Financial Daily from THE HINDU group of publications
Friday, Jul 09, 2004
Industry & Economy
An effort to reflect mandate for change
The Union Finance Minister, Mr P. Chidambaram, along with the Minister of State for Finance, Mr Palanimanikkam, leaving the North Block to present the Union Budget in Parliament on Thursday. Ramesh Sharma
The following is the text of the Union Budget speech delivered by the Finance Minister, Mr P. Chidambaram:
Mr. Speaker, Sir.
I rise to present the Budget for the year 2004-05.
Every five years, or sometimes sooner, the people of India speak in their collective voice. The message is usually unambiguous and clear. Elections 2004 were no different. The people's vote against one coalition - and the vote in favour of another coalition - was a vote for change. As the Prime Minister, Dr. Manmohan Singh, said in his address to the Nation two weeks ago, the people have sought "a change in the manner in which this country is run, a change in national priorities, and a change in the processes and focus of governance." I shall make every effort to be true to that mandate.
NATIONAL COMMON MINIMUM PROGRAMME: THE GUIDING LIGHT
The United Progressive Alliance (UPA) has given to itself, and to the people of this country, a Common Minimum Programme. The Government has since adopted it as the National Common Minimum Programme (NCMP). The programme spells out seven clear economic objectives:
The UPA government began its journey in May this year. However, I may note that one-quarter of the year has elapsed and, by the time the Budget is passed and the President gives his assent to the Finance Bill, nearly one-half of the year will be over. There is also an Interim Budget left behind by my predecessor.
The Government has to shift gears; and even if we are able to do so quickly, it would leave us only about six months to achieve our objectives for this year. We have therefore decided to adopt an innovative approach.
The Planning Commission has advised the ministries and departments to redefine their priorities and redraw their programmes in accordance with the NCMP. This will necessarily involve some changes in the allocations under each head of expenditure. Besides, new programmes or schemes may have to be launched, and old ones restructured. Under the circumstances, it was considered optimal to allow the ongoing programmes to continue until the Planning Commission completes an exhaustive review and reorients the expenditure pattern to conform to the NCMP objectives. One thing, however, is clear. The Plan resources made available in the Interim Budget will be insufficient.
Hence, in addition to the Gross Budgetary Support (GBS) of Rs 1,35,071 crore provided in the Interim Budget, I propose to provide a sum of Rs 10,000 crore. This, and some other additional allocations, will raise total plan expenditure to Rs 1,45,590 crore in the Budget Estimates for 2004-05.
FRBM AND THE MACROECONOMIC BACKDROP
The Fiscal Responsibility and Budget Management Act (FRBM) 2003 has streamlined the Budget presentation process. The Government has demonstrated its commitment to prudent fiscal and financial policies by notifying the Act and the Rules with effect from July 5, 2004. Along with the Budget, a medium-term fiscal policy statement, a fiscal policy strategy statement and a macroeconomic framework statement are being presented to the House.
Under the FRBM Act, I am obliged to wipe out the revenue deficit by 2007-08. However, the NCMP has proposed that we do so by 2008-09. In my view, 2008-09 is a more credible terminal year; it will also coincide with the term of this Government. Hence, I propose to move an amendment to this effect through the Finance Bill. I am committed to implementing the FRBM Act.
The elimination of revenue deficit will open up fiscal space up to 3 per cent of GDP for enhanced public investment without undermining fiscal prudence.
The economic fundamentals appear strong and the balance of payments is robust. Although there are short term pressures on prices, the outlook for the year is benign and the Government is fully alert. Growth will be sustained by increased production and value addition in agriculture, a marked improvement in industrial production, and continued buoyancy in the performance of the services sector.
The Government will follow a 5-year road map to achieve the NCMP objective of bringing about rapid growth with stability and equity. Sequencing the measures in an appropriate fashion and continuing the reform process, which ushered in the era of rapid growth, are the main challenges.
The Government is committed to strike a fine balance among the three mutually reinforcing objectives of growth, stability and equity.
ASSAULT ON POVERTY AND UNEMPLOYMENT
One of our greatest assets is our human resources, our people. Empowering the people, especially the poor, with universal access to education and health, and facilitating their full participation in the growth process through gainful employment, will enhance their welfare.
It will also reinforce the growth process itself. This win-win strategy is the keystone of the economic policy framework of the Government.
I have the benefit of the wise counsel of the Prime Minister, Dr Manmohan Singh. In our scheme of things, the poor will have a first charge not only on the additional sum of Rs 10,000 crore of GBS that I propose to provide today, but also on the entire Plan funds that the Planning Commission will reallocate.
The poor want basic education for their children: we shall provide it, and we shall make sure that the child remains in school for at least eight years. We shall also make sure that the child is not hungry while she or he is at school. The poor want drinking water: we shall ensure that every habitation has an assured source of drinking water. The poor want basic health care, medicines at fair prices and a doctor within a reasonable distance: we shall ensure that the public health system has adequate human and financial resources to provide basic medical care. The poor want jobs for their children: we shall ensure that through higher investments, and through targeted intervention, jobs are available to them.
While the Planning Commission will make the final allocations, I may assure the House that crucial programmes such as Food for Work, Sarva Shiksha Abhiyan, Midday Cooked-Meal Scheme, basic health care, railway modernisation and safety, Accelerated Irrigation Benefit Programme, drinking water, investment in agriculture, Provision of Rural amenities in Urban Areas (PURA), roads, and science and technology, including bio-technology, will receive priority and will be provided with additional funds.
Antyodaya Anna Yojana
I propose to continue, and expand, the Antyodaya Anna Yojana. At present, 1.5 crore families are covered. These families are provided with 35 kg. of foodgrains per family per month at a highly subsidized price of Rs 2 per kg. for wheat and Rs 3 per kg for rice. 20.76 lakh tonnes of rice and 17.48 lakh tonnes of wheat were distributed under the Scheme in 2003-04. In the current year, I propose to cover 2 crore families. I expect that the off-take of rice and wheat will increase. Consequently, the Antyodaya Anna Yojana will receive a subsidy of nearly Rs 3,500 crore. A provision for this level of expenditure has been included in the allocation for food subsidy of Rs 25,800 crore.
Public distribution system
Fair price shops constitute the backbone of the food security system for the poor. We shall address the weaknesses in the system and strengthen public distribution. I shall return to this subject a little later.
Food for work programme
Investment and growth will create new job opportunities for our young men and women. Nevertheless, currently there is a need to ensure that unemployment does not take a heavy toll on the poor people. Work has begun on the National Employment Guarantee Act. The object is to guarantee 100 days of employment in a year to one able-bodied person in every poor household. The Bill will take into account the experience gained in Maharashtra. Government will also take care to avoid the pitfalls pointed out by responsible critics. My colleague, the Minister of Labour, expects that he would be able to introduce the Bill in Parliament shortly. Pending the enactment of the new law, I propose to launch a new Food for Work programme in 150 districts classified as most backward and identified as areas in immediate need of such a programme. Allocations under different schemes will be pulled together to support the Food for Work programme. There are substantial funds totalling over Rs 6,000 crore under SGRY, SGSY, SJSRY, REGP and PMRY. Depending on the demand for such work, more funds will be allocated in the current year. I expect to increase the allocations substantially over the next four years. Special care will be taken in laying down the guidelines for the programme so that the money and labour expended result in durable and visible assets benefiting the whole community.
Scheduled Castes and Scheduled Tribes
The welfare of the Scheduled Castes and Scheduled Tribes is close to my heart. The allocation for programmes concerning the Scheduled Castes is Rs 1,180 crore (an increase from Rs 1,137 crore) and for Scheduled Tribes is Rs 1,146 crore (an increase from Rs 1,087 crore). Other plan schemes such as SGSY, SGRY and IAY also contain specific reservations for beneficiaries belonging to the Scheduled Castes and Scheduled Tribes. The reservations range from 50 per cent to 60 per cent.
Particular attention will be paid to the welfare, especially education, of the minorities. Hence, an additional allocation of Rs.50 crore has been made for the National Minorities Development and Finance Corporation.
Microfinance initiatives are a cost-effective way to take the banking system to the poor. The Self-Help Group (SHG) - bank linkage programme, initiated in 1992, has come a long way. Until March 31, 2004, 1.67 crore families had benefited through 10.79 lakh SHGs financed by banks. While the SHG concept will be promoted vigorously, I am of the view that matured SHGs may be in a position to graduate from consumption or production credit to starting micro-enterprises. An indicative target of credit linking 5.85 lakh SHGs during the period up to March 31, 2007 has been set for NABARD, SIDBI, banks and other agencies.
Before I deal with other areas of concern on which the Budget will have an impact, let me give you a snapshot of the goals that I have set for myself:
I believe that the key to growth is investment - public and private, domestic and foreign. It is therefore my intention to considerably enhance investment in all sectors of the economy. However, fiscal prudence and financial discipline will remain the overarching objective. I shall also take into account the availability of resources and the absorptive capacity of various sectors.
EDUCATION AND HEALTH
In my scheme of things, no issue enjoys a higher priority than providing basic education to all children. The NCMP mandates Government to levy an education cess. I propose to levy a cess of 2 per cent. The new cess will yield about Rs.4000 - 5000 crore in a full year.
The whole of the amount collected as cess will be earmarked for education, which will naturally include providing a nutritious cooked midday meal. If primary education and the nutritious cooked meal scheme can work hand in hand, I believe there will be a new dawn for the poor children of India.
I am concerned about the quality of technical education in the country. Lest I be misunderstood, I am not referring to the IITs but to the ITIs. ITIs are the training ground for skilled manpower. The skills imparted by ITIs must keep pace with the technological demands of industry and the expanding universe of knowledge. There is only one benchmark for our technicians - and that is the world standard. In order to produce technicians of world standard, Government proposes to launch a programme in the Central sector to upgrade 500 ITIs over the next 5 years at the rate of 100 ITIs a year. Appropriate infrastructure and equipment will be provided, the syllabi will be upgraded and new trades will be introduced. This is an area where I welcome Chambers of Commerce and Industry to join hands with the Government and create a public-private partnership model for designing and implementing the scheme. The selection of the ITIs will be done in consultation with the State Governments.
An education loan scheme has been in operation since April 2001 under which loans up to Rs 7.50 lakh and Rs 15 lakh are available for professional courses within the country and abroad, respectively. The requirement of collateral was dispensed with for loans up to Rs 4 lakh. I am happy to say that commercial banks have now agreed to waive the need for collateral for loans up to Rs 7.5 lakh, if a satisfactory guarantee is provided on behalf of the student. Thus, no student admitted to any professional course, including courses in IITs, IIMs and medical colleges, will be deprived of the opportunity to study because of lack of funds.
Access to medical care is not easily available to the poor. The Universal Health Insurance Scheme (UHIS) now in operation is skewed in favour of the non-poor. As a result, only a very small number of families below the poverty line (BPL) - actually 11,408 till May 2004 - have been covered. Although the premiums are low, BPL families seem to avoid the scheme due to their inability to pay the premium. In its present design, the scheme may not be sustainable. I, therefore, propose to redesign the scheme and make it exclusive for persons and families below the poverty line. The revised premium would be Rs 165 for individuals, Rs 248 for a family of five and Rs 330 for a family of seven, without any reduction in benefits. To offset the reduction in premium, I propose to enhance the premium subsidy from Rs 100 at present to Rs 200 for an individual, Rs 300 for a family of five and Rs 400 for a family of seven. The cost to the exchequer will be Rs 40 crore in a full year. If the money is fully spent, the number insured will rise to about 10 lakh.
In addition to the above, I propose to introduce a new Group Health Insurance Scheme through public sector non-life insurance companies. The insured will be members of Self-Help Groups (SHGs) and other credit linked groups (CLGs) who avail of loans from banks or cooperative institutions. Under the group health insurance scheme, the premium will be Rs 120 per person, but the insurance cover would be for a sum of Rs 10,000.
The NCMP also rightly emphasizes the need for an accelerated AIDS control programme. Bold and determined efforts need to be made to achieve zero-level growth of HIV/AIDS. These will include improved surveillance through the setting up of more sentinel sites and use of primary health centres to monitor HIV/AIDS, public awareness campaigns, promotion of safe sex through the use of condoms, prevention of drug abuse and distribution of disposable syringes. The allocation for prevention and control of HIV/AIDS is Rs 259 crore.
AGRICULTURE AND THE RURAL ECONOMY
Boosting agricultural growth through diversification and development of agro-processing is one of the objectives of the NCMP. The Prime Minister, in his address to the Nation on June 24, 2004 promised a "New Deal" for rural India. This New Deal is not only essential for rural development and welfare, but also essential for achieving sustained overall annual growth of 7-8 per cent and generating employment.
The agriculture sector requires massive investments. Such investments have to be through credit-enabled private investment and enhanced public investment. I also intend to use fiscal instruments to boost investment in agriculture.
It is my intention to double the flow of agricultural credit in three years. We have made a beginning by announcing a comprehensive policy on agricultural credit on June 18, 2004. The policy has been received well and will be fine-tuned, if necessary.
Government has entrusted the implementation of the policy to the public sector and private sector banks, the regional rural banks (RRBs) and the cooperative banks.
Each RRB has a sponsor bank. I propose to hold each sponsor bank squarely accountable for the performance of RRBs under its control. RRBs that adopt a new governance standard and that abide by the prudential regulations will qualify for receiving funds from the Government for their restructuring.
The third arm for delivering farm credit is the cooperative banking system. Unless cooperative banks are healthy and creditworthy, it would not be possible to reach credit to every farmer in need of credit. The situation is grave. In order to find a durable solution, I propose to appoint a Task Force to examine the reforms required in the cooperative banking system including the appropriate regulatory regime. The Task Force will be requested to act with all deliberate speed and submit its report by October 31, 2004.
Irrigation, rural infrastructure
The Accelerated Irrigation Benefit Programme (AIBP) was introduced in 1996-97 and was allotted large funds year after year. Yet, out of 178 large and medium irrigation projects that were identified, only 28 have been completed. The programme is being restructured. Truly last mile projects that can be completed by March 2005 will be given overriding priority, and other projects that can be completed by March 2006 will also be taken up in the current year. Next year we shall move the goal-post to March 2007, the year after to March 2008, and so on. I have provided a sum of Rs 2,800 crore to the AIBP this year.
The Rural Infrastructure Development Fund (RIDF) was established in NABARD in 1994-95. Five months ago, a decision was taken to close the RIDF and establish, in its place, another Fund with slightly different objectives. Many State Governments and many honourable Members have opposed the closure of RIDF. In deference to their wishes, and in tune with my own thinking, I have decided to revive the RIDF. RIDF's guidelines have been revised, and a corpus of Rs 8,000 crore will be provided for RIDF during 2004-05.
Restoring water bodies
I now turn to one of my big dreams. Water is the lifeline of civilization. We have been warned that the biggest crisis that the world will face in the 21st century will be the crisis of water. Water is indeed a renewable resource but, in any given year, it is not inexhaustible. The crisis of water has affected the lives of millions of our fellow citizens. In some cities, whole households keep awake to receive one or two buckets of water well past midnight. In rural areas, the girl child is often pulled out of school in order to fetch water. I am deeply concerned about the impending crisis. I therefore propose an ambitious scheme. Through the ages, Indian agriculture has been sustained by natural and man-made water bodies such as lakes, tanks, ponds and similar structures. It has been estimated that there are more than a million such structures and about 500,000 are used for irrigation. Many of them have fallen into disuse. Many of them have accumulated silt.
Many require urgent repairs
I therefore propose to launch a massive scheme to repair, renovate and restore all the water bodies that are directly linked to agriculture. In the current year, we shall begin with pilot projects in at least five districts, and we shall select at least one district in each of the five regions of the country. The estimated cost is Rs 100 crore. Funds for the five pilot projects will be drawn from existing programmes such as SGRY, PMGJSY, DPAP, DDP and IWDP. Once the pilot projects are completed and validated, Government will launch the National Water Resources Development Project and complete it over a period of 7 to 10 years.
Funds will not be a constraint for implementing the Project. For instance, Life Insurance Corporation of India invests, on an average, Rs 3,000 crore per year in water-related programmes. I also intend to pose this Project to multilateral agencies for funding. It is my hope that by the beginning of the next decade all water bodies in India will be restored to their original glory and that the storage capacity of these water bodies will be augmented by at least 100 per cent.
Water harvesting schemes, specific to an area or village, have been found to be extremely useful. Such schemes are supported by a number of credit institutions. However, farmers belonging to the Scheduled Castes and Scheduled Tribes rarely benefit from such schemes. In order to help these farmers, Government will launch a nationwide water harvesting scheme. The scheme will cover one lakh irrigation units at an average cost of Rs 20,000 per unit. NABARD will lend the money on easy terms and no margin money will be charged from the borrower. Government will provide a 50 per cent capital subsidy through NABARD, and the estimate for the scheme is Rs 100 crore.
Thousands of lives and thousands of head of cattle are lost every year due to floods. Floods are perennial in States like Assam, West Bengal, Bihar and Uttar Pradesh. The NCMP envisages full Central support to flood control works in inter-State rivers and international rivers. The Brahmaputra Board has prepared a plan for anti-erosion and flood control works in the Brahmaputra and Barak valleys. A programme of flood control and anti-erosion will be launched in the current year. A similar programme is being implemented in the Ganga-basin States of Uttaranchal, Uttar Pradesh, Bihar, Jharkhand and West Bengal. Rs.30 crore has been allotted in the current year and additional funds will be provided to keep pace with the progress of works.
India is self-sufficient in wheat and paddy but deficient in other agricultural produce. The time has come to encourage our farmers to diversify into areas such as horticulture, floriculture and oilseeds. The Anand model has been a great success in milk and milk products.
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