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FM presents budget for inclusive growth, eye on agri, inflation
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New Delhi, Feb 28: Presenting the Union Budget 2007-08 FM P Chidambaram posted a rosy picture of growth for the Indian economy, which has averaged at 8.6% in the last 3 years. The budget proposed to use tax revenue generated by a booming economy to raise spending on education, health and farm sector for an all inclusive growth.
Budget highlights:
Taxes
- Tax to GDP ratio up 11.4% in 2007-08 from 9.9%
- Govt targets FY 08 revenue deficit at Rs 714.78 bn
- Intends to keep tax rates moderate and stable
- States agreed to National General Goods and Services Tax 2010
- Exemption on Banking Cash Transactions Tax for individuals and HUFs raised from Rs 25,000 to Rs 50,000
- Education cess increased from 2% to 3%
- ESOPs to be brought under FBT
- Dividend Distribution Tax raised by 25% on all dividends distributed by money market mutual funds and liquid mutual funds
Direct Taxes
- Better tax compliance
- No change in personal, corporate, service tax
- Threshold limit of exemption to be increased by Rs 10,000 taking it up from 1,00,000 to 1,10,000
- Threshold limit of exemption for women increased to Rs 1,45,000
- Threshold limit of exemption for senior citizens increased to Rs 1,95,000
- Deduction for medical insurance under Section 80D is going to 15000 for common man and 20000 for senior citizens
- Surcharge on tax removed for companies with income of 1 cr or less. This will benefit 12 lakh companies.
- No change in corporate income tax
- Minimum Alternate Tax extended to income for which deduction is claimed under Section 10A and 10B
- Service tax exemption for technical business incubators
- Five year tax holiday for 2,3, 4 star hotels and convention halls with seating capacity not less than 300 in Gurgaon, Noida, Ghaziabad and Delhi owing to Commonwealth Games
- Rs 350 crore to Delhi for Commonwealth Games
- Rs 150 cr to Ministry of Sports and Youth Affairs for Commonwealth Games
- Rs 50 cr for Commonwealth Youth Games in Pune
- Co-op banks to get same tax benefits as PSUs on MA
- No change in CENVAT rate and Service Tax rate
- Clinical drug trials exempt from service tax
- Service tax on works’ contract services
- Service tax on rental of property for commercial use
- Drug testing clinical trials exempt from service tax
Indirect Taxes
- Cuts cement excise for MRP 190 rupee/bag to 350 rupee/tonne
- Ups cement excise with MRP + 190 rupee/bag to 600 rupee/tonne
- Excise duty on pan masala without tobacco cut to 40%
- Non-electric water filters full exempt from excise
- To reward cement makers who hold prices of cement
- Umbrellas, foot wear excise duty cut to 8% vs 16%
- Bio-diesel, food processing exempted from excise
- SSI excise exemption raised to Rs 15 mn vs 10 mn
- Excise duty on plywood cut to 8% vs 16%
- General custom duty on medical equipment at 5%
- Petrol, diesel ad valorem excise cut to 6% vs 8%
- Customs duty on pet food cut to 20% vs 30%
- Private players to pay 3% duty on aircraft import
- Customs duty on watch dials, umbrellas cut to 5% vs 12.5 %
- Coking coal exempt from customs duty
- Customs duty on cut, polished gems cut to 3% from 5%
- Customs duty on PFY cut to 7.5% vs 10%
- Crude, refined edible oils to be exempt from customs duty
- Customs duty on steel cut to 12% vs 20%
- Import duty on medical equipment down by 7.5%
- General customs rate on medical equipment at 5%
- Cut customs duty on DMT/PTA to 7.5%
- Customs duty on drip irrigation cut to 5% vs 7.5%
- Customs duty on polyester fiber yarn cut to 7.5% vs 10%
- To cut peak rate for non-farm products to 10% vs 12.5%
Economy
- GDP growth rate at 9.2% for FY 2006-07
- India has registered average 8.6% growth rate in last 3 years
- Agriculture growth down to 2.3% in 10th Plan period below targeted 4%
- Manufacturing sector growing at 11.3 % as compared to 8.7% in FY 05
- Services sector growing at 11.2% as compared to 9.6% three FY 05
- Farm supply imbalances can disrupt growth
- Foreign trade growing at double of domestic growth
- Apr-Jan FDI at USD 12.5 bn, outpaces portfolio investment
- Equity support of Rs 163.61 bn and loans of Rs 29.70 bn to be provided to Central Public Sector Enterprises
- Eight CPSEs restructured
- All indicators point to accelerating rate of investment
- To continue with export friendly policies
- 150 mn families into farming
- Economy is in stronger position than ever before
- Savings rate estimated at 32.4% in FY-07
- Faster more inclusive growth main 11th Plan objective
- Gross domestic capital formation up 23.7%
- 1.65 tn investment by central PSUs in FY 08
Govt Finance
- Govt targets FY 08 revenue deficit at 1.5% of GDP
- Govt targets FY 08 fiscal deficit at Rs 1.5 tn at 3.3% of GDP
- FY 08 non-plan expenditure seen at 4.3 tn rupees
- FY 07 fiscal deficit aim revised to 3.7% of GDP
- Gross Budget Support of Rs 2.05 trillion compared to Rs 1.73 trillion earlier
- Plan spend 32% of total spend
- Fiscal deficit target achieved
- FY07 revenue deficit aim revised to 2% of GDP
- Central FY 08 plan allocation Rs 1.55 tn versus Rs 1.31 tn
- VAT has been an unqualified success
- Central Sales Tax reduced from 4% to 3% with aim of eventual phase out
- Roadmap for introducing Goods and Services Tax w.e.f 2010
- Centre to allocate to give Rs 1.42 tn to states in FY 08
- Rs 1.10 tn state debt consolidated
- Centre, states regained lost fiscal ground due to FRBM
Banking Sector
- Bank credit Apr 1-Feb 2 expanded 29.6% on year
- Bank credit to small firms up at Rs 1.7 tn as of Dec
- NHB to start policy for senior citizens
- RRBs committed to accept deposit from NRIs under NRE, FCNR schemes
- Target of opening at least one RRB in 80 uncovered districts
- Rs 400 bn for government to acquire RBI stake in SBI
- Banks asked to get credit ratings for small, medium enterprises
Financial Sector
- To set up autonomous debt management office
- Debt management distinct from monetary management world over
- To release panel report to Mumbai financial hub
- To allow delivery based short selling by institutions
- PAN will be sole identification for all capital market transactions
- Two new financial inclusion funds to get Rs 5 bn corpus
- To establish financial inclusion fund with NABARD
- Bill to amend insurance laws in Budget Session
- To change law to allow creation of mortgage companies
Inflation
- Emphasis on inflation control
- Average inflation seen at 5.2% -- 5.4% in FY07 vs 4.4%
- M3 has expanded by 21.3%
- Global commodity prices pushing local prices
- Govt confident it can moderate inflation; committed to monetary stability
- Emphasizes state govt’s role in taming inflation
- Monetary trends had put pressure on prices
- Notes supply constraints in wheat, pulses, edible oils
Futures trading
- No new forward contracts in wheat and rice
- Expert committee headed by Prof Abhijit Sen to look into forward trading in commodities. Report in 2 months
Infrastructure
- 12,198 km of rural road has been built till December
- 15,054 villages to be connected by phones till December
- Allocated Rs 40 bn for rural roads
- 75% growth rate in electricity generation in April – December
- Govt to award two more ultra power projects by July
- Imperative to take new steps to up power generation
- Rural electrification allocation at 39.83 billion rupee FY 08
- Rajiv Gandhi Vidyutikran Yojana allocation Rs 39.8 billion
- National highway plan to get 106.7 billion FY 08
- FY 08 APDRP support raised to 8 billion rupees versus 6.5 billion
- Energy security high on government agenda
- Rs 120 bn more earmarked for RIDF for FY 07-08
- Separate window for rural roads under RIDF to continue
- 4000 cr more earmarked for RIDF for FY 07-08
- Considers Parekh panel advise on infrastructure financing
- Scheme to use forex reserves for infrastructure development
- Mutual Funds to launch dedicated infrastructure funds
- Rs 1 bn corpus for revolving fund for project preparation of PPP schemes
- 26 coal blocks, 4 lignite blocks allocated to government companies, end users
Agriculture
- Agriculture to top the agenda of policy makers
- Draft National Policy for farmers under consideration
- Bank farm loans doubled in 2 years vs 3 year aim
- FY 07 farm credit seen Rs 1.9 tn vs 1.75 tn target
- 5.3 mn farmers brought under credit till December
- Farm credit growing at satisfactory rate
- Farm loan target at Rs 2.25 tn in FY 08
- To create additional irrigation for 2.4 mn ha
- Pilot project for weather based crop insurance scheme at Rs 1 bn
- Weather based insurance to replace farm insurance scheme
- Farm insurance scheme stays in FY 08, gets Rs 5 bn
- New insurance scheme for rural landless households
- FY 07 fertilizer subsidy seen at Rs 224.52 bn
- World Bank lent 21.8 billion rupees to renew 5763 water bodies
- Depletion of ground water is a concern
- New training programme planned for water harvesting
- To extend farm tech agency to 300 more districts
- 100% subsidy for small, marginal farmers, 50% subsidy for small farmers for water management
- Outlay for Rainfed Irrigation Programme at Rs 1 bn in FY 08
- Irrigation FY 08 outlay at Rs 110 bn vs 71.21 bn
- Special purpose fund for coffee, rubber, spices proposed
- World Bank loan for water body renewal for Tamil Nadu
- 2 more World Bank loans seen for water body renewal plan
- Allocated 18 billion rupee to NABARD for farmer subsidy
- NABARD can issue tax-free rural bonds up to Rs 50 bn
- NABARD bond raising to augment re-finance capacity
- Panel on farm sector indebtedness to submit report soon
- Special development programme for oil seeds, maize
- To focus on improving productivity of pulses
Education
- Education spending up 34.2% to INR 323.5 billion for FY 07-08
- Secondary education allocation doubled to Rs 37.94 bn
- FY 08 school education allocation up 35% to Rs 231.4 bn
- Sarva Siksha Abhiyaan allocation increased to Rs 106 bn
- 2 lakh more teachers to be appointed
- Midday meal scheme allocated Rs 73.24 bn
- Prarambhik Shiksha Kosh to be increased from Rs 87.46 bn to Rs 103.93 bn
- 5 lakh more classrooms to be built. Children in upper primary classes to be covered
- Scholarship scheme for class 8 students.
- 1 lakh scholarships to be awarded every year.
- Rs 7.5 bn to be given to SBI for this purpose
- Free scholarship programmes for minority students
- Fellowships for SC/STs studying M Phil., PhD increased to Rs 0.8 bn vs Rs 0.35
- Post-matric scholarship for Sc/STs increased to Rs 6.1 bn vs Rs 4.4 bn
- Allocation of Rs 0.91 bn for post-matric scholarships for socially backward
- Allocation Rs 7.5 bn for upgradation of ITIs
- To upgrade 300 more ITIs by Aug 2009
- New plan for manpower development in software industry
Health
- Allocation for health and family welfare hiked by 21.9% at Rs 152.91 bn
- FY 08 National Rural Health Mission allocation 99.47 bn up from 82.07 bn
- To start National Aids Control Programmme-III from FY 08, allocation at Rs 9.69 bn
- Rs 12.9 bn to be provided for elimination of polio
- Polio eradication strategy revised
- Health insurance extended to ancillary workers
- 3,20,000 Associated Social Health Activists recruited; 2 lakh trained
Unorganised Sector
- Considering panel report on unorganized sector insurance
- Social security scheme for unorganized sector soon
- Head of rural landless family or one earning member to be insured for death and disability. Corpus of Rs 10 bn to be maintained by LIC
Women and Children
- Govt to expand Integrated Child Development Shceme
- Allocation for Integrated Child Development Services(ICDS) at Rs 47.61 bn vs Rs 40.87 bn to
- To expand Anganwadi scheme to cover all mothers
- To expand Anganwadi scheme to cover children below six years
- To spend Rs 169.8 bn under special plan in 31 districts in FY 08
- 50 ministries have gender budgeting cells
- Rs 87.95 bn for women specific programmes
Physically Challenged
- Rs 18 bn for employment of Physically challenged
- Govt to support 1 lakh jobs for physically challenged
- Steps to boost regularized jobs for physically challenged
Other Social Sector Steps
- Allocation for SC/ST raised to Rs 32.71 bn in FY 08
- Schemes with at least 20% benefit earmarked of SC/ST allocation at Rs 176.91 bn
- PDS to be computerized
- Drinking water provided to 55,512 habitations till Dec 2006
- 7,83,000 rural houses constructed till Dec 2006
- Construction of 9,14,000 rural houses underway
- Allocation for sanitation increased to Rs 9.54 bn vs Rs 7.2 bn
- Provision of 1.08 bn for multi-sectoral development of minority concentration districts
- Reverse mortgage scheme for senior citizens owning a house to receive monthly income
Employment
- Allocation of Rs 18 bn in FY 08 for self-employment plan
- Allocation of Rs 120 bn for National Rural Employment Plan in FY 08
- Allocation towards eradication of urban unemployment at Rs 3.4 bn vs Rs 2.5 bn
Others
- New industrial policy for Northeast before March
- FY 08 allocation for Northeast at Rs 143.65 bn
- National Urban Renewal FY 08 allocation at Rs 49.87 bn
- FY 08 backward region grant fund at Rs 58 bn
- Gave Rs 7.19 bn for e-governance in FY 08 vs Rs 3.95 bn
- FY 08 defence allocation hiked to Rs 960 bn
- FY 08 provision for tourist infrastructure at Rs 5.2 bn
- New scheme for coir industry at Rs 0.22 bn
- FY 08 integrated apparel park allocation at Rs 4.25 bn
- Oil companies invested Rs 970 bn for oil exploration
- Road come bridge on Brahamputra at Bogibeel(Assam) declared national project
- Road-cum-bridge over Ganges at Munger(Bihar) declared national project
- Expert committee to study impact of climate change on India
- Rs 0.30 bn for Sabarmati Ashram, Sevagram Ashram, Bhandarkar Oriental Research Institute and Rajendra Smriti Snaghrahalaya
- Rs 0.20 bn for Nehru Memorial Museum and Library
Bureau Report
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