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Return to Main Page of Budget 2004-2005

Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)


57. It is my goal to make the environment in India attractive for investors. In order to achieve that goal, I propose to establish an Investment Commission. The Commission will have the broad authority of the Government to engage, discuss with and invite domestic and foreign businesses to invest in India. It will be chaired by an eminent person. The Foreign Investment Promotion Board (FIPB) has played a useful role, and even now it serves as a one-stop centre for securing the nod of different ministries and departments to a proposed investment. Government believes that many of the functions of FIPB could be put on the automatic route, and leave FIPB as a one-stop service centre and facilitator. The function of wooing domestic and foreign investors will be performed by the proposed Investment Commission.

58. Government proposes to set up a National Manufacturing Competitiveness Council. The Council will be a continuing forum for policy dialogue to energise and sustain the growth of manufacturing industries. The Council will be asked to suggest measures for enhancing competitiveness in the manufacturing sector. The Council may also recommend industry-specific or sector-specific policy initiatives to enhance competitiveness.

59. Foreign Direct Investment (FDI) has the potential to add a competitive edge, especially in the industrial sector. The NCMP declares that FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports. Three sectors of the economy fully meet this description. They are telecommunications, civil aviation and insurance. There is an urgent need for infusing huge amounts of capital in these sectors. I, therefore, propose to raise the sectoral cap for FDI in telecommunications from 49 per cent to 74 per cent; in civil aviation from 40 per cent to 49 per cent; and in insurance from 26 per cent to 49 per cent.

Capital Markets

60. Government is committed to the orderly development and functioning of the capital markets. A number of steps have been taken to broaden and deepen the capital markets as well as to strengthen the regulatory regime. There are some signs that retail investors are returning to the capital market. Foreign Institutional Investors (FIIs) have shown a marked preference for India over other emerging markets. In order to carry forward the process of making the Indian capital market strong and attractive, I propose to –

• Make the procedures for registration and operations simpler and quicker for FIIs;

• Raise the investment ceiling for FIIs in debt funds from US$ 1 billion to US$ 1.75 billion;

• Allow banks with strong risk management systems greater latitude in their exposure to the capital market;

• Create an alternative trading platform for small and medium enterprises (SMEs) to raise equity and debt from the capital market; and

• Initiate steps to integrate the commodities markets and the securities markets.

RBI and SEBI will announce the necessary measures in respect of these matters. I am also happy to announce that SEBI has been able to resolve the longstanding issue of brokers’ fees, and brokers may expect an announcement shortly.

61. Many genuine foreign institutional investors (FIIs) are professional bodies of asset managers and financial analysts who can enhance the flow of equity capital and lend depth to the capital markets. An inter-ministerial committee has recommended liberalization of FII limits in certain specified sectors. I propose to examine and implement these recommendations in consultation with the Ministries concerned.

Public sector

62. The NCMP has declared the Government’s policy on public sector enterprises (PSEs). While sick or ailing public sector enterprises have stirred a debate, not enough attention is paid to the healthy PSEs. I am happy to announce that in 2004-05 the Government will provide equity support of Rs.14,194 crore and loans of Rs.2,132 crore to Central PSEs (including Railways). Major investments will be made in PSEs falling in the sectors of power, telecommunications, railways, roads, petroleum, coal and civil aviation. I am sure Hon’ble Members will appreciate the deep commitment of Government to a strong and effective public sector operating in a competitive environment.

63. There is, of course, another side to the public sector. This side is beset with problems, and we must address them with responsibility and courage. Disinvestment and privatization are useful economic tools. We will selectively employ these tools, consistent with the declared policy. As a first step, I propose to establish a Board for Reconstruction of Public Sector Enterprises (BRPSE). The Board will advise the Government on the measures to be taken to restructure PSEs, including cases where disinvestment or closure or sale is justified.

64. One of our Navaratna companies, NTPC, has filed a prospectus with SEBI to raise capital through a public issue. Consequently, Government’s holding in NTPC will be marginally diluted. In order to extract value for its holding and to compensate the effect of dilution, Government intends to piggy-back on the public issue of NTPC and disinvest approximately five per cent of its holding. This and some other cases which are under examination are expected to yield a sum of Rs.4000 crore in the current year. While the disinvestment revenues will be part of the Consolidated Fund of India, I shall, while presenting the Budget for 2005-06, report to the House the manner in which the said revenues have been or will be applied for specified social sector schemes.

65. The NCMP contains clear policy guidelines regarding disinvestment in PSEs. As long as Government retains control over the PSE, and its public sector character is not affected, Government may dilute its equity and raise resources to meet the social needs of the people. I propose to ask the BRPSE to examine each case objectively and make recommendations on disinvestment, consistent with the NCMP.

66. I am also happy to announce that I have taken the business of restructuring quite seriously. Hindustan Antibiotics Limited will be given financial support for restructuring. A rescue package has been worked out for Indian Telephone Industries (ITI), and ITI will be given Rs.508 crore to remain out of the net of the BIFR.

Small scale industry

67. Small scale industry is, and must be regarded as, an engine of growth. At the same time SSI units must also be given the space to grow into medium enterprises. World over, policies are devised to meet the requirements of small and medium enterprises (SME). Keeping in mind the twin objectives, the Ministry of Small Scale Industry has identified 85 items that can be safely taken out of the reserved list. Furthermore, it is felt that technology upgradation of SSI units is the most urgent requirement to do business in a competitive environment. I have reviewed the Capital Subsidy Scheme, and I propose to raise the ceiling for loans under the scheme from Rs.40 lakh to Rs.1 crore. The rate of subsidy will also be raised from 12 per cent to 15 per cent. The scope of the scheme will be enlarged by adding more sub-sectors and technologies eligible for assistance. SSI units will be encouraged to obtain credit rating. With these measures, I expect that many more SSI units will benefit from the restructured scheme. A provision of Rs. 135.24 crore has been made for "Promotion of SSI Schemes", and within that amount funds will be found for the Capital Subsidy Scheme.

Regeneration of traditional industries

68. Some of our traditional industries, namely coir, handloom, handicrafts, sericulture, leather, pottery and other cottage industries not only contain great potential for growth and exports, but are integral for the maintenance of our cultural heritage. Accordingly, a Fund for the Regeneration of Traditional Industries, with an initial allocation of Rs.100 crore will be set up. The details, including mechanism for utilization of the fund will be worked out in consultation with the industries concerned.

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