of Shri Yashwant Sinha
Minister of Finance
28 February, 2002
I rise to present the budget
for the year 2002-03.
year 2001, the first year of the millennium, was a year of many tragic
events. It started with the Gujarat earthquake on January 26, and
ended with the terrorist attack on our Parliament on December 13,
punctuated by the September 11 incident in the United States and the
October 1 outrage in Srinagar. I salute the brave members of our
security forces who defended this Parliament and made the supreme
sacrifice. On the economic front too it has been a difficult year.
World economic growth is estimated to have slowed down to 2.4 per cent
in 2001 after seven consecutive years of higher growth. International
terror and the global economic slowdown have been the saddest features
of the past year.
the hostile economic and security environment, the economy has
performed relatively well this year. After irregular monsoons in the
previous two years an agricultural recovery was enabled by a
relatively well distributed monsoon this year. Economic growth this
year is expected to be about 5.4 per cent: higher growth being
constrained by the industrial slowdown. The basic fundamentals of the
economy remain strong: inflation has fallen to a record low of 1.1 per
cent, foreign exchange reserves have crossed US $50 billion, and our
food stocks have risen to almost 60 million tonnes. The fall in
petroleum prices has provided further relief to the economy as a
the country is economically secure there are still many challenges
facing us. These have been described in detail in the Economic Survey
presented to this House on February 26. My effort is to devise a
budget strategy to meet these challenges.
In my last budget I had laid out a comprehensive agenda of the second
generation economic reforms. I had also deepened tax reforms aimed at
providing a modern tax regime. My aim this year is to consolidate and
implement these policies at all levels. I propose to take this process
further at the State level through a strategy of reform linked public
The broad strategy of the budget, therefore, is to:
- Continue the
emphasis on agriculture and food economy reforms.
public and private investment in infrastructure.
the financial sector and capital markets.
structural reforms and regenerate industrial growth.
social security to the poor.
- Consolidate tax reforms and continue fiscal adjustment
at both the Central and State levels.
The implementation of the announcements made in the last budget has
been closely monitored throughout the year. I started the practice
last year to submit to Parliament an Action Taken Report on the
previous years budget. Accordingly, I am presenting a detailed ATR
on last years budget announcements. Some of the highlights are:
deregulation of controls on agricultural commodities; progress towards
decontrol of sugar; substantial reduction in the span of price control
of drugs; decision to amend existing legislation governing revival
and/or winding up of companies, along with abolition of SICA;
substantial progress in privatization; progress in the implementation
of Expenditure Reforms Commissions recommendations and announcement
of VRS for surplus government employees.
These decisions demonstrate the resolve of this Government to carry
forward the process of economic reforms, and to ensure that the
benefits reach the common man. This will require improved
implementation and governance. We shall put in place measures to
effect improvement in these areas with the objective of eliminating
poverty and improving the quality of life of our citizens.
AGRICULTURE AND RURAL
Having achieved great success with the Green Revolution and then the
White Revolution, the country is now ready for its third revolution of
agricultural diversification and food processing. This requires policy
changes, a renewed thrust on agricultural research and extension, and
a new climate that encourages much greater investment in both the
public and private sectors. Removal of the remaining regulatory and
procedural rigidities that still exist and improved rural
infrastructure is essential for this new revolution. Freedom to the
farmer, Kisan Ki Azaadi is the overarching goal of our policy.
Even though agriculture is a State subject, there are a number of
Central Government policies that influence this sector. The Government
has reviewed the operation of the Essential Commodities Act, 1955.
Restrictive orders inhibiting storage, selling and movement of food
and agricultural products are being removed. We can now look forward
to a countrywide integrated market for agricultural products. To
continue this initiative, I am proposing further decontrol and
deregulation of agriculture along the following lines:
- Amendment of
the Milk and Milk Products Control Order (MMPO) to remove
restrictions on new milk processing capacity, while
continuing to regulate health and safety conditions.
- Removal of
small scale industry reservations related to various
agricultural equipment items.
of the export of agricultural commodities and phasing out
of remaining export controls.
- Expansion of
futures and forward trading to cover all agricultural
A multiplicity of regulations for food standards under the Prevention
of Food Adulteration Act, the Food Products Order, the Meat Products
Order, the Bureau of Industrial Standards and the MMPO, affect the
food and food processing sectors. They need to be modernised and
converged. The Prime Minister has decided to set up a Group of
Ministers (GOM) to propose legislative and other changes for preparing
a modern integrated food law and related regulations.
This process of providing freedom to the farmers now needs to be
carried forward by State Governments. Amendment of the Agricultural
Produce Marketing Acts to enable farmers to sell directly to potential
processors would help them to receive better prices and to access
potential new markets. In addition, the remaining State control orders
which are acting as barriers to inter-State trade need to be lifted. I
am proposing that additional allocations in respect of centrally
sponsored schemes would be linked to decontrol and deregulation of the
agricultural sector by the States.
In 2000-01, I had announced a Credit Linked Subsidy Scheme for
construction of cold storages. I am happy to report that sanction has
already been given for the creation of 21 lakh tonnes capacity in cold
storages, much higher than the target of 12 lakh tonnes. The rural
godown scheme announced last year has also become operational. With
the removal of various control orders much greater investment would be
forthcoming under both these schemes. Accordingly, I propose to
allocate Rs 70 crore to each of these subsidy linked credit schemes in
As Finance Minister I feel particularly responsible for the flow of
adequate credit to the agriculture sector. I am glad to report that
the total credit flow to the agriculture sector through institutional
channels is expected to reach the targeted level of Rs 64,000 crore
this year. It is expected to increase to
Rs 75,000 crore in 2002-2003. I propose the following steps to further
improve the delivery of agricultural credit:
- The funds for
RIDF VIII will be enhanced from Rs 5000 crore to
Rs 5500 crore next year, while the rate of interest will
be reduced from 10.5 per cent to 8.5 per cent. Henceforth
it will be fixed at the prevailing bank rate plus 2 per
cent. Assistance to the States from RIDF will be linked to
reforms in the agriculture and rural sectors.
- Kisan Credit
Cards introduced in 1998-99, have been a resounding
success and have helped our farmers considerably in their
access to agricultural credit. An additional 63 lakh KCCs
have been issued upto December 31, 2001 taking the total
to 2.07 crore. The personal insurance package linked to
KCCs has also been operationalised.
- Similarly, the
scheme of micro credit through Self Help Groups is
progressing well. The target of one lakh additional
self-help groups during the current year is expected to be
achieved taking the total so far to more than 3.5 lakh
covering more than 70 lakh families, making it the largest
micro credit programme in the world. I am raising the
target to 1.25 lakh for 2002-03.
- A one-time
settlement scheme for small loan accounts with outstanding
principal balance upto Rs 25,000 as on March 31, 1998 is
already in operation. A special OTS scheme for small and
marginal farmers will be announced by RBI to cover loans
upto Rs 50,000.
The National Agriculture Insurance Scheme is already in operation. To
subserve the needs of farmers better and to move towards a sustainable
actuarial regime I propose to set up a new Corporation for Agriculture
Insurance to be promoted by the existing public sector general
I propose to increase the allocation for the Accelerated Irrigation
Benefit Programme (AIBP) from Rs 2000 crore this year to Rs 2800 crore
in 2002-03. This will assist the States to accelerate the completion
of unfinished medium and major irrigation projects, and also to
undertake reforms by revising user charges and setting up of water
Agriculture Extension and
The accelerated diversification and modernization of agriculture will
require a new approach to research and extension services. I therefore
propose to enhance the allocation for 2002-03 for agriculture research
to Rs 775 crore from Rs 684 crore in the current year. A full review
of the governance of agricultural research is also proposed so that
the system can serve the new needs creatively.
Linkages between research and extension will be strengthened to
improve quality and effectiveness of research and extension systems.
The extension system will be revitalised and broad-based through
Krishi Vigyan Kendras (KVKs), NGOs, farmers organisations,
cooperatives, the corporate sector and agri-business clinics. KVKs
will be designated as nodal agencies for quality certification
including organic products, bio-fertilizers, and bio-pesticides. The
supply of inputs, agro-processing and trade through such
cooperatives/companies will be encouraged through the availability of
credit with the help of NABARD. The Companies (Second Amendment) Bill
2001, already introduced in Parliament will enable the conversion of
existing producer cooperative businesses into companies.
Promotion of agricultural exports is important for creating conditions
for providing remunerative prices to farm produce. For this purpose
Agri Export zones are being promoted in different States and 15 such
zones have been approved so far. APEDA will catalyse development of
infrastructure and flow of credit to the units in these Agri Export
The Pradhan Mantri Gram Sadak Yojana (PMGSY) initiated to provide
connectivity through all weather roads to all our villages is making
considerable headway. A further allocation of Rs 2,500 crore for the
year 2002-03 is being made over and above Rs 5,000 crore provided so
far. Depending on the accelerated implementation of these works I
intend to find additional resources including those from multilateral
sources in the course of the year.
During my last budget speech I had announced a package of initiatives
for electrification of 80,000 villages that have no access to
electricity. Considering the fact that SEBs find it difficult to
service debt, the Government proposes to introduce a new interest
subsidy scheme called the Accelerated Rural Electrification Programme.
An outlay of Rs 164 crore has been provided for this scheme in
The Sampoorna Grameen Rozgar Yojana (SGRY) announced by the Prime
Minister in his Independence Day speech of 2001 was launched on
September 25, 2001 by merging the ongoing Employment Assurance Scheme
(EAS) and the Jawahar Gram Samridhi Yojana (JGSY). Since the launch of
the scheme, release of 30.6 lakh tonnes of food grains to States has
already been authorised, out of the 50 lakh tonnes allocated. This
scheme will be continued next year. I urge upon all the States to come
forward to take full advantage of the free foodgrains being offered
under this scheme.
Lok Nayak Shri Jai Prakash Narayan always had a special concern for
the disadvantaged. In his birth centenary year I propose to launch the
Jai Prakash Rozgar Guarantee Yojana (JPRGY) to provide employment
guarantee to the unemployed in the most distressed districts of the
country. A Task Force headed by my colleague, the Minister of Rural
Development, will be set up to design and implement a massive
programme for employment generation in these districts. KVIC, DC (SSI),
and other agencies will be fully involved in the implementation of
The promotion of rural industrialisation would be helped greatly
through capacity building and technology upgradation in Khadi and
Village Industries. To help in this effort I propose to upgrade the
Wardha Institute started by Mahatma Gandhi in 1935 as a national
institute to be called Mahatma Gandhi Institute for Rural
The diversification of agriculture will not succeed without
appropriate infrastructure for marketing. For this purpose, rural
local bodies, cooperatives and NGOs will be assisted to set up rural
produce marketing centres and sub-centres at the district and block
levels and to upgrade village haats under a special scheme of the
Swaran Jayanti Gram Swarozgar Yojana (SJGSY).
Some parts of our country have been particularly afflicted with
natural calamities. Additional allocation of Rs 480 crore was provided
under the Indira Awas Yojana for the affected States. Houses
constructed by the poor under the Indira Awas Yojana (IAY) in such
disaster prone areas will henceforth be provided insurance cover
through a Master Policy.
Management of the Food
I had drawn attention last year to the severe policy and fiscal
difficulties arising from the growing mismatch between the
unprecedented level of procurement of wheat and rice by FCI and the
much lower PDS and buffer stock needs in the last few years. The
current situation of open-ended procurement by FCI at a high price and
disposal at a heavily subsidised price is not sustainable. The concept
of decentralised procurement has not yet found favour with the States.
The report of the High Level Committee on Long Term Grain Policy is
expected to be submitted shortly. We shall formulate a more durable
approach for better management of our food economy after considering
A number of steps have been taken by the Government to reduce the high
food grain stocks that are posing serious problems of storage and
disposal. These measures include: increased allocations for BPL
familiies; launching of a major food for work programme under the SGRY;
allocation of 30 lakh tonnes of free foodgrains to States for relief
works in areas affected by natural calamities; open market sales of 30
lakh tonnes this year compared to 5.5 lakh tonnes in 2000-2001; and
enhanced incentives for export of food grains.
Provision of efficient and world class infrastructure is critical for
our growth aspirations. A key issue that bears repetition is the
imposition of appropriate user charges necessary to provide adequate
returns on investment. Some success has been achieved in areas such as
telecom, roads and ports where appropriate user charges exist. With
the tariff rationalization and other bold measures introduced by my
colleague, the Minister of Railways, we can expect the Railways to
serve well the key transportation needs of the country in the years to
come. Other areas such as power, urban infrastructure, other
transportation and the like continue to experience great difficulty
because of the lack of appropriate user charges.
Restoration of financial viability in the power sector remains
crucial. The average rate of return for all SEBs is about minus 40 per
cent and their combined losses continue to increase. Hence, this is
one of the foremost challenges not only in the power sector but also
for the fiscal health of the state governments and the overall
performance of the economy.
In recognition of these severe problems the Prime Minister held a
meeting with State Chief Ministers on March 3, 2001. While broadly
agreeing with the desirability of power sector reforms to achieve
commercial viability of State Electricity Boards, the conference
placed special emphasis on distribution reforms and elimination of
theft of electricity. Subsequently, the high level empowered group of
Chief Ministers and Union Ministers has agreed to a one time
settlement scheme in regard to SEB overdues to the Central Public
Sector Utilities through securitisation and issue of tax free bonds by
the respective State Governments, subject to the achievement of
specified performance milestones and full payment of current dues in
the future. I would urge upon the States to come forward and implement
the scheme speedily.
The Ministry of Power has already signed Memoranda of Understanding (MOUs)
with 20 States and is expected to complete the exercise with the
remaining States soon. To redouble our effort in this direction APDP
is being redesigned as the Accelerated Power Development and Reform
Programme (APDRP), with an enhanced plan allocation of Rs 3,500 crore
for 2002-03, up from Rs 1,500 crore this year. Access of the States to
the fund will be on the basis of agreed reform programmes, the centre
piece of which would be the narrowing and ultimate elimination of the
gap between unit cost of supply and revenue realisation within a
specified time frame. Accordingly, the focus of reform has shifted
from generation to transmission and distribution.
A high level monitoring group will oversee the progress of this
programme. Allocation for this programme will be augmented by loans on
concessional terms from the Power Finance Corporation (PFC).
I am glad to inform the House that the Prime Ministers National
Highway Development Programme (NHDP) launched three years ago is
progressing well. It now promises to achieve a totally new scenario in
the road sector. The Golden Quadrilateral will be completed
substantially by December 2003, a year ahead of schedule. The
North-South East-West corridors have a length of 7300 kms., of which
716 kms. have already been four-laned. With the assistance of
multilateral funding, other borrowings by the National Highway
Authority of India (NHAI) with government guarantee, and other
innovative financing schemes, the funding for this phase will be fully
tied up in 2002-03.
The present Port Trust structure does not allow Indian major ports to
have the flexibility needed for efficient management and for raising
institutional funding. It is therefore proposed to corporatise major
ports in a phased manner. Private sector investments have been
facilitated and 17 projects worth more than Rs 4,500 crore have
already been approved and another 8 projects worth more than Rs 3,200
crore are under consideration. With corporatisation of the existing
ports and new private sector ports coming up, the regulatory structure
will be strengthened.
The Government has already announced its decision to upgrade the
international airports at Delhi, Mumbai, Chennai and Kolkata to the
standards of world class airports by inducting private sector
management and investment through long term leasing systems.
Modalities for inviting offers have been finalised and the leasing
process will be completed in 2002-03.
Private sector participation in greenfield airports will be encouraged
through a package of concessions:
of land and related infrastructure from the State
- Exemption from
levy of Inland Air Travel Tax (IATT) and Foreign Travel
Tax (FTT) on departing passengers for projects located in
States that charge sales tax on Aviation Turbine Fuel (ATF)
at Central Sales Tax (CST) rate.
- Charging of
Advance Development Fee (ADF) by way of additional
Passenger Service Fee (PSF) at the existing airports for
help in financing of the greenfield airport.
- Levy of User
Development Fee (UDF) at the new airport.
assistance/equity participation by Airports Authority of
The proposed new airports in
Bangalore and Hyderabad will benefit from these concessions.
The 2001 census shows that the urban population in India is now about
285 million, greater than the total population of the United States.
The number of cities with more than one million population has
increased from 23 in 1991 to 35 in 2001. We are aware of the sad
plight of most of our towns and cities. This needs to be changed if
they have to act as engines of growth, and if they are to provide a
healthy environment for our citizens. Hence, we can no longer afford
to delay reforms in this sector.
I propose to set up an Urban Reform Incentive Fund (URIF) with an
initial allocation of Rs 500 crore to provide reform linked assistance
to States. The Fund will seek to incentivise reforms in the following
- Reform of Rent
Control Laws and repeal of Urban Land Ceiling Acts.
- Rationalisation of high stamp duty regimes.
- Revision of
bye-laws to streamline the approvals process for
construction of buildings, development of sites, etc.
- Revision of
municipal laws in line with model legislation prepared by
the Ministry of Urban Development and Poverty Alleviation.
of legal and procedural frameworks for conversion of
agricultural land for non-agriculture purposes.
- Levy of
realistic user charges and resource mobilization by urban
- Initiation of
public private partnership in the provision of civic
A City Challenge Fund (CCF) will also be set up as an incentive based
facility that will support cities to fund transitional costs of moving
towards sustainable and creditworthy institutional systems of
municipal management and service delivery. It will assist in the
partial financing of the cost of developing an economic reform
programme and financially viable projects to be undertaken by urban
local bodies. It is also proposed to set up a Pooled Finance
Development Scheme to provide credit enhancement to assist local
bodies to access market borrowing on a creditworthy basis. To provide
a further incentive for urban local bodies to become credit worthy and
to invest in urban infrastructure I am providing for the issue of
municipal tax free bonds upto Rs 500 crore in 2002-03, up from Rs 200
crore this year.
Tourism constitutes a priority area in view of its beneficial impact
on growth of employment, generation of foreign exchange, and the
promotion of greater national integration through domestic tourism. It
is therefore proposed to implement a comprehensive tourism development
- 6 tourism
circuits would be identified for development to
international standards during 2002-03.
Purpose Vehicles (SPVs) will be permitted to raise
resources from both public and private sectors for
infrastructure development in these circuits.
- One special
area, the World Heritage Site of Hampi, will be developed
as an international destination for tourism based on an
integrated master plan.
The Plan Outlay for tourism has accordingly been increased by 50 per
cent to Rs 225 crore for 2002-03. I will have more to say on the
fiscal measures relating to tourism in part B of my speech.
Members are aware of the continuing effort that we have made to
attract private sector investment in the infrastructure sector to
supplement public investment. The flow of investment has however been
slow except in the telecom sector. I therefore propose to take the
following measures to facilitate faster private investment in
Infrastructure Equity Fund of Rs 1000 crore will be set up
to help in providing equity investment for infrastructure
projects. Contributions to the Fund to be managed by the
Infrastructure Development Finance Company Limited (IDFC),
would initially be made by public sector insurance
companies, financial institutions and some banks.
institutional mechanism is being set up to coordinate the
debt financing by financial institutions and banks of
infrastructure projects larger than Rs 250 crore. IDFC
will act as the coordinating institution with primary
responsibility for different sectors being shared with the
IDBI and ICICI.
- Public private
partnerships will be encouraged for the provision of
infrastructure facilities, the modalities for which are
being worked out by a Task Force.
Investment in key infrastructure sectors is also being sharply stepped
up. Plan outlay inclusive of internal and extra budgetary resources in
power, roads and national highways and railways is being increased by
22 per cent, 39 per cent and 23 per cent respectively, to a total of
Rs 37919 crore.
FINANCIAL SECTOR AND CAPITAL
Substantial progress has been made on the proposals made last year for
the development of a transparent and active debt market in general and
the government securities market in particular. Primary issuance of
government securities is now being facilitated by an electronic
Negotiated Dealing System (NDS) and efficiency of trading in
government securities is being enhanced by the new Clearing
Corporation of India Limited (CCIL). To help investors plan their
investments better and to add transparency and stability in the market
RBI will announce an issuance calendar for dated government
securities. Having now received the concurrence of all state
legislatures I also propose to introduce a new Government Securities
Bill to replace the old Public Debt Act 1949 within this Parliament
In view of the various disturbances that have occurred in the capital
market it is important to boost investor confidence and to strengthen
market integrity. The following measures are being taken.
- The process of
demutualisation and corporatisation of stock exchanges is
expected to be completed during the course of the year, to
implement the decision to separate ownership, management
and operation of stock exchanges. The Securities and
Exchange Board of India (SEBI) has already prohibited the
induction of broker members in management positions in
changes will be proposed, during the Budget Session, in
the SEBI Act, 1992 for investor protection, and to enhance
the effectiveness of SEBI as the capital market regulator.
certain developments overseas, and within the country,
regarding accounting standards and effectiveness of
auditors, it is proposed to strengthen regulation in this
institutional investors (FIIs) can invest in a company
under the portfolio investment route beyond 24 per cent of
the paid up capital of the company with the approval of
the general body of the shareholders by a special
resolution. I propose that now FII portfolio investments
will not be subject to the sectoral limits for foreign
direct investment except in specified sectors. Guidelines
in this regard will be issued separately.
Further measures have been taken to develop and deepen the capital
- Badla trading
has been banned and practically all trading of stocks is
now in the rolling settlement mode.
traded derivatives have become wider with a greater choice
of instruments and deeper in terms of liquidity.
stock options and index stock options were introduced in
July 2001, and individual stock futures in November 2001.
Institutional Investors (FIIs) are now permitted to trade
in all stock traded derivative products within specified
- An Investor
Education and Protection Fund has been set up from October
1, 2001 to credit certain unclaimed and unpaid amounts.
A package of measures for reforming the US-64 scheme and the Unit
Trust of India (UTI) has been announced which seeks to balance
investors interest while ensuring systemic safety. The long overdue
reform for making US-64 NAV based has been implemented. Further
legislative changes in the UTI Act to put in place other needed reform
measures will be proposed during the year.
Reforms in the banking sector will be continued to enhance the
efficiency and competitiveness of the sector. The following measures
have either been taken or are being taken:
- Public sector
banks recovered Rs 12,860 crore in 2000-01 as compared
with Rs 9,883 crore in the previous year and net NPAs as
percentage of net advances came down to 6.7 per cent as on
March 31, 2001 as compared to 7.4 per cent in the previous
- 29 Debt
Recovery Tribunals and 5 appellate tribunals have been set
up. As on September 30, 2001 the DRTs had disposed of
18703 cases involving Rs 14,026 crore. Recovery made was
Rs 3,527 crore.
- To help banks
and financial institutions to make provisions for NPAs as
required by the RBI, additional fiscal relief is being
offered, details of which will be given in part B of my
speech. This will enable banks to review their lending
- A new Bill on
Banking Sector Reforms is proposed to be introduced in
Parliament to strengthen creditor rights through
foreclosure and enforcement of securities by banks and
financial institutions. This Bill will also enable
securitisation for money locked up in long term loans.
- A pilot Asset
Reconstruction Company will be set up by June 30, 2002
with the participation of public and private sector banks,
financial institutions and multilateral agencies. This
company will initiate measures for taking over non
performing assets in the banking sector and also develop a
market for securitised loans.
- The Deposit
Insurance Credit and Guarantee Corporation (DICGC) will be
converted into the Bank Deposits Insurance Corporation (BDIC)
to make it an effective instrument for dealing with
depositors risks and for dealing with distressed banks.
Appropriate legislative changes will be proposed for this
- Reforms in the
financial sector have posed new challenges for the
development finance institutions (DFIs) like IDBI. It is
proposed to make legislative changes to corporatise IDBI
within the coming year to provide it appropriate
flexibility. Meanwhile IDBIs tier one capital is being
strengthened by conversion of existing IBRD and NIC (LTO)
loans in to appropriate long term instruments.
- Consequent to
certain amendments made in the year 2000 in the Companies
Act, 1956, directors incur disqualification for election
in the case of certain defaults by the company. It is
proposed to exempt nominee directors of public financial
institutions and banks from this provision.
- Three public
sector banks had been classified as weak banks on the
basis of criteria suggested by the Committee on Banking
Sector Reforms in 1997-98. Two of these banks namely UCO
Bank and United Bank of India have turned around and have
started making profits. Though the Indian Bank has also
shown improvement, its capital adequacy ratio remains
deficient. A provision of Rs 1300 crore is proposed for
re-capitalisation support to this bank, on the basis of a
commitment to Government for implementing monitorable
In the banking sector foreign banks are permitted to operate in India
as fully owned branches with specific permission of the Reserve Bank
of India. As recommended by the Committee on Banking Sector Reforms,
it has now been decided to give an option to foreign banks to either
operate as branches of their parent banks or to set up subsidiaries. A
foreign bank will have to choose only one of the two options. Such
subsidiaries will have to adhere to all banking regulations, including
priority sector lending norms, applicable to other domestic banks.
Necessary amendments will be proposed in the Banking Regulation Act
1949 to relax the maximum ceiling of voting rights of 10 per cent for
The cooperative credit structure, which is critical for the
agriculture sector, has low capital adequacy and high NPAs, is in
urgent need of reform. I had appointed a Committee under the then
Deputy Governor of RBI to examine its functioning closely. The
recommendations of this Committee have been discussed widely by Chief
Ministers and in a joint committee of Cooperation Ministers under the
chairmanship of my colleague, Shri Vikhe Patil. Reform measures such
as the adoption of a Model Cooperative Act, removal of dual control
between State Governments and the RBI, regular conduct of elections,
larger stake of the members, professionalisation of management etc.
have been recommended. The recapitalisation formula suggested is 60:40
between the Central and State Governments along with increases in
share capital of members. States will have to consider and accept
their funding share and implement the suggested measures for reform.
Even though this is a state subject the Government of India will go
out of its way to help in the process. To start the process I am
making a token provision of Rs 100 crore and depending on the pace of
reform, provision of additional funds will be considered.
The initiatives taken in the housing finance area in the last four
years have shown positive results. Total disbursement from housing
finance institutions in 2000-01 was Rs 26,300 crore, a growth of about
28 per cent in the year. This amount financed the construction of
about 28 lakh houses, much higher than the annual target of 20 lakh
houses. In the current year the growth rate is expected to be around
35 per cent. To further strengthen housing finance the following
measures are being taken:
- Consequent to
the amendment to the National Housing Bank Act, NHB has
commenced securitisation of housing loans and is
operationalising foreclosure of mortgages.
- The NHB will
launch a Mortgage Credit Guarantee Scheme, which would be
provided to all housing loans thereby fully protecting
lenders against default. This will make housing credit
more affordable thereby also increasing access to housing
credit in rural areas.
- The target
under the Golden Jubilee Rural Housing Finance Scheme is
proposed to be increased to 2.25 lakh for 2002-03, up from
1.7 lakh in the current year. About 1 lakh units have
already been financed up to December 2001.
- The allocation
of the Indira Awas Yojana is being increased by 13 per
cent to Rs 1725 crore for 2002-03.
I will have more to say on
housing in Part B of my speech.
Capital account convertibility has been on our agenda for quite some
time. In view of the many disturbances that have taken place in
international capital markets in recent years I propose to continue
with our policy of liberalisation with caution. Accordingly, I propose
to take the following steps to further liberalise the capital account:
- There will be
full convertibility of deposit schemes for Non Resident
Indians. The existing Foreign Currency Non-Resident (FCNR(B))
scheme and the Non-Resident External rupee (NRE) scheme
will continue to be repatriable.
- The schemes
which do not offer full convertibility to NRIs will be
discontinued from April 1, 2002. The existing balances in
the non-resident (non-repatriable) rupee accounts will be
allowed to be credited on maturity to the convertible NRE
- NRIs will be
free to repatriate in foreign currency their current
earnings in India such as rent, dividend, pension,
interest and the like based on appropriate certification.
companies wishing to invest abroad may now invest up to US
$ 100 million on an annual basis through the automatic
route, up from the existing limit of US $ 50 million.
companies making overseas investment in joint ventures
abroad by market purchases may now do so without prior
approval up to 50 per cent of their net worth, up from the
current limit of 25 per cent.
with proven track record will be allowed to contribute
funds from their foreign exchange earnings for setting up
chairs in educational institutions abroad and for other
welfare measures, likely to benefit the community abroad,
on a case by case basis by the RBI.
- Indian mutual
funds will now be allowed to invest in rated securities in
countries with fully convertible currencies, within the
existing limits. Earlier such investment was only
permitted in ADR/GDRs issued by Indian companies in
- Pre-payment of
ECBs is permissible to the extent of balances available in
EEFC accounts, which are currently restricted to 50 per
cent of export proceeds. To enable ECB holders to benefit
from lower interest rates, utilisation of higher amounts
from export proceeds will be considered by RBI.
- With a view to
further liberalising the capital account transactions it
is proposed to put the Foreign Currency Convertible Bond (FCCB)
scheme under the automatic route upto US $ 50 million.
The Reserve Bank of India
will be issuing guidelines for each of these measures separately.
While liberalising the capital account is necessary we have to
exercise careful vigilance in curbing illegal capital flows. Recent
evidence indicates transfer of large sums of money through various
channels in support of terrorist activities in the country. The
Government, therefore, proposes to bring suitable legislation during
the current session of Parliament to empower the enforcement agencies
to arrest and prosecute the hawala operators/money launderers
suspected to be engaged in financial transactions linked with
Administered Price Mechanism
(APM) for Petroleum
As decided by the Government in November 1997 and reiterated by me
last year, I am glad to announce the dismantling of the Administered
Price Mechanism (APM) in the petroleum sector from April 1, 2002. As a
result, the following measures are being taken:
- The pricing of
petroleum products will become market determined.
- The Oil Pool
Account will be dismantled on April 1, 2002 and the
outstanding balances will be liquidated by issue of oil
bonds to the concerned oil companies.
companies will be permitted in distribution subject to
- A Petroleum
Regulatory Board will be set up to oversee the sector.
- Subsidies to
refineries in the North-East will continue on a
subsidies will continue to be provided for LPG and
kerosene to far-flung areas.
- As a result of
the dismantling of APM, the price of diesel will come down
by around 50 paise per litre and of petrol by around Re 1
per litre. These changes in prices will come into effect
from March 1, 2002, initially as part of the Oil Pool
- The 1997
Government decision on the dismantling of APM mandated the
subsidy on LPG and kerosene oil to be reduced to 15 and 33
per cent respectively by April 1, 2002. Accordingly, the
price of LPG is being raised by about Rs 40 per cylinder
and of kerosene oil for PDS by about Rs 1.50 per litre
from March 1, 2002. These subsidies will be borne by the
consolidated fund from April 1, 2002.
- The subsidies
on LPG and kerosene will be on a specified flat rate basis
from April 1, 2002. The retail prices will then vary as
the price of crude oil changes in international markets.
subsidies will be phased out in the next 3 to 5 years.
- The post APM
excise and customs duty changes will be spelt out in Part
B of the speech. Since the subsidy burden will be borne by
the Union budget from next year, the taxation measures
have been designed to raise the required resources.
I believe that this package of measures for dismantling of APM meets
the requirements of consumers and producers. It will also create a
more competitive environment in this vital sector.
Further details of the dismantling of APM will be announced separately
by my colleague, the Minister for Petroleum and Natural Gas.
To deal with forces of competition, industrial and other companies
require restructuring on a continuous basis. For this purpose it is
essential to promote out of court mechanisms for timely and
transparent corporate debt restructuring of viable entities, in
addition to the use of legal avenues of financial restructuring. A
mechanism for Corporate Debt Restructuring (CDR) has been set up under
the guidelines issued by the Reserve Bank of India. I have decided to
set up a small group consisting of bankers and others, under the
chairmanship of Deputy Governor, Reserve Bank of India to suggest
measures to make its operation more efficient.
In Part B of my speech I will provide for specific fiscal measures for
strengthening certain key industries including steel and textiles and
other measures for improving the competitiveness of the manufacturing
Small Scale Industries
As Honble Members are aware, small scale industries are now subject
to increasing competition with the completion of trade liberalisation.
A new approach to the promotion of small scale industries therefore,
has already been adopted.
Adequate credit flow is essential for the small scale sector. The net
bank credit outstanding to small scale industries increased from Rs
45,789 crore on March 31, 2000 to Rs 48,445 crore on March 31, 2001.
In order to further increase the flow of credit:
- The limit for
composite loans has been increased from Rs 2 lakh to Rs 5
specialised branches of public sector banks have been
opened for small scale industries as of September 30,
- The exemption
limit for collateral security has been increased from Rs
25,000 to Rs 5 lakh. The project cost limit under the
National Equity Fund has been increased from Rs 25 lakh to
Rs 50 lakh.
- The extension
of credit to SSI has already been facilitated through the
Credit Guarantee Scheme and the Credit Linked Capital
Subsidy Scheme for Technology Upgradation.
- Encouraged by
the Kisan Credit Card Scheme, public sector banks have now
decided to introduce a scheme called Laghu Udyami Credit
Card (LUCC) Scheme for providing simplified and borrower
friendly credit facilities to small businessmen, retail
traders, artisans and, small entrepreneurs, professionals
and other self employed persons, including those in the
Members will recall that last year I had announced the dereservation
of 14 items in the footwear, leather goods and toy sectors. The
Government has been engaged in discussions with stake holders in
respect of certain other items in the reserved list. Over 50 items of
knitwear, certain agricultural implements, auto components, some
chemicals and drugs, and others will now be dereserved. My colleague,
the Minister of Small Scale Industries will announce the details of
these items separately.
The Government is committed to provide all assistance to accelerate
export growth. A key new initiative is the establishment of Special
Economic Zones (SEZs). I will announce a comprehensive package for
SEZs in Part B of my speech.
To provide incentives to State Governments for export promotion
through the creation of new export promotion industrial parks and
associated facilities, I propose to increase the outlay for the scheme
from Rs 97 crore this year to Rs 330 crore for 2002-2003. Overall
outlay for the Department of Commerce for the year 2002-03 has been
increased by 55 per cent to Rs 775 crore.
The 93rd amendment of the Constitution has made free and compulsory
education for all children in the 6 to 14 age group a fundamental
right. Necessary infrastructure for making this possible will be
created. Accordingly, the plan allocation to the Department of
Elementary Education and Literacy is being enhanced from Rs 4,000
crore this year to Rs 4,900 crore for 2002-03.
Last year I had announced a new comprehensive educational loan scheme
to cover all courses in schools and colleges in India and abroad. The
scheme has served the students well and loans amounting to about Rs
670 crore have already been given to almost 50,000 students.
Last year I had mentioned that the Insurance Regulatory and
Development Authority (IRDA) would be asked to provide a road map for
a new pension scheme so that the unorganised sector is provided
adequate social security coverage. IRDA has recommended a regulatory
framework for setting up pension funds to enable individuals to
subscribe on a defined contribution basis to obtain the benefit of
pensions on their retirement. Action on these recommendations will be
taken by June 30, 2002.
Access to good and responsive health care is still a distant dream for
the majority of the rural population. An insurance scheme called
"Janraksha" is being designed by the public sector insurance
companies to provide protection to the needy population. With a
payment of Re. 1 per day as insurance premium, a person will be
entitled to indoor treatment up to Rs 30,000 per year at selected and
designated hospitals. Out patient treatment upto Rs 2,000 per year
will also be covered at designated clinics which would include civil
hospitals, medical colleges, private trust hospitals and other NGO run
Women and Children
The year 2001 was celebrated as the Womens Empowerment Year and
several policy, legislative and programme initiatives have been
to help in the empowerment of women. I am increasing the plan
allocation for the Department of Women and Child Development by 33 per
cent to Rs 2200 crore.
In order to encourage the entry of large numbers of women into
scientific professions, the government intends to institute at least
100 scholarships a year to be provided by the Department of Science
and Technology to women scientists and technologists.
Far too many children in our country continue to suffer from
malnutrition. Accordingly, the Prime Minister announced a National
Nutrition Mission in his Independence Day speech on August 15, 2001.
Under this Mission food grains at subsidised rates would be made
available to adolescent girls and expectant and nursing mothers
belonging to below poverty line families through the ICDS structure.
Indian System of Medicine
The National Institute of Siddha at Chennai is being provided Rs 4
crore for commencing its activities. A National Ayurvedic Hospital
will be set up at Delhi with private sector participation. I am
further increasing the budgetary support for ISM next year by 25 per
cent to Rs 150 crore.
Scheduled Castes and
The allocation for the welfare and upliftment of Scheduled Castes in
the Ministry of Social Justice and Empowerment has been increased from
Rs 792 crore this year to Rs 879 crore in the coming year. The
Ministry of Tribal Welfare has launched a number of schemes to improve
the social and economic life of scheduled tribes. In order to meet the
requirements of various schemes such as scholarships and hostels for
improved access to quality education, the establishment of Grain
Banks, and other support schemes under the National Scheduled Tribes
Finance and Development Corporation (NSTFDC), I have increased the
plan outlay for tribal welfare by 21 per cent to Rs 290 crore for
Development of the North
I am glad to inform the House that during the current year an
additional sum of Rs 500 crore was provided to the North Eastern
States from the Central Pool set up in 1998-1999. This is Rs 187 crore
more than last year. The provision for expenditure in North Eastern
States out of the Central Plan of various Ministries has also been
increased from Rs 3,457 in the current year to about Rs 5,016 crore
Science and Technology
The plan allocation for the Department of Science and Technology is
being raised to Rs 625 crore in 2002-03, an increase of more than 52
per cent over the current year.
A fund for the improvement of Science & Technology (FIST) was
established in 2000-01 for augmenting laboratory facilities in
Universities. Encouraged by the enthusiastic response to this fund I
propose to increase the allocation for this programme to Rs 75 crore
in 2002-03, an increase of almost 115 per cent. Resources from this
fund can now also be used to augment library facilities in the
The National Innovation Foundation was set up in March 2000 with a
corpus of Rs 20 crore, in order to build a national register of
outstanding traditional knowledge and grass root innovations. This
initiative has shown good results. In the second annual campaign NIF
has received more than 11,000 entries from all over the country, up
from 948 entries in the first year. Encouraged by this enthusiastic
response I propose to set up a micro venture capital fund for small
innovations to be initiated by the Small Industries and Development
Bank of India (SIDBI), in cooperation with the National Innovation
Foundation, to facilitate the transition of innovations into
Indias global leadership in computer software must now be
complemented by another area of our core competence, the vast terrain
of the entertainment industry. Today, we are the worlds largest
producer of films; we have a rapidly expanding broadcasting sector; a
huge reservoir of talent in music; and a promising potential to become
the international hub for all types of inputs for the entertainment
industry. Accordingly, the budgetary support for the Ministry of
Information and Broadcasting is being increased by 22 per cent to Rs
415 crore for 2002-03.
With the industry status to the entertainment sector brought into
effect last year, banks and financial institutions have sanctioned
more than Rs 236 crore, so far, for film and TV software production.
Good money will certainly lead to good films. Film exports have been
roughly doubling every year, during the last 3 years. It is time we
brought about a fiscal regime to usher in more "Khushi" and
take away the remaining "Gham" from the entertainment
"Filhal" I shall have more to say on this in Part B of
In every budget speech I have, at the risk of irritating repetition,
expressed my deep concern at the poor fiscal situation of the Central
and State Governments. Reflecting this concern I had introduced in
Parliament the Fiscal Responsibility and Budget Management Bill in
December 2000. The recommendations of the Parliamentary Standing
Committee of Finance are receiving our attention and I propose to
bring the Bill for consideration in this august House within the
I had proposed to reduce the estimated fiscal deficit of 5.1 per cent
in RE 2000-2001 to 4.7 per cent of GDP in BE 2001-02. The industrial
slowdown experienced in both 2000-01 and the current year has
reflected itself in the much lower than expected revenue collections
from customs duties, excise duties and corporate income tax. The
Non-Plan expenditure, however, has been kept under strict check: as a
consequence, Mr. Speaker, Sir, you will be pleased to hear that
Non-Plan expenditure for the current year is lower by more than Rs
10,000 crore over the budgeted amount. However, mindful of the
industrial slowdown, and the need for continued public investment,
Plan expenditure has not only been protected but is actually higher
than BE. The GDP estimate for the year has also been lowered. As a
result fiscal deficit in now expected to be 5.7 per cent of GDP in the
Putting our fiscal house in order must remain our highest priority. We
have to make every effort to contain non productive expenditure and
make substantive improvements in our tax machinery so that revenue
collections show higher buoyancy in coming years. I will shortly
outline my plans in this regard in Part B of my speech.
The fastest increasing component of expenditure is that of subsidies.
It is essential that they are reduced to a minimum over the next 3 to
5 years. However, access of the poor to adequate levels of nutrition
through a well targetted PDS will have to be ensured along with
employment generation programmes.
The success achieved in containing Non-Plan expenditure has encouraged
me to deepen the efforts in this direction. The recommendations of the
Expenditure Reforms Commission (ERC) provide a very useful framework
for immediate moderation in expenditure growth. The ERC completed its
work in September 2001 and submitted 10 reports covering 36
Ministries/Departments that had a total sanctioned staff of 8.65 lakh.
Of the identified surplus manpower of 42,200 in these
Ministries/Departments, nearly 12,200 posts are expected to be
abolished by the end of March 2002. The remaining reports are at
different stages of consideration. The decision to limit fresh
recruitment to 1 per cent of total civilian staff strength will
continue to be implemented over the next 4 years. The availability of
a VRS package that has now been approved will help this effort to
reduce staff strength while ensuring adequate security to the affected
We have made efforts to contain the fertiliser subsidy by plugging
inefficiencies in the production system which were earlier passed on
to the government by the producers and by periodical increases in the
issue prices. The ERC has recommended that the Government should
increase prices by 7 per cent every year and move towards decontrol
over the next 5 years. Fertiliser prices have not been increased for
the last two years. I propose a modest increase in the issue price of
urea, DAP and MOP by about 5 per cent and to reduce the subsidy for
SSP by Rs 50 per tonne. The prices of complex fertilisers will also be
suitably modified. The Ministries of Agriculture and Chemicals and
Fertilisers will notify the specific increases.
In a further move towards price and distribution control, the
compulsory levy on sugar will be reduced from 15 to 10 per cent from
March 1, 2002. Accordingly, the retail price of PDS sugar will be Rs
13.50 per kg. from March 1, 2002.
Because of the rising cost of Postal Service, a modest increase in
postal rates is being proposed.
Small Savings and Interest
Last year I had announced the setting up of an Expert Committee headed
by Deputy Governor, RBI to suggest rationalisation of administered
interest rates. The Committee has given its report, which has been
examined by the Government. Accordingly, I propose to take the
interest rates will now be benchmarked to the average
annual yields of government securities of equivalent
maturities in the secondary market. Accordingly, most
administered interest rates are being reduced by 50 basis
points from March 1, 2002. Such adjustments will
henceforth be made annually on a non-discretionary
automatic basis. The benefit of reduction in interest
rates on small savings deposits will be fully passed on to
corresponding reduction of 50 basis points will be made in
the interest rate applicable to Government of India Relief
Bonds. Further, a ceiling of Rs 2 lakh per year is being
put on investment in these bonds.
- The entire net
proceeds of small savings will be transferred to State
Governments beginning April 1, 2002, up from the current
transfer of 80 per cent. Consequently, additional loan
assistance of about
Rs 10,000 crore will be available to the States along with
the benefits of a lower interest rate.
Governments will be enabled to pre-pay their high
cost debt of the past from these additional resources
which would be at a lower interest rate. Modalities of
this pre-payment of small savings debt of State Government
will be worked out in consultation with them and the
Reserve Bank of India.
- The interest
rate on the loans portion of Central assistance to State
plans is being reduced by 50 basis points.
- Alignment of
interest rates on GPF by the State Governments with the
reduced GPF interest rates at the Centre will further
reduce the interest burden of State Governments.
- Revisions are
being made in the tax treatment of small savings, which
will be outlined in Part B of my speech.
The implementation of this long sought reform in the treatment of
small savings and administered interest rates is another step forward
in the deregulation of interest rates in the economy that has been
carried out in phases over the last 10 years. This should help in
reducing the interest burden on the government and private sector
alike in future.
The present pension scheme for Government employees casts an
open-ended financial burden on the Government. I had announced the
appointment of a High Level Expert Group to develop a new pension
scheme, based on defined contributions, for new recruits entering
government service. The Expert Group has submitted its report to the
Government. It has proposed a hybrid scheme that combines
contributions from employees and the Union Government on matching
basis, on the one hand, while committing to the employees a defined
benefit as pension. The report is being considered by the Government
and the new pension scheme for new recruits will be announced and
implemented by June 1, 2002.
With the streamlined procedure for disinvestment and privatization, I
am happy to report that the Government has now completed strategic
sales in 7 public sector companies and some hotel properties of the
Hotel Corporation of India (HCI) and the India Tourism Development
Corporation (ITDC). The change in approach from the disinvestments of
small lots of shares to strategic sales of blocks of shares to
strategic investors has improved the price earning ratios obtained. We
expect to complete the disinvestment in another 6 companies and the
remaining hotels in HCI and ITDC this year. Disinvestment receipts for
the present year are estimated at Rs 5,000 crore excluding the special
dividend from VSNL of Rs 1,887crore. Encouraged by these results, I am
once again taking credit for a receipt of Rs 12,000 crore from
disinvestment next year.
Modernisation and upgradation of our Defence preparedness is an area
of highest national priority. I have made a provision of Rs 65,000
crore for defence expenditure for next year. In case of need, I shall
not hesitate to provide more funds for this purpose. As a measure of
welfare of the defence forces and their families, and, as announced by
the Prime Minister in his Independence Day speech, a major programme
of housing construction for defence personnel is also being taken up.
State Fiscal Reforms
The challenge of fiscal management is equally acute in the case of
States. We have been working jointly with the States through the
Fiscal Reforms Incentive Fund set up on the recommendations of the
Eleventh Finance Commission. Some State governments have taken bold
measures to bring down non-productive expenditure to improve their
fiscal situation. 12 States have so far drawn up medium-term fiscal
reform programmes in consultation with the Central Government in the
current year and have been provided assistance from the Incentive
Fund. The reform of small savings schemes together with interest rate
reductions and debt swap facility that I have already mentioned will
also help the States. It will be our joint endeavour to bring down the
consolidated debt to GDP ratios to sustainable levels by 2005.
As I have mentioned earlier, we are now providing reform linked
assistance to States for a number of sectors like APDRP, AIBP, URIF,
RIDF for which a total amount of Rs 12,300 crore has been provided. In
addition, a lump-sum amount of Rs 2,500 crore has been provided for
policy reforms in sectors which are constraining growth and
development. I am confident that with the joint efforts of Centre and
the States we will be able to put in place programmes and policies
which will remove barriers to growth, accelerate the development
process and improve the quality of life of our people.
Revised Estimates for
The revised estimates for the current fiscal year show a decrease in
expenditure of Rs 10,787 crore as compared to the Budget estimates.
Net tax revenues for the Centre are estimated to be Rs 1,42,348 crore
compared to the Budget estimate of Rs 1,63,031 crore, thereby
reflecting a shortfall of Rs 20,683 crore. The major shortfall is due
to lower collection of Customs and Union Excise duties due mainly to
the industrial slowdown. Non tax revenue is estimated at Rs 70,224
crore, Rs 1,510 crore more than the estimated level of Rs 68,714 crore.
However, disinvestment receipts, at
Rs 5000 crore are much lower than the Budget estimate of Rs 12,000
Budget Estimates for
In the budget estimates for 2002-2003, the total expenditure is
estimated at Rs 4,10,309 crore, of which Rs 1,13,500 crore is for Plan
Rs 2,96,809 crore for non-Plan.
The budget support for Central, State and UT Plans has been placed at
Rs 1,13,500 crore, an increase of Rs 18,400 crore over Budget
estimates 2001-2002. This amounts to an increase of 19.35 per cent
over the last year, which is the highest increase in over a decade.
Gross budgetary support for the Central Plan is being enhanced from Rs
60,276 crore in the revised estimates 2001-2002 to Rs 66,871 crore in
2002-2003. Central Plan assistance to States and Union Territories in
2002-2003 is also proposed to be increased to Rs 46,629 crore from Rs
38,878 crore in the revised estimates 2001-2002. While the increase in
Central Plan outlay is about 11 per cent, the increase in central
assistance to state plans is nearly 20 per cent.
Non Plan Expenditure
Non-plan expenditure in 2002-2003 is estimated to be Rs 2,96,809 crore
compared to Rs 2,65,282 crore in Revised estimates for 2001-2002. The
increase in non-plan expenditure is mainly in interest payments (Rs
10,133 crores), subsidies (Rs 9,278 crore), defence (Rs 8,000 crore)
and grants to State Governments (Rs 2,196 crore).
also see : Budget
2002-2003 - Part 2