lakh BPL families will be

covered during 2003-04.

Disabled and handicapped

33. The Government is committed to providing equal opportunities, protection

of rights, and all-round development of persons with disabilities. A number

of initiatives have already been taken in this regard.

34. Now, for income tax purposes, it is proposed that the physically

handicapped or persons with such dependents be entitled to a deduction for

permanent physical disability of Rs.50,000, and an enhanced deduction of

Rs.75,000 in case of severe disability.

35. I also propose to reduce the customs duty on hearing aids, crutches,

wheel chairs, walking frames, tricycles, braillers and artificial limbs to 5

per cent without Special Additional Duty (SAD). They will be exempt from

CVD, and the domestic manufacturers will also be exempt from excise duty. I

also propose to reduce the customs duty on parts of hearing aids and wheel

chairs to 5 per cent without CVD and SAD.

36. The Government will establish a college of rehabilitation sciences at

Gwalior, and a national institute for empowerment of persons with multiple

disabilities at Chennai.

The salaried

37. A constant refrain of the salaried has been limited standard deduction

for income tax purposes. It is asserted that as a group they consistently

demonstrate the best tax compliance. I agree, they do. It is, therefore,

proposed that the standard deduction for such employees be raised to 40 per

cent of salary, or Rs.30,000, whichever is less, for salary income up to

Rs.5 lakh; and allow a deduction of Rs.20,000 for salary income above Rs.5

lakh. It is also proposed that relief be provided to employees opting for

voluntary retirement scheme (VRS), by exempting VRS payments up to Rs.5

lakh, even when taken in instalments.