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CONSOLIDATING GROWTH
Indian Budget 2010-11- Full Text- February 26, 2010
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.
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