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Return to Main Page of Budget 2005-2006

Indian Budget 2005-06
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(Feb 28, 2005)


58. India should build on its manufacturing capacities and scale them up to global standards. Both the Investment Commission and the National Manufacturing Competitiveness Council have started work in right earnest. I believe we shall reap the first successes of their work in the next financial year.

59. Worldwide, it is manufacturing that has driven growth. In order to revive the manufacturing sector, particularly small and medium enterprises, and to enable them to adjust to the competitive pressures caused by liberalization and moderation of tariff rates, I propose to launch a new scheme that will help them strengthen their operations and sharpen their competitiveness. The scheme will be called the “Manufacturing Competitiveness Programme.” The design of the scheme will be worked out by the National Manufacturing Competitiveness Council in consultation with the industry.


60. In the last Budget, I made a beginning in addressing the tax-induced rigidities in the textile sector in order to prepare the sector for the post-quota regime. There is a new vigour in the sector, especially in the handloom and powerloom segments. Government will continue to nurture the textile sector which has huge potential for employment and exports. The estimate of investment made in 2004-05 is Rs.20,000 crore. The estimate for the next year is Rs.30,000 crore. The Technology Upgradation Fund (TUF) scheme is being continued with an enhanced allocation of Rs.435 crore. I propose to introduce a 10 per cent capital subsidy scheme for the textile processing sector in addition to the normal benefits available under the TUF Scheme.

61. I think it is necessary to lend further help to the handloom sector. The Government proposes to adopt the cluster development approach for the production and marketing of handloom products. The Ministry of Textiles will take up 20 clusters in the first phase at a cost of Rs.40 crore, and the amount will be provided during the course of the year.

62. The Government is implementing a life insurance scheme for handloom weavers which provides insurance cover up to Rs.50,000. At present, only 2 lakh weavers are covered. I propose to enlarge the coverage of the scheme to 20 lakh weavers in two years which will cost Rs.30 crore per year when fully rolled out. The Government is also implementing a health insurance package for weavers. Here too, the coverage is now only for 25,000 weavers. I propose to increase the coverage to 2 lakh weavers at a recurring cost of Rs.30 crore per year. Once the two new and enlarged schemes are approved, I propose to provide the required funds.

Sugar Industry

63. The sugar industry has been under financial stress since 2001. The position became worse due to two successive droughts in certain parts of the country. The Tuteja Committee appointed by the Government has submitted its report. After a careful examination of the report, and after consulting RBI and NABARD, I propose the following financial package for the revitalization of the sugar industry:

• Sugar factories that were operational in 2002-03 sugar season will be assisted to restructure. NABARD, in consultation with State Governments, RBI, banks and financial institutions will work out a scheme for providing a financial package with a moratorium of two years, on both principal and interest, and a schedule of payment having regard to the commercial viability of each unit.

• Government has already reduced the rate of interest on loans from the Sugar Development Fund to 2 percentage points below the bank rate. I propose to make the same rate applicable to outstanding loans as on October 21, 2004.

• Indian Banks’ Association (IBA) and NABARD will be asked to work out a scheme under which individual sugar factories may renegotiate the rate of interest on their past high interest loans.

Pharmaceuticals and Biotechnology

64. Our human resource base gives us an exceptional advantage in pharmaceuticals and biotechnology. The Indian pharmaceutical industry has declared its preparedness to produce drugs under the new patent regime. Government has already set up a Rs.150 crore research and development corpus fund for the industry. The corpus deserves to be increased, and I propose to do so in phases beginning next year. India has also the potential to become an attractive destination for outsourcing in drug discovery and clinical research, and for co-development of drugs and manufacturing. In biotechnology, the industry has the potential to be a global leader supplying novel technologies and products to the health and agriculture sectors. Government will provide a stable policy environment and necessary incentives to help the two industries become world leaders.

Small and Medium Enterprises

65. In recent years, our approach to small scale industry has evolved, and now we are inclined to treat the sector as the small and medium enterprises sector. Continuing the process initiated a few years ago, after consulting stakeholders and on the recommendation of the Advisory Committee, the Ministry of Small Scale Industries has identified 108 items for de-reservation. Among them, I would like to mention 30 items in the category of “textile products, including hosiery”, which is a sector poised for rapid growth.

66. In the last Budget, I had significantly liberalized the capital subsidy scheme, and a provision of Rs.135 crore was made for “Promotion of SSI Schemes”. That provision is being enhanced to Rs.173 crore in 2005-06. Small Industries Development Bank of India (SIDBI) has established this year a SME Growth Fund with a corpus of Rs.500 crore. Small and medium units in knowledge-based industries such as pharma, biotech, and IT will be provided equity support through this fund.

67. There is a need for new legislation that will provide a supportive environment for small and medium enterprises. I am glad to inform the House that my colleague, the Minister of Small Scale Industries, will introduce in this session the Small and Medium Enterprises Development Bill.

Skills Training

68. Skills development, especially for youth who have only minimal formal education, is an area which can no longer be ignored. Last July, I had proposed a programme to upgrade 500 Industrial Training Institutes (ITIs). I am happy to inform the House that in the current year 100 ITIs have been identified. Out of them, 67 ITIs in 15 States/Union Territories have been linked with industry and will be upgraded at a cost of Rs.1.6 crore each.

69. There is a demand for specific skills of a high order which is often unmet. I, therefore, propose a Public-Private Partnership between Government and industry that will take up the skills development programme under the name Skills Development Initiative or SDI. Details of the scheme will be worked out and announced shortly.

Foreign Trade

70. We shall build on the growing external strengths of the economy. Government has delivered on the promise to accelerate foreign trade. In April-January 2004-05 exports and imports have grown by 25.55 per cent and 34.72 per cent, respectively, in US dollar terms. Government has fixed an ambitious target of US$ 150 billion for exports by the year 2008-09 in order to double India’s share in world exports to 1.5 per cent. We intend to further liberalize trade policy and extend full support to the efforts of our exporters.

Foreign Direct Investment

71. On foreign direct investment (FDI), I would urge Hon’ble Members to take a pragmatic view. At the recent meeting of the Finance Ministers of G-7 countries, to which India and China were invited, the Finance Minister of China looked in my direction and told the gathering that China had received US$ 500 billion worth of foreign investment since China opened its economy in 1980. Of this, nearly US$ 60 billion came in calendar 2004. Our own experience has been that the automobile, software, telecommunication and electronics sectors have benefited from FDI and have assimilated themselves into the global production chain. I believe that there are opportunities in other sectors as well, such as mining, trade and pensions. Government will, after due consultation, come forward with suitable proposals.

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