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> Policies> economic survey 2000-01
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Economic Survey 2000-2001
[Review of Developments]
Fiscal developments
Union Budget : 2000-2001
The Fiscal Responsibility and Budget Management Bill
Fiscal and budgetary developments in 2000-2001
Expenditure management
Tax reforms
Union Budget : 2000-2001
1.47 The Budget for 2000-2001 was formulated in the backdrop of a series of exceptional exogenous events such as the 50 day war in Kashmir, long months of political uncertainty before the general election, the super cyclone in Orissa, a somewhat weak monsoon and the continued fragility in world economic recovery. These developments led to an unanticipated expenditure on national defense, elections and the super cyclone during 1999-2000. Furthermore, the residual impact of the Fifth Central Pay Commission, the need for special fiscal assistance to the states combined with shortfalls in receipts from disinvestment and revenue, exacerbated the fiscal deficit during 1999-2000. As a proportion of GDP, the Centre’s gross fiscal deficit (exclusive of states’ & UT’s share of small savings) estimated at 5.6 per cent in the revised estimate for 1999-2000 now stands at 5.5 per cent on the basis of provisional and unaudited figures. The Budget for 2000-2001 envisaged a fiscal deficit target of 5.1 per cent of the GDP. The primary deficit (fiscal deficit net of interest payments), which reflects the current fiscal stance of the Government, is budgeted at 0.5 per cent of GDP in 2000-01 as against 0.8 per cent in 1999-2000
1.48 With a view to put India on a higher growth path, the Union Budget (2000-2001) indicated a seven fold strategy which included the following elements: To strengthen the foundations of growth of the rural economy, nurture knowledge based industries, strengthen and modernize traditional industries, remove infrastructure bottlenecks, accord high priority to human resource development with special emphasis on poorest and weakest sections of society, strengthen the country’s role in the world economy through rapid growth of exports, higher foreign investment and prudent external debt management, and establish a credible framework of fiscal discipline.
The Fiscal Responsibility and Budget Management Bill
1.49 The Fiscal Responsibility and Budget Management Bill, 2000, was introduced in the Lok Sabha in December 2000. The Bill provides for a legal and institutional framework to eliminate revenue deficit, bring down the fiscal deficit, contain the growth of public debt and stabilise debt as a proportion of GDP within a time frame. The proposed law casts an obligation on the Government itself for strengthening the institutional framework for conduct of prudent and accountable fiscal policy and pave the way for promoting greater macro-economic stability. This covers only the finances of the Central Government. The principles of fiscal responsibility have been defined in relation to deficit, borrowing and debt.
1.50 The Bill focuses on two deficit indicators, viz., revenue deficit and fiscal deficit, and provides normative ceilings within a time frame for chosen fiscal indicators. The Bill proposes elimination of revenue deficit and progressive reduction of the fiscal deficit to not more than 2 per cent of Gross Domestic Product within a period of five financial years following the promulgation of the law. Besides, the proposed Bill contains provisions, which will ensure flexibility in fiscal management under extraordinary circumstances like natural calamities and war. Under borrowing related principles, it is proposed to prohibit certain types of borrowing from the Reserve Bank of India and under the debt related principles, it is proposed to prescribe a limit on the debt stock. Accordingly, the Bill envisages that within a period of ten financial years, the total liabilities (including external debt at current exchange rate) would not exceed fifty per cent of the estimated GDP.
Fiscal and budgetary developments in 2000-2001
1.51 The fiscal parameters for the nine months of the current fiscal year (April-December 2000) reveals a decline in gross fiscal deficit from Rs. 67082 crore in April-December 1999 to Rs. 64628 crore in April-December 2000 due to better revenue receipts and lower growth in expenditure in the current year. Revenue receipts (net to Centre) increased by 15.3 per cent; other receipts (mainly disinvestment receipts) were only a miniscule Rs.236 crore against a budgeted target of Rs.10000 crore. Total expenditure at Rs. 204821 crore had an increase of only 7.7 per cent over the same period of last year. Borrowings and other liabilities at Rs. 64628 crore indicates a decline of 3.7 per cent over last year.
1.52 The data available for gross collections from major direct and indirect taxes for the first nine months (April-December, 2000) of the current year show strong recovery in direct tax collections. Collections from personal income tax and corporation tax increased by 30.5 per cent in April-December 2000 compared with an increase by 15.3 per cent in April-December 1999. Collections from excise and custom duties posted a growth of 7.1 per cent compared with an increase of 19 per cent in April-December 1999.
Expenditure management
1.53 Over the years the composition of central Government expenditure has acquired rigidity on account of growing number of precommitted items of expenditure. With a view to curb built-in expenditure growth and bring about structural changes in the composition of expenditure, the Union Budget (2000-01) proposed a number of initiatives which inter alia, included the following: all ongoing schemes will be subjected to rigorous zero-base budgeting scrutiny; the manpower requirements of Government departments will be reassessed by reviewing the norms for creation of posts and fresh recruitment in Government departments and institutions will be limited to minimum essential needs; the scheme for redeployment of surplus staff will be made more effective and a voluntary retirement scheme (VRS) will also be introduced for staff in the surplus pool; all subsidies would be reviewed with a view to bring in cost-based user charges wherever feasible; budgetary support to autonomous institutions would be reviewed and they will be encouraged to maximise generation of internal resources; the interest rate on general provident funds has reduced by 1 per cent to 11 per cent effective from April 1, 2000, for aligning it with the overall interest rate structure; and the Budget earmarked Rs.1,000 crore out of disinvestment proceeds for retiring Government debt.
1.54 During the course of the year, the Government took a series of measures for controling growth in non-plan, non-developmental expenditure which include, a mandatory 10 per cent cut in the budgetary allocation for non-plan non-salary expenditure of all ministries/departments and autonomous institutions; a complete ban on purchase of new vehicles for one year; ten per cent cut in the consumption and allocation of funds for expenditure on POL for staff cars; ban on creation of new posts for one year; and ban on foreign travel for study tours, seminars etc.
Tax reforms
1.55 The thrust of the direct tax proposals in the Budget was to retain stability in tax rates and widen the tax base. A new regime for venture capital funds (VCFs), which allows complete pass through status, was put in place for stimulating the growth of knowledge based industries. Provisions relating to amalgamations, demergers and slump sales have been further rationalised to provide tax-neutrality of corporate restructuring. Minimum Alternate Tax (MAT) is to be charged at 7.5 per cent of the "book profits" by all companies as determined under the Companies Act.
1.56 All tax concessions relating to earnings in foreign exchange are being phased out in a five-year period. With a view to expand the tax base, the "one-by-six" criteria introduced for identifying potential tax payers was extended to 79 more cities (from 54 cities) having a population of 2 lakh or more, as per the 1991 Census.
1.57 On the indirect tax front, the process of reduction in the dispersal, rationalisation and simplification of duty rates was carried forward to reduce the transaction and compliance costs. The system of central excise was overhauled with the introduction of a uniform Central Value Added Tax (CENVAT) of 16 per cent ad valorem on all manufactured goods with few exceptions. This will also encourage the States/Union Territories to implement their agreed programme for converting their sales taxes into VAT by April 1, 2002. In addition to CENVAT, three rates of special excise of 8 per cent, 16 per cent and 24 per cent respectively have been prescribed. These apply to certain specified goods like aerated water, tobacco products, motor vehicles, cosmetics etc. Rules and procedures for availing of CENVAT credit have been made short, simple and transparent. All inputs (except high-speed diesel and motor spirit) and all capital goods are eligible for input tax credit. Also, all finished goods (except matches) have been brought under the CENVAT credit scheme. The basis for payment of excise was changed to "transaction value" instead of "deemed wholesale price".
1.58 In the area of customs duty, the objective has been to reduce the high levels of tariffs gradually, so as to reduce the cost of production and improve the competitiveness of the user industry while allowing reasonable time to the domestic industry to adjust against competition from imports.
1.59 The move towards Asian levels of tariffs was reassured with peak protective customs tariff rate scaled down from 40 per cent to 35 per cent ad valorem and reducing the existing five major ad valorem rates of basic customs duty to 4 ad valorem rates viz. 5 per cent, 15 per cent, 25 per cent and 35 per cent. Several consumer goods and a large number of agricultural products were placed on the free list for imports effective from April 1, 2000. These goods are subject to the peak customs tariff rate of 35 per cent plus surcharge. The basic customs duties on crude petroleum and petroleum products were reduced in the Budget and were further scaled down to 10 per cent and 20 per cent respectively during the course of the year consequent to the rise in international oil prices.
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