155

MINISTRY OF FINANCE

(DEPARTMENT OF ECONOMIC AFFAIRS)

(Budget Division)

BUDGET 1981-82

SPEECH OF

MINISTER OF FINANCE

New Delhi, 28th February, 1981

PART A

M/Finance (EAD) u.o. No. F. 15(3)-B(D)I81

Sir,

It is my privilege, once again, to present the Budget to

this auauit House.

2. The Budget for 1981-82 has been formulated in an

economic situation which continues to be difficult, but also

shows great improvement over the desperate conditions pre-

•vailiing a year ago.

Tho "Economic Survey" presented to

the House this week contains a detailed review of develop-

ments in the past year.

I shall, therefore, only review the

highlights of the economic situation cis u background to

pi-canting tbj strategy of next year's budget.

3. Hon'Wc Members will recall that when our Govern-

ment took office in January 1980, we inherited an economy

in extremely poor shape.

It was reeling from a disastrous

economic performance in 1979-80, when the Gross National

Product declined by 4.5 per cent, and prices increased by

over 21 per cent.

Neglect

and

mismanagement of the

infrastructure had produced a crisis situation in key sectors

such as* coal, power and railways.

4. Faced with this grim situation, our overriding objective

was to arrest the deterioration and set the economy once

again on the path of stability and

growth.

This was no

easy task.

The severe drought of 1979-80, nnd tbe accu-

mulated problems in management of the infrastructure, cast

a long shadow over 1980-81.

5. Efforts to improve infrastructure performance deserved

and received the highest priority in 1980-81.

A mechanism

for crisis management was established, with special adminis-

trative arrangements to monitor and co-ordinate Government

action in this area, and to set clear priorities. It took time

for these efforts to bear fruit, but by the middle of the

fiscal year, all the three sectors, power, coal ami railwayi

showed distinct improvement.

6. Power generation suffered

the

early months of

1980-81 because of very low hydro-electric generation. TKs

was a direct consequence of the acute drought of 1979,

which left th© reservoirs severely depleted through the lean

summer months of 1980.

Hydro-electric generation picked

up after July wb;n most of the reservoirs were replen^:shed

by the monsoon. There was also a very substantial improve-

ment in thermal generation.

The problems of coal avail-

ability which had plagued thermal power plants during 1979

were substantially overcome and rail movement of coal to

thermal plants was organised on a priority basis.

Strenuous

efforts were also made to improve operational effic'encv bv

initiating betterment and renovation programmes in the States

with technical advice from Central Agencies.

As a rem't,

thermal electricity generation in November and December

1980 was 21 per cent higher than in the same months in

1979.

For the year as a whole, electricity prr,<erE>*ir-n is

likely to show an increase of about 6 per cent over 1979-80.

However, in the second half of 1980 81 generation would

be about 13 per cent higher than the second half of the

previous year.

7. Coal production in 19RO-81 olso fhows a marked im-

provement. The production of coal and 1'pnite Ind remained

more or less stagnant

at about 106 miUion tonnes since

1976-77.

This frustrating spell of stagnation has been bro-

ken and production is expected to exceed 115 million tonne*

in 1980-81.

Better availability

of power waa one of the

important factors behind this improved performance.

8. The railways have shown improvement In the movement

of freight in recent months, breakinc a pattern of deteriora-

tion witnessed over the past three years.

9. Industrial production in 1980-81 reflected the progress

made in removing infrastructure constraints. I have already

mentioned that hydroelectric generation was very low In

the first three months of 1980-81 becauw of the donlctinn

of reservoirs. The resulting shortage of power decreed in-

dustrial production through much of the first half of 198O-8t.

However, with the easing of infrastructure conslramts in Ihe

second half of the year, industrial nroductior.i has picked

up.

For the year as a whole, it is likely to show a growth

of about 4 pj-r cent.

This compares with a decline of 1.4

per cent in 1979-80.

10. In addition to efforts at improving Infrastructure ner-

formance, the Government also took wide ranging measures

1399 GI/80-3

1 5 6

THE GAZETTfi OF INDIA : EXTRAORDINARY

[PART I--SEC. *J

designed to create conditions conducive to rapid industrial

expansion.

Hon'ble Members will recall that the Budget for

1980-81 contained specific fiscal incentives designed to en-

courage investment activity. This was followed by the Indus-

trial Policy Statement of July 1980 in which several pro-

motional measures were announced.

Steps were also taken

in the course of the year to increase ttu flow of invest-

ment finance to industry. A new policy has been enunciated

to permit investment funds from oil exporting developing

countries to flow into new units in selected industries in the

form of portfolio investment.

The guidelines for issue of

debenture were revised to permit more effective use of this

instrument for mobilisation of funds.

11. Although the promotional impact of these measures

could not manifest itself fully in 1980-81 because of infra-

structure bottlenecks, they have undoubtedly set thestage for

longer term industrial expansion in the coming years.

12. The performance of agriculture in 1980-81 gives every

ground for satisfaction and provides great reassurance about

the basic hcpllh of this vital sector of our economy. Th;

wea*her in 1980-81 was favourable

in most, bnt byi no

means all, parts of the country, and this created conditions

conducive to Hn agricultural recovery.

TIK tufal production

of foodgrains in 1980-81 is likely to exceed 132 million

tonnes, which is more than 23 million tonnes higher than

in 1979-80. It will surpass the previous peak level achieved

in 1978-79, and yet weather condition's were less favourable

than (in that year.

The gains in foodgrains production in

1980-81 have been accompanied byi a very substantial re-

covery in sugarcane production.

Production of fibre crops

was also good.

13. This excellent performance testifies to the soundness

of the agricultural strategy we introduced! in the late sixties.

This strategy was vigorously pursued in 1980-81.

A con-

certed effort was made to ensure adequate production of

quality seeds.

The area under high yielding varieties was

expanded to 48 million hectares compared with only 3.^.2

million hectares in 1979-80. Large imports of fertilsers were

undertaken to supplement domestic

production.

Fertiliser

consumption in terms of nutrients is estimated to have in-

creased from 5,26 million tonnes

to 5.6 million tonnes.

Expansion of Irrigation received

special attention and the

agricultural extension machinery was strengthened to ensure

a more effective transfer of technology.

14. The excellent performance of agriculture, combined

with the beginning of a recovery in industry, is likely to

produce an overall growth

of 6.5 per c:nt in the Gro\n

National Product.

This is an important achievement, but T

must caution against

complacency,

The

progress made

'needs to be consolidated, and further momentum must be

built up if the recovery

of 1980*1 is to mature into full-

fledged growth next year.

This calls for a realistic assess-

ment of the strengths, as well as the weaknesses, of the

economy,

15. The economy continued to lit¹ subject to inflationary

pressure dturing 1980-81 although there c:in be no doubt that

there was ft marked improvement O"->T 1979-80.

The in-

crease in prices during 1980-81 apto llw end of Tanuary 1981

has been 13.5 r>er cent.

It was nearly 20 per ce-nt in the

same period of the previo'ii year. Inflationary pressures were

particularly severe in the first half of Hie year because of

the after effects of t\c J ••ought of 197.') and this was espe-

cially evident In the bjniviour of sugar, gut and khandsari

prices.

With the Improvement in the supply situation in

the second half of ihe year, there was a definite improve-

ment.

Prices declined from trw middle of October to the

end of December. They have risen since then, partly because

of the unavoidable increase in petroleum prices effected in

January.

However in recent weeks, the increase in prices

ha« moderated.

16. I must cautlod however that

although inflation has

abated, it has not been overcome.

The economy remains

subject to continuing cost push pressures, includntf ospe-

cfsliv the transmission of international inflation through) rising

prices of oil and other essential imports.

Since these cost

pttsh pressures are likely to persist, conrimied vigilance is

required in the coming year.

It is essential to evolve n

strategy for coping with cost push inflation effectively by

tackling the problem at its roots, This is not only a mntlcv

of demand management.

It also requires au all out effort

to increase efficiency and achieve higher productivity.

17. Monetary and credit policies .in 1980-81 were tailored

to the requirements of the inflationary situation and com-

mercial credit was strictly regulated.

In addition, steps weie

taken to ensure that the distribution of bank credit conforms

to our economic and social priorities.

The Reserve Bunk

has evolved guidelines to ensure that an increasing sUirc

of priority sector credit is directed to weaker sections, espc-

ciallyi those identified in the 20 point programme.

Accord-

ing to these guidelines, 40 per cent of priority sector lending

is to bo earmarked for the agricultural sector.

Half of the

direct lending by commercial banks to agriculture and allied

activities will be directed to small and marginal farmers and

agricultural labourers.

Furthermore, 12.5 per cent of total

credit advanced to small scale (industries will be reserved for

rural artisans, village craftsmen and cottage industries.

18. The expansion of banking in the rural areas is continu-

ing and the programme of establishing Regional Rural Banks

has bcec accelerated.

There were only 60 such banks at

the end of December 1979. There will be one hundred by

the end of March 1981. Another 25 Regional Rural Banks

will be established in the year 1981-82.

It is proposed to

increase their number to 170, covering 270 districts, by the

end of the Sixth Plan, A National Bank for Agricultural

and Rural Development will be established as an apex ins-

titution to meet the credit needs of the rural community and

a bill to this effect will be introduced shortly.

19. This is an appropriate occasion to inform t/w House

that we have decided to undertake a major re-organisation

of the, Life Insurance Corporation m order to strengthen iis

ability to meet the challenges of the future.

The Corporation

has an impressive record of extending insurance services to

the community.

In the process it has grown very consider-

ably in size. It has, therefore, become desirable to restruc-

ture the Corporation into more manageable units in the

interest of operational efficiency

and also to allow an ele-

ment of healthy competition.

Accordingly, we have decided

to re-organise- the Corporation into five independent units

with a co-ordir/ating body to provide supervision and guidance

on matters of common interest. I have no doubt that these

changes will improve the quality of

service rendered to

policyi holders.

This re-organisation will impart a greater

degree of dynamism into the working of these institutions.

and this will help to

extend life insurance into the rural

areas, where only limited headway has been made so far.

20. The balance of payments situation facing the country

gives cause for concern.

Rising prices of imported oil hnve

added enormously to the external payments burden on the

economy. The import bill for crude oil and petroleum pro-

ducts is likely to reach Rs. 5,600 crores In 1980-81, com-

pared with only Rs. 1,677 crores two years ago.

Most of

the increase is duo to the increase in oil prices.

Tr'j total

import bill in 1980-81 is likely to be around Rs. 11,300

crures whereas exports are proiected to be only Rs. 7.100

crores, Even after allowing for the surplus on net invisibles,

the country has to financp a balance of payments deficit of

about Rs. 2.000 crores in 1980-81.

Thii; is much larger

than the amount of external assistance available, and it has

led to a significant drawdown of foreign exchange reserves.

It is. therefore, essential to evolve a strategy for bringing the

balance of payments under control,

The Government has

already taken a number of steps in this direction,

21. High priority has been accorded to oil and natural

gas exploration in order to reduce our dependence on im-

ported supplies as much as possible. Thj Oil and Natural

Gas Commission has found evidence of hydrocarbons in

several structures both offshore and onshore and it is cssen-

tial to pursue the exploration ami development efforts with

all the resources at our command.

Tr> this end, an ambi-

tious programme is envi'snc^rl for the Oil and Natural Gas

Commission and Oil India Ltd. Th? urgency of the situation

is also such that the Government has decided to supplement

our domestic capability by engaging foreign parties on com-

157

tract, on a production sharing basis, to hasten the pace of

exploration and development of potential oil fields. It is

expected that the foreign

companies

selected under this

scheme will commence work in the second half of 1981-82.

22. The balance of payments situation also calls for strong

support to exports and the Government has taken several

important initiatives in this regard recently.

Hon'ble Mem-

bers will recall that in my Budget Spcecb last ycur I stated

that the Government had taken a decision to establish an

Export-Import Bank to assist in the financing of international

trade.

The details of this proposal have now been worked

out, and it is proposed to introduce a Bill in tl,« current

session for setting up the Export-Import Bank as a Statutory

Corporation.

1 am providing Rs, 70 croies in the Budget

for this purpose.

23. There is also considerable scopt: for import substitution

by increasing domestic pioduction and expanding capacity

in sectors such as steel, cement, fertiliser, non-ferrous metals

and oilseeds. This is being vigorously pursued,

24. The strategy of the Budget I am about to present

flows from my assessment of the state of the economy,

We bavc come out of the crisis situation which prevailed

a year ago.

The agricultural sector has recovered and is

well poised for continued growth.

The industrial recovery

is as yet partial, but the various policy initiatives already

taken have created conditions favourable for an industrial

revival.

With further improvement in infrastructure per-

formance, the constraints on industry

in the coming year

should be substantially cased.

The

emphasis in 1981-82

must therefore shift from crisis management to growth.

25. The tasks ahead of us have been clearly indicated in

the Sixth Plan, which bas now

been

approved! by the

National Development Council. The Plan establishes a tar-

get of 5.2 per cent growth per annum and calls for an

ambitious public sector investment programme of Rs. 97,500

crore:.'. As in the past agricultural development, with special

emphasis on the weaker sections, is the centrepiece of our

development strategy. But the Sixth Plan also identifies some

other areas which have

become

especially

critical.

The

energy-transport system comprising such critical sectors as

power, coal, oil, ports and railways, requires massive invest-

ments if these sectors are not to become a constraint upon

economic growth

26. The Budget must make a

beginning in undertaking

these large and urgent tasks. But it must do so in the full

knowledge that the threat of inflation hus not been fully

overcome. The fiscal deficit should there-fore be kept wirb'i.¹

tolerable limits,

At the same time, taxation mur.t be used

judiciously so that it docs not fan the flames of inflation as

happened in 1979-80,

27. Along with fiscal discipline we must aha take M.eps to

encourage the flow of private savings

into the financial

system.

Only thus can we ensure adequate availability of

non-inflationary financing to meet

tl.i; rapidly expanding

needs of the economy.

This flow of resourcrs into the

financial system iis threatened in two ways ar.U we must

tackle both.

28. First of all, it is threatened by the pernicious growth

of the black economy.

This generates income flows which

cannot easily surface in the financial system, and are therefore

directed into socially harmful activity such as hoardinp, pro-

fiteering, speculation and wasteful consumption.

Thi3 only

stokes the fires of inflation.

The Government hus recently

taken a major initiative to direct some of the resources or-

culaUnn in the black economy into the

pub'ic exchequer

through the sale of Special Hemcr Bonds

Furthci action

on a wide front i> riTewa'v to ^heck 'h*; L'tnenitior; rf black

money so that this social evil

is progressively eliminated

from our society.

29. A second '.mncjiment to financial savings K the exis-

tence of high rates of inflation.

Tn an inflationary situation

it becomes eswntitl to pmvid-. adeqiuiti incentives to finan-

cial savings. Since bank deposits are the most important

single mechanism for financial savings, it has been decided

to raise the interest rate on maturities from one and upto

five years. An announcement to this effect is being made by

UA; Reserve Bank. The interest rate paid on deposits auove

1 year maturity and upto 2 years will be raised from 7

per cent at present to 7.5 per cent. The rate paid on depo-

sits above two years and upto three years will be raised from

7 per cent at present to &.5 per cent.

The rale paid on

deposits above three years matinity will be raised from 8.5

per cent at present to 10 per cer/t.

30. The interest rate paid by banks on deposits above

5 years is unchanged, but a new National Savings Certificate

will be issued with a matuiity of 6 years which will carry

an interest rate of 12 per cent. This will provide the neces-

,. .iy incentive for encouraging longer term savings.

31. In addition to these measures, I propose to raise th»

interest rate ceiling on

debentures from 12 per cent at

present to 13.5 per cent. This is in line with the other in-

terest rate changes proposed, and it will encourage large

industrial units to raise their

requirements of investment

finance through tri;ir own efforts,

it is essential that these

units, which have the capacity to mobilise resources through

the financial markets, should make

greater efforts in this

direction and thus reduce the burden, on the term lending

institutions.

32. At present, public companies arc permitted to accept

deposits from the public upto 25 per cent of the aggregate

of their paid up share capital and free reserves.

They are

also allowed to accept deposits upto 10 per cent of paid

up capital and free reserves either from their shareholders

or from others when guaranteed by a. Director of the com-

pany, These limits do not apply to inter-company deposit*

These provisions governing company deposits will be con-

tinued.

However, it is propoiedi to impose a ccilini; of 15

per cent on the interest rate which can be paid on these

deposits. The requisite orders giving effect to these decisions

are being issued,

33. As a further step in facilitating investment in industry

we have decided to relax the requirement under the Stock

Exchange guidelines that promoters can only hold a maxi-

mum of 40 per cent of the equity of a new company). This

provision conflicted in some cases with the requirement of the

financial institutions that promoters

put up a minimum

percentage of tile total cost of the project.

This potential

contradiction between two different requirements had given

rise to considerable difficulties in the implementation of new

projects.

In order to overcome- there problems, promoters

will be allowed to hold higher equityi than the 40 p^r cent

limit during ttw initial stages of a project.

However, equity

holdings above 40 per cent will have to be divested within

three years from the date of commercial production by an

offer of sale to the general public.

Tljis rationalisation

should speed up the implementation of

new projects in

industry.

34. I am confident that these widc-rai/ging measures vvill

help to encourage the flow of savings into the financial sys-

tem and increase the availability of funds for industrial

investment,

They create highly favourable conditions

for

growth in the coming year.

35. Having outlined the broad approach I have adopted

in formulating the Budget and some associated policy ini-

tiatives, I will now turn to the Revised estimates for 1980-81

and the Budget estimates for 1981-82.

Revised Estimates for 1980-81

36. The Budget estimates for

1980-81 haw envisaged a

deficit of Rs. 1,445 crores. However, rs n result of discus-

sions between the States and the Planning Commission the

State Plan outlays were increased

in a number of cases.

Central assistance for State phiai was increased by Rs. 310

crores.

We have also to provide additional assistance of

Rs. 58 crores to the Rural Electrification Corporation.

The

provision of short term loans to the States for supply of

agricultural inputs also had

1o be increased by Ps

crorei.

158

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART 1—SEC. 1]

37 In addilion, the Central Government has to provide

assistance of Rs. 90 crores to the States to help in flood

relief work.

Special loan assistance of Rs. 76 crores is

being provided/ to certain North Eastern

States including

Assam to meet the gap in their resources caused by their

exceptional difficulties,

38. A larger provision for subsidies is being made than

originally envisaged.

The provision for net outgo on. im-

ported lertilisers is being increased by Rs. 104 crores- The

provision for food subsidy, subsidy on controlled cloth and

provision for cash compensatory support and market deve-

lopment for exports are also being increased by Rs. 110

crores.

39. TL<e provision for Defence expenditure has to be in-

ci eased by Rs. 200 crores.

40. The financial position of certain public sector under-

takings did not show th© recovery anticipated at the Budget

stage. Additional non-Plan assistance of Rs. 104 crores to

these undertakings has therefore become necessary.

41. Turning to the Central Plan expenditure, I am happy

to inlorm the House that expenditure in crucial sectors like

power, coal and petroleum lias been

satisfactory.

The

House will also be happy to note that the level of disburse-

ments of the Agricultural Refinance and Development Cor-

poration has far exceeded the initial Budget estimates, and

I am, therefore, providing an additional sum of Rs. 126 crorcs

to the coiporation. An additional provision

of Rs. 50

crores is being made for Industrial Development Bank of

India to enable it to meet its risicg commitments. In certain

sectors like steel and civil aviation, there has been a short-

fall in internal resources generation and budgetary suppoi c

for their Plans has to be significantly! stepped up. There

may bo some shortfalls in the Plan expenditure in some

sectors.

However, even after taking these into account,

ihe budgetary support for 1hc Central Plan in 1980-81 will

be Rs. 297 crores higher in the Revised estimates,

42. The tola) expendituiii of the Central Government iw

now estimated at Rs. 22,808 crores compared with Rs. 21,467

crores in the Budget.

43. Turning to receipts, I am happy to inform tho House

that despite the concessions in income-tax allowed in (he

Budget for 1980-81, tax revenues have not suffered.

jtidfiiiine'it that lower rate of taxation will promote better

voluntary compliance seems to have been vindicated. The

receipts from Corporation tax would bo higher by Rs, 35

crorci compared with the Budget estimate of Rs, 1515

crores. Receipts from Union Excise duties are also estimated

to be higher by Rs. 99 cvore, compared with (he Budget

estimate of Rs. 6265 crores. The receipts from Customs

duties are likely to exceed the Budget estimate of Rs. 2989

ciores by as much as Rs. 361 crores in the current year due

to larger imports and higher international prices.

After

deducting the States' share of various taxes, tho net tax

revenue of the Centre is now estimated to he Rs. 419 crores

more than (he Budget estimate of Rs. 8922 crores.

44. Capital receipts too, show an improvement of Rs 245

crorcs over the Budget estimate of Rs. 7,694 crores. This

is because of higher market borrowing of Rs. 104 crorcs and

estimated ro-eipts of Ks. 200 crores from the s-ilo of Special

Bearer Bonds, offset by some shortfalls ehewhere.

45. Total reecints are now estimated at Rs. 20-833 crores

compared with the Budget estimates Of Rs. 20,022 crorcs.

The current year is now expected to close with a deficit of

about Rs. 1,975 crores. The House wiJl appreciate that

•>lmost the entire ir^lcre?ss in the budgetary deficit is accoun-

i*H for by larger budgetary support for State and Central

Plans

Budffct Estimates for 1981-82

46. The Budget for 1981-82 reflects the objectives, priori-

ties and projtiammes of the Sixth Plan, Plan outlays of

the Centre. States and Union Territories in 1981-82 are

esrirmtrd. nf Ri_ 17.479 crores,• compared with Rs. 14,593

crores in Budget estimates 19RO-81. This represents an in-

crease of nearly 20 per cent. The Plan outlay of ihe Cei.tre

for 1981-HZ IS Doing stepped up very cousiaeraDiy 10 n.s.

S,nly oiores ftom Rs. 7,340 crores in Budget estimates 1980-

M, an increase of 17.4 per cent. This will be financed by

budgetary support of Rs. 6,30V crorcs. and internal and

cxUa budgetary resources of Public Sector Undertakings of

Rs, 23,10 crores. The total of the approved Plan outlays

of States and Union Territories will be Rs. 8,860 crores as

Eflainst Rs. 7,253 croies in Budget estimates 1980-81, that

is. an increase of 22 per cent. A provision of Rs. 3,462

ciores has been made for Central assistance for the Plans

of the Slates and Union Territories

47. Agriculture has a preponderant role in our economy

imd its development sets the pace for the economy as a whole.

The Annual Plan outlay for agriculture in the Central and

State Plans has been stepped up to Rs. 1,047 crores from

Ks. 925 crores in Budget estimates 1980-81. Expansion of

the area under irrigation is the most important single factor

enabling a shift to high productivity

scientific farming.

Accordingly it is pioposed to add 2.5 million hectares under

irrigation in 1981-82. The outlay for major and medium

irrigation in the Annual Plan of the Centre and States for

1981-82 is being raised substantially to Rs. 1408 crores from

Rs, 1213 croies in Budget 1980-81. The outlay on minor

inig.ition will be Rs. 301 crores compared with Rs. 266

cvores in 1980-81.

48. Parallel vvilh the effort at boosting total agricultural

produi:lion, the Annual Plan lays great stress on special pro-

grrtmincs lo benefit the weaker sections of rural society such

as landless labour, small and marginal farmers, rural artisans

and scheduled enstes and scheduled tribes, One of the im-

pJitiinL programmes which this Government has launched for

this purpose is the National Rural Employment Programme.

We are providing Rs, 180 crores in the Central Plan for

this progiomme and this will be matched by an equal amount

Horn the States.

49. Another important initiative

aimed at helping iho

weaker sections is (he Integrated Rural Development Pro-

giammc. This programme absorbs the curlier complemen-

tary, and sometimes overlapping, programmes aimed at parti-

cular sections of the population.

We have provided Rs. 198

crores for this programme as well as for special programmes

such as Desert Development and Drought Prone Area Pio-

lrtnrnmes. With an equivalent contribution from the States,

it is expected that the Integrated Rural Development Pro-

gramme will help 3 million families to go above the poverty

line in 1981-82,

50. Central assistance for the Special Component Plans

for Scheduled Castes was introduced in the very first Budget

of the present Government. We have

provided Rs, 110

crores for the next year. In addition, Rs, 13 crores will be

invested in the Scheduled Castes Development Corporatiens

of Slates. Along with an equal contribution from the Stales,

I his nil) enable there Corporations to raise substantial funds

from ihe financing institutions, The tribal sub-plan, wh^;ch

is tho veht'ie for the development of tribal areas will receive

an augmented provision of Rs, 85 crorcs during 1981-82,

i-omnared with R<. 70 crores in 1980-81. A provision of

Rs. 92 crorcs has been made for Ihe Special Hill Develop-

ment Programme compared with R<\ 61 crores in 1980-81.

51. In pursuance of the Government's policy to accelerate

tho provision of safe drinking water in problem villages, an

niuount of Rs, 110 crores has been allocated in 1981-82.

Together with the provisions made in Ihe State Plans, this

would enable about 36,000 additional villages to be covered

during the next year.

52. Ihe Annual Plan acwords high priority to the all

important [ask of expanding capacities in sectors such as

o'l, coal and power. It is proposed to provide Rs.

580

cr,n?< for coal and lignite projects in 1981-82. This re-

resents an increase of 31 per cent over the provision of Rs.

443 crores in 1980-81.

53. Large increases have also been made in the outlay for

power in the Central Plan. Wo have provided Es

721

crorcs in 1981-82 compared to Rs. 520 rrorcs in (he last

Piidgot. This refects the expanding role of the Centre in the

power sector. We propose lo take up the Dulhastj Project

m Jammu and Kashmir and the Koel Karo nrojeel in Bihar

in the Central sector in the^romJng year. The total outlay

for the power sector in the State and Central Plans taken

together is Rs. 3326 crores compared to Rs. 2745 crores pro-

159

vided in the Plan for 1980-81.

Additional generating capa-

city of 3000 MW is expected to be commissioned during

1981-82. The Rural electrification programme provides for

electrification of 22000 villages and

energisation of 4.25

lakh pump-sets in the coming year.

54. In keeping with the high prioiity accorded to cxplora

tion and development of oil and natural gas resources, the

Plan outlay for the petroleum sector has been increased to

Us. 1011 crorea in 1981-82 compared with Rs. 780 crores

in the current year. An outlay of Rs. 67 crores is proposed

in the petro-chemical sector.

55. An outlay of Rs. 796 crores is being provided

for

steel in 1981-82. A significant development in this area is

the recent commissioning of the Demonstration Plant for

Sponge Iron Production at Kothagudcm. This project is

of special significance to India since the techno'ogy for pro-

duction of sponge iron by using non-coking coal will enable

us to overcome the constraints imposed by the limited reser-

ves of cokinK coal in our country.

56. The Annual Plan for 1981-82 envisages a significantly

higher outlay of Rs. 22J crores for minerals development

against Rs. 130 uorcs in 1980-81, This includes a provi-

sion of Rs. 90 crores for the Oiissa Aluminium Project which

will be implemented by the new National Aluminium Com-

pany registered, with headquaiteis at Bhubancswar in Ori-sa,

'i he bulk of the project cost is expected to be financed by

external credit and commercial borrowings.

57. In tune with our concern lor improving transport facili-

ties, we have enhanced the outlay in the Central Plan for the

transport sector to Rs. 1535 Liorcs from Rs. 1351 crores in

1980-81. Hon'ble Membcis arc already aware that a subs-

tantial incicasc has been made in the Plan outlay of ihe

Railways from Rs, 760 crores in 1980-81 to Rs, 980 crores.

A pi ovhion of Rs. 108 crores has been made for the develop-

meni of poits which includes construction of additional bcrlh;

at Kundla, Tuticorin and Visakhapatnam.

58. In tune with our diivc to improve and moderrise

communication facilities, it is proposed to extend 2 lakhs

direct telephone connections during 1981-82. An outlay of

Rs. 518 crores for Posts and Telegraphs including communi-

cation = has been provided in the Plan,

59. An outlay of Rs. 390 crores is being provided

for

chemicals and feitilisers which includes substantial provision

for the ^as-based fertiliser projects at Thai Vaishet, Hazira

and Numrup. Proposals for new nitrogenous and phosphatic

fertiliser plants arc also being finalised.

fit"). Village and small industries have an immense potential

for providing employment while sustaining the traditional

arts and skills of the village artisans and craftsmen.

outiay of Rs. 162 crores has been earmarked for these sectors

edding to the outlays of Rs. 153 ciores in the Plans of the

Statci and Union Tcritorries.

61. Finally I come to the all important question of popula-

tion growth. All our efforts at eradicating poverty will be

frustrated if we cannot reduce the rale of population growth.

We have taken up revitalisation of the Family Wclfaie Pro-

gramme in earnest, A provision of Rs. 155 crores is being

made for this programme in 1981-82.

62. The Government is deeply concerned about the lack

of adequate communication facilities in the North-East. We

have therefore, decided to take up six National Highways

with a total length of 1700 Kms. at a total cost of Rs. 70

crores. It 1IL>S also been decided to establish a moie direct

connection from Nowgong to Dimapur on National Highway

No. 36 at a cost of Rs. 16 crores. Certain missing links on

the road running along

the Indo-Banglade^h Border

Mtrfialaya will be completed at a cost erf Rs. 26 crores.

Railway facilities in this area are also being augmented.

Hon'ble Members arc aware thst the Third Level Air Service

has already started functioning in the North-Eastern Region.

63 Non-Plan expenditure has betm subjected to careful

scrutiny to keep it to the minimum. Defence expenditure is

estimated at Rs. 4200 ciorcs ns against Rs. 3800 erorcs in

the current year, j Hrn s,uie the House will agree wi'h me

that in these ilifficnll times the reasonable requirements of

defence should be fully met,

64. A provision of Rs. 3124 crores is being made for

interest payments as against Rs. 2665 ciores in the current

year, the increase being mainly on account of internal debt.

Due to the nurease in prices ol naphtha and other inputs,

the cost of production of indigenous fertilisers has also gone

up, The cost oi imported tertiliscis

has also increased.

Accordingly, the Budget tor 1981-82 provides lor a higher

subsidy on fertilisers of Rs. 679 crores as against Rs. 466

crores in the current year.

65. Provision for non-Plan loans to public sector under-

takings has been reduced from Rs. 454 ciores in the current

year to Rs, 318 crores in view of the anticipated improve-

ment in their performance and financial position in the next

year. A lump sum provision of Rs. 200 crores is also being

made in next year's Budget to cover the incidence of addi-

tional expenditure on dcarness allowance to Central Govern-

ment employees. In future, dearncss relief to pensioners

will be paid at the rate of 2.5 per cent of pension for each

8 point rise in the consumer price index instead of at the

trite of 5 per cent for each 16 point rise as at present. The

procedure for payment of dcamess relief lo pensioners is

also being streamlined.

These changes will ,mitigatc the

hardships faced by pensioners.

66. Hon'ble Members are aware that India will have the

piivilcgc of holding the next Asian Games in 1982 in the

capital. The expenditure necessary next year for the games

is being provided in the budgets of the Ministries concerned.

Mo>t or. the expenditure will be on improvement and creation

of permanent assets like roads, stadia, and other sport-,

facilities,

67. The total non-Plan expenditure for 1981-82 is esti-

mated at Rs. 15100 crores compared wiih Rs. 13 736 crores

in the current year.

68. As regard^ re:cipts for 1981-82, the gross tax revenues

til the existing rates of taxation are estimated at Rs. 14472

ooies compared with Rs. 13133 crorcs in the current year,

showing an increase of Rs, 1339 crorcs over the R-.vised

estimates, The State-,' share of taxes in 1981-82 is esti-

mated at Rs, 4206 crores conipaicd with Rs. 3792 crores in

the current year

Consequently the Centre's net tax lcvcntie

will be Rs, 10266 crores i.s against Us. 9341 crore-, in th;

emrcnl year.

69. The receipts hom market lo.ins arc estimated at Rs.

2800 crorcs compared with Rs, 2604 ciores in the curret.t

year. Small savings arc estimated to yield Rs. 1250 crores

next year compared with Rs, 1100 crorcs in the current year.

External assistance, irct of loan repayments is estimated at

Us. 1379 croi.es as computed w-jlh Rs. 1258 crores in the

current year.

A credit of Rs. COO ciorc, has also been taken

lor receipt from sale of Special Bearer Bonds in ths next

financial year.

70. Taking into accr nt the effect of the changes in the

fare and freight rate=i of railways, change in the P&.T tarilT

to which I will refer a little later and the continuance; of

the Compulsory Deposit Scheme for Income-tux Payers be-

yond 31-3-1981, the total receipts fji 1931-82 are estimated

at Rs. 23061 crores,

The total expenditure for next y:ar

h estimated at Rs. 2-1871 crous. The ovcrr.ll budgetary gap

ft the existing rate? of taxation will thus be Rs. 1810 crores.

PART B

71. Income-tax and other direct taxes are important in-

struments for raising resources and reducing disparities. We

propose to achieve these objectives by plugging of kgnl

loopholes and effective administration rather than by

en-

hancement of rates which often leads to tax evasion

end

generation of black money. My proposals are also designed

to further our Party's avowed policy of affording relief to

the middle classes in these difficult times.

72. Hon'ble Members will recall lhat last Vcnr the exemp-

tion limit for income-tax on personal incomes was raised to

Rs. 12,000. But the nil slab rate was retained at Rs. 8,000.

The House will be glad to know that I propose to raise the

exemption limit for income-tax in the case of non-corporate

taxpayers other than registered firms and Hindu undivided

families with one or more members having separate income

exceeding the exemption limit, from Rs. 12,000 to Rs. 15,000.

With a view to providing significant relief to middle income

160

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART I—SEC. 1]

groups, I further propose to raise the nil rate slab from

Rs, 8.000 to Rs. 15.000 and also restructure the rate schedule

up to Rs. 30,000. The rate of income-tax on the slab of

Rs. 15.001 to Rs. 25,000 will be 30 per cent, and on the

slab of Rs. 25,001 to Rs. 30,000, 34 per cent. The rates of

income-lax on higher dabs will remain unchanged. As a

result of these changes, about 14 lakhs of taxoayers will go

nut of the income-tax net. I venture to claim thut never

have so many people been freed from the burden of income

taxation at one stroke. Apart from this, another 11.5 lakhs

of taxpayers in the income

brackets of Ra. 15,001 to

Rs. 30,000 will also get varying degrees of relief.

Trie re-

duction in the tax liability at income level of Rs. 15,000

will be Rs. 990; at Rs. 20,000, Rs. 495 and at Rs. 25,000,

Rs. 220. There will be no change in the tax liability in the

ca»e of taxpayer! having income exceeding Rs. 30,000. Thus

I have provided in one year income-tax exemption and/or

reduction to over 25 lakhs of income-tux assessees out of

about 40 lakhs of assessces in the country.

73. At present,

salaried

taxpayers are entitled to a

standard deduction in an amount equal to 20 per cent, of

the salary up to Rn. 10,000 and 10 per cent, of the balance

•subject to an overall ceiling limit of Rs. 3,500. These limits

were fixed in 1974. In view of the subsequent rise .in prices

and as a means of relief to salaried taxpayers, I propose to

enhance the rate of standard deduction to 20 per cent., sub-

ject to a higher ceiling of Rs. 5,000.

Hon'ble Members

will bo happy to know that this benefit will be applicable

to pensioners also. At present, employees in receipt of

conveyance allowance are entitled to a standard deduction of

Rs, 1,000 only. It is now proposed that they should be

given the beneiit of full standard deduction.

74. In view of the urgent need to raise the level of savings

in the economy, I propose to continue the Compulsory De-

posit Scheme for Income-tax Payers for another two years.

75. The corporate sector has a crucial role to play in the

growth of the national economy. I have earlier in my speech

referred to the various steps taken for improving the climate

for investment in industry. I now propose to reduce by

5 per cent, the surcharge on income-tax payable by all clas-

se« of companies i.e. from 7.5 per cent, to 2.5 per cent. This

will add to the internal availability of funds in the corporate

sector and should improve the scope for investment financing

from their own resources. This step will reinforce the im-

pact of the measures which I have indicated earlier

for

mobilising financial resources foe industrial investment.

76. As Hon'ble Members are aware, all categories

taxpayers arc required to pay advance tax on pay-as-you-

earn basis. Surtax is, however, not payable by companies

in advance. I propose to remove this anomaly and provide

that surtax will also be payable in advance during the finan-

cial year preceding the relevant assessment year.

77. The Eleventh Schedule to the Income-tax Act con-

tain* a list of industries which do not qualify for specified

investment related tax concessions

under the Income-tux

Act

For example, investment allowance or tax holiday is

not admissible in respect of these industries unless they are

in the small-scale sector. Industries included in this Schedule

were originally considered to be of low priority.

However,

on reviewing the list, I do not find any justification for treat-

ing many of the listed industries as of low priority.

Accor-

dingly, 14 groups of industries will be removed from this

Schcdul" and will now become eligible for <hr specified tfx

concessions. These industries Include electric fans, prer-si're

cookers, glass and glassware, pigments, colours, paints, ena-

mels, varnishes, blacks and cellulo'e lacquers, chinaware and

porcelain ware, mosaic tiles and frlazed tiles, svnfhetic (Jeter-

nents, pTirjlififrs or HOT ottvr fipnnrptui iiwl for fd('r«smff

the public vaccum flasks und other

vaccum

vessels, etc.

These industries, some of which have exnort potential, v-ill

now become eligible for the specified tix concessions.

78. Hon'ble Members will recall that the Government had

tiken several measures last year to curb tho use of private

discretionary trusts as a device for tax avoidance.

Another

tax avoidance device that has come to the notice of iho

Government is the creation of oral trusts.

With a view to

checking this abuse, I propose to subject

oral

trusts to

income-tax at the maximum marginal rate and to wealth-tax

at the flat rate of 3 per cent, or at the appropriate rate

applicable in the case of an individual, whichever course is

more beneficial to the revenue.

This proposal will

take

effect from the assessment year 1981-82.

79. Another device being u*cd fur avoiding proper tax

liability is the creation of associations of persons without

defining the shares of members.

Thii enables the creation

of a laige number of taxable entities which, under the exist-

ing law, will be chargeable to income-tax separately. I now

propose that such associations uf persons be charged

income-tax at the maximum marginal rate and to wealth-tax

at the flat rate of 3 per cent, or at the appropriate

rale

applicable in the case of an individual, whichever is lusher.

This proposal will also take effect from the assessment year

1981-82.

80. Earlier in my speech, I have ref cried to the prospec-

tive participation of foreign companies in the field of oil

exploration and production. In this connection, it is neces-

sity to take scveial steps relating to tax mattcis. Hrs^;ly,

it is proposed to extend the Income-tax Act and the Com-

panies (Profits) Surtax Act to the off-shore areas. Secondly,

It is proposed to insert suitable provisions in the Income-tax

Act and the Companies (Profits) Surtax Act to enable the

Central Government to provide, by a notification in the

Official Gazette for an exemption, reduction in rate or other

modification in respect of Income-tux or surtax in favour

of any class of persons engaged in the business of mineral

oils and gas in association with the Central Government or

any person authorised by it. Notifications under the new

provisions when made will be placed on the Table of both

the Houses of Parliament.

It is also proposed to amend

section 42 of the Income-tax Act relating to special provision

for deductions in the case of business of the piospectina for

or extraction or production of mineral oil3 so as to extend

its scope to cover cases where the Government itself does

not participate in such business but does so through

any

person authorised by it.

81. While the search for additional quantities of oil should

continue with unabated vigour, there is also an urgent need

to accelerate the development and use of renewable energy

resources and to promote their utilisatiun. The renewable

energy sources which have already been biought to the

threshold of commercial use by our scientists and engineer!

include solar, bfomass and wind energy.

Some fiscal Incen-

tives to promote use of these noii-convenlional forms

energy aro called for. I, therefore, propose to enhance the

depreciation allowance on machinery or plant installed for

manufacturing renewable energy devices and systems from

10 per cent, available at present to 30 per cent. Depreciation

on renewal energy devices and systems used for business nr

profession will also be allowed at the enhanced rate, Other

measures under contemplation by the Government include

loans to the relevant industries on suitab'e terms from finan-

cial institutions and exemption from certain taxes and duties,

82. 1 had earlier in my speech referred to the imperative

need to promote our exports in view of our difficult balance

of payments situation. To encoiuajre

establishment

export-oriented industries in the Free" Trade Zone,

the

Government proposes to allow complete tax holiday in res-

nect of units set up in these Zones for an initial period of

five years in lieu of other concession.¹*.

83. Tea is one of our important export-oriented industries

At present, development allowance equal to 50 per cent, of

the exnenditurc incurred on nlnntation of In bushes in any

new area or on any Innd which has been previously aban-

doned is allowed in computing the income from tea business.

For thi* purpose, the expenditure qualifying for develop-

ment allowance is restricted to Rs. 12.500 per hectare of

land situated in hilly arens and Rs. 10,000 ner hectare In

other areas. Having regard to the increase in th~ cost of

planting m recent years. I nronof; frt raise these ceiii'ntr limits

to Rs. 40,000 per hectare of land

situated in DariecHng

161

district Rs. 35,000 per hectare in respect of land situated in

other hilly areas and Rs. 30,000 per hectare in plains.

84. Under section 35B of the Income-tax Act, domestic

companies and non-corporate taxpayers resident in India Hre

entitled to a weighted deduction in the computation of the

taxable profits at the rate of one and one-third times the

amount of qualifying expenditure incurred by them

development of export markets. The

scopa of this provi-

sion was curtailed last year as it had been misused for claim-

ing a weighted deduction in respect of expenditure incurred

in Indja on activities which had nu direct relation wilh the

basic objective of development of export markets. In order

to guard against such misuse, while at the same time protec-

ting all legitimate effort at export market development, the

Government is framing rules which will identify a number of

specific activities to be allowed under section 35B.

The

necessary notification in this behalf will be issued shortly.

85. Electronics is both a labour-intensive and export-orien-

ted industry. I, therefore, propose to include the electronic

component industry in the Ninth Schedule to the Income-tax

Act and provide that dividends derived by a domestic com-

pany from an Indian company engaged exclusively in

the

manufacture of electronic components

will be

completely

exempt from income-tax.

86. The small-scale industrial undertakings enjoy certain

tax concessions under the Income-tax Act. For this purpose,

an industrial undertaking is regarded as a small-scale indus-

trial undertaking if the aggregate value of the machinery and

plant installed therein as on the last day of the previous

year does not exceed Rs. 10 lakhs, I now propose to raise

this limit to Rs. 20 lakhs in line with the new definition of a

small-scale Industry.

87. Under the existing law, in computing taxable income,

a deduction equal to 20 per cent, of the profits and gains

derived from the business of publication of books is allow-

ed. I propose to extend this concession for a period of five

years with effect from assessment year 1981-82.

88. At present, approved financial corporations and public

housing finance companies are entitled to a deduction

respect of the specified percentage of income carried

special reserve, subject to certain conditions. The aggregate

of the amounts qualifying for such deduction is. however,

subject to an overall ceiling equal to the amount of the paid-

up share capital. In order to enable such corporations and

companies to built im such rcservea further, I propose

double the present ceiling.

89. Under the existing law, resident individuals and Hindu

undivided familes arc entitled to a deduction in respect of

medical treatment of physically or mentally handicapped

dependants. I propose to double the amount of this deduction

to Rs. 4,800 in respect of a

dependant who is hospitalised

for a period of 182 days or more during the relevant account-

ing year find Rs. 1,200 in other cases. The House will doubt-

less welcome this concession being given in the International

Year for (he Disabled Persons.

90. I propose to givc some significant concessjions under

the Eslat: Duty Act. The present limit of Rs, 50,000 for

estate duty was fixed in 1958. f propone to raise it to Rs. 1.5

lakhs ihe same as under the Weal.h-tax Act. I also propose

to provide that one residential house or part thereof will be

valued for estate duty purposes on th« same basis as for

the purposes of weal'h-tnx. Since the Estate Duty Act can

be nmpnded only with the concurrence of State Legislatures,

a Bill for giving effect to these proposals will be introduced

later,

91. I propose to make certain amendments in the income-

lax Act to upgrade the qualifications for appointment as mem-

bers of the Income-tax Appellate Tribunal.

92. Other amendments to Ihe direct lax laws are of minor

significance.

I would not like to take up the time of the

House by referring to them in detail here.

93. The reduction in the rates and other concessions

iespcc; of income-tax on personal incomes would result in

a loss of K", 146 crorcs in a full year and Rs. 115 crores

during 1981-82. Having regard to the pattern of sharing

of income-tax between Centre and States, these concessions

will entail a

loss of revenue of Rs. 29 crorcs to the

Centre in 1981-82. The loss of revenre on account of re-

duction in the rates of corporation tax and other concessions

to companies will largely be balanced by the payment

surtax in

advance by companies. I am, therefore,

not

assuming any lcs» of revenue on this score for 1981^U82.

94. I now turn to my proposals on indirect taxes. My basic

approach is that additional revenue should flow largely from

increased production. However, there is need to mobiliiw

additional resources to finance the Sixth Plan. While seek-

ing to raiyj additional resources, I have nevertheless

kept

in mind the imperative need to avoid hardship to the middle

and poorer sections of consumers and to provide a larger

measure of relief to the small-scale sector of our industry.

95. Taking Customs duties first, my principal proposal

relates to auxiliary duties of customs. This duty has been

levied on an annual basis since the 1973 Budget. While conti-

nuing this levy I also propose to raise the rates of auxiliary

duties as a measure of additional resource mobilisation. In

recent years We have been following a fairly liberal import

policy. The difficult balance of payments outlook points

to the need for conserving foreign exchange. The tariff

mechanism judiciously used, can help conserve foreign ex-

change and also raise some revenue. I, therefore, propose

to in:reasc the rates of auxiliary duties by 5 per cent ad valo-

rem on all categories of imports with a few well-merited excep-

tions. This will obviate a sharp increase in the landed cost

of any particular article.

96. Auxiliary duties of customs are now leviable on im-

ported goods broadly on a three-tier basis. Items subject

to a basic duty upto 60 per cent ad valorem, for example

basic raw materials, bear an auxiliary duty of 5 per cent ad

valorem; on items such as semi-processed goods and inter-

mediates, where the rate of baiic duty Is 60 per cent ad valo-

rem or above but less than 100 per cent, the rate of auxiliary

duty is 15 per cent ad valorem;

and where the. rate

basic duty is 100 per cent ad valorem or above such at on

finished and consumer goods, the rate of auxiliary duty is

20 per cent ad valorem.

In other cases the rate of auxiliary

duty is 5 per cent ad valorem, except crude petroleum on

which the rate is Rs. 9.50 per metric tonne. There are

HISO some Items which are fully exempt from auxiliary dutv,

Mv proposal is to increase the rate of auxiliary duty to 10

per cent ad valorem wherever the rate- of auxiliary duty is

now 5 per cent to 20 per cent ad valorem wherever

the

rate is now 15 per cent; and to 25 per cent ad valorem

wherever the rate is now 20 per cent. I do not, however,

propose to increase the auxiliary duty on crude petroleum.

97. Tn line with the approach I have explained. I propose

to withdraw the present full exemption from auxiliary duties

of customs in respect of certain Items of capital equipment

and subject them to auxiliary duty of customs at the rate

of 5 per cent nd valorem. This increase would cover, among

other things, imports of machinery ns 'project imports' as

nlso items of machinery on which the concessional rate of

25 per cent nd valorem is applied. This measure would,

anart from yielding additional revenue, afford some addi-

tional protection to the indigenous machine building industry

which hns, of late, had to face a significant escalation in

input costs.

98. T said earlier that I would exclude some 'terns from

the proposed increase in the auxiliary duties of customs

Imports of essential items like edible oil will be exempted

from the proposed increase. Bulk oetroleum products such

ns kero*etle and hiph speed diesel oil nnd iteel imported for

buffer stock operations will also not attract the Increased

levy. Items on which import duty rates hav« been changed

l<"

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART I—SEC. ft]

in (he recent past with a view to maintaining parity with

prices ot domestic products hjve also been kept out of Lhc

purview of the increased levy. Further, keeping in view

oui commitments under lhc General Agieemcnt on Tarill.¹)

and Trade. 1 propose to {{ivc up the auxiliary duty in res-

pect of three ilems involving a small revenue scanflc. Fur-

ther details of the proposals are available in the Budget

Papers,

99, These proposals are expected to yield an additional

revenue of about Rs. 250 crores.

100. My next proposal relates to levy of import duty on

newsprint. At present this item is fully exempt. There is

u large foreign exchange outgo on imports of newsprint.

There is no reason why this commodity should not bear a

moderate rate of customs duty, 1, therefore, propose to

impose an effective customs duty of 15 per cent ad valorem

on imported newsprint. 1 expect this measure to yield an

additional revenue of about Rs. 21 orores.

101. Imports of stainless steel bars and wire rods now

attract a duty of 75 per cent because they have industrial

applications. But there is reason to believe that some of

these imports are being diverted for rerolling into strips and

sheets used in the manufacture of utensils, 1, therefore, pro-

pose to raise the effective customs duty on stainless steel bars,

rods and wire rods from 75 per cent to 175 per cent ad

valorem. 1 have, however, taken care to sec that this in-

crease does not affect imports of stainless steel wire rods

which are used for the drawing of wires. This measure is

expected to yield an additional revenue of Rs, 5 crores.

102. I also propose to raise the basic customs duty on

plain shaft bearings from 60 per cent to 100 per cent ad

valorem. This increase should help to restrict large scale

imports of bearings such as thin-walled bearings, which have

been affecting the indigenous industry. This proposal is

expected to yield an additional revenue of Rs, 2,75 crore.'.

On similar considerations it is proposed to raise the basic

customs duty on computers and computer peripherals from

40 per cent to 50 per cent ad valorem. The likely revenue

gain from this increase would he Rs. 1 crore.

103. T will now come to excise duties. The House will

recall that in 1978 the Additional Excise Duties (Textiles and

Tcxt^:le Articles) Act was passed, in terms of which an addi-

tional dutv excise was levied on certain textiles and textile

articles at 10 per cent of the basic excise duty leviable. The

revenue from this excise levy was intended to meet the expen-

diture incurred by way of subsidy on controlled cloth. The

production of controlled cloth is being stepped up. with em-

phasis on larger production of dhotis and sarees which are of

specinl significance to the poorer sections of society, particu-

larly in rurnl areas. As a result, the provision for subsidy

under this scheme would rise to nearly Rs. 100 crores in the

coming year. The revenue at the existing rate of additional

excise duty is only about Rs. 66 crores. f, therefore, propose

to raise the rate of additional excise duty frqm 10 per cent to

15 per cent of the basic excise duty on all the items which

are now covered by the levy. This would yield an additional

amount of about Rs. 33 crores nnd help finance the increase

outlay on controlled cloth.

104. As regards special exciae duties, I propose onlv to

continue them at the existing rates. The exmptions in force

are also beinc continued,

105. My remaining proposals under Union excise duties are

mainly designed to achieve simplification and greater clarity.

106. Hon'ble Members would be aware that there is a

graded structure of duty on matches, the mechanised sector

paying Rs. 7.20 per gross boxes, the middle sector payine

R«. 4.50 and the co'tage sector Rs, 1,60 In the light of the

report of the Dandekar Committee and a special study made

by the Government, it has become necessary to discourage a

tendenev of middle rector units towards mechanisation of

certain laboiw-intensive processes.

Acqordlngly.

I prooose

that the roncff^ionnl rates of duty i.e. Ra. 4.50 for middle

sector units and Rs. 1.60 for cottage units, will not be

available if power is used in the labour-intensve process

of fra-me-filling, dipping

splints in irulch composition, box

making, box filling, labelling and banderollinfi and packaging.

It such units use power fur any of the above process, they

will be liable to a duty rate of K». 5.50 per gross boxes, which

would be intermediate between the rate of Rs. 7.20 applicable

to the i'ully mechanised sector and Rs, 4.50 now applicable

to the non-mechanised middle sector, I would like to stress

that this iu nut intended as a revenue measure, It is intended

only to protect through the excise mechanism, the employ*

ment potential of 'ho non-mechanised sector.

107. With a view to preventing the possible infiltration of

Ihe middle sector into the co tage sector and in order to

ensure that the benefit of the lowest rate of duty accrues

10 genuine cottage sector units, it is proposed to reimpooe

a coiling on the clearances by cottage sector units at conces~

sional rales. The new ceiling, which is proposed to be fixed

Vt I2f> million matches per unit per annum, is much more liberal

thin the ceiling of 75 million that existed prior to the 1980

Budge;. The pnttern of production and clearance will be

kept under watch and this ceiling will be reviewed if circum-

stances to warrant. The changes 1 have propound are fair

(d all segments of the industry and are designed to promote

both employment and production in the best possible mnnner.

108. Another rationalisation measure relates to the con-

cession available to manufacturers of goods falling under

Tariff Item 68, who undertake work On 'job' basis. Under the

present scheme, duty is being effectively collected only on the

'job charges' paid by the principal manufacturer to the job

worker. In the operation of the scheme, however, swveral

difficulties have been experienced particularly on the question

of what is 'job work'. There have been cases where some

manufacturers have taken undue advantage of the concession,

I, therefore, propose to replace the present scheme by one

in whkh, instead of levying duly separately on the job charges

raid <o the job worker, the duly will he paid by the principal

manufacturer on Ihe value of the finished goods. This step

should be generally welcomed by ancillary units which under-

take work on job basis.

109. I aho propose to rationalise the Central Excise tariff

entry nnd the rate structure relating to tvres with a view

to making the legislative intent clearer and minimising the

scope for disputes in classification and assessment, particu-

larly in regard to ofT-the-road tyres u^ced in bulldozers, scrap-

pers nnd other earth moving equipments. While proposirjK

itic necessary amendments, I have t^ken care to maintain

the existing rates of duties and d'lty concisions in respect

of tyres both for agricultural tractors and their trailers.

110. The other major area where rationalisation of the tariff

entries has been proposed is in regard to non-ferrous metals

under the respective entries in the Central Excise Tariff. There

has been considerable debate and dis-puto on the question of

assessment of waste and scrap of these metals. To set these

at rest it is proposed to specifically cover waste and scrap of

these metals under the respective tariff en'ries,

111. In addition to (he above, a few other amendments

to certain tariff entries as also the insertion of a separate

tariff item for polyester film have been cronosed. The details

of these changes may be so?n from the Budget papers.

112. I now turn to a proposal which sepks to fulfil a long-

standing demand of State Governments, The scheme of levy

of nddition;>l excise dutv in lieu nf c,nles-tax is at present

snnlicnble

to OTgar, tobacco and some textile items. The

National Development Council had recommended that the

revnnue yield f'om Cenrrn' excise duties and additionnl excise

'¹n*i?s IT* 'n the ratio of 2:1 ns fnr as possible. At a Con-

fc-rnre nf Chief MimVers. f itave an asmirance that pn effort

woulri be made to achi-vc this ratio in respect of these com-

modities as a whole.

113. T hni'c considero'1 how he^t this aspurance can be ful-

filled. Trie simplest solution will be to mak« a change in the

• utio fnr chirinp nf revenues frr m cigarettes (•« hetveen 1h<-

fYnire fnd the States. At :iRai-\st he rtrcsent ratio nf If, : ">4

hetwern basic exci«e dutv and additional rxdne rfn'y In thr

composite ra^fe applicable to dmrettM th* ratio Is nronosed

to he rhJinred to 72.5 : 27.5. This will be combined with a

uniform increase in the specific duty element in the composite

163

rate from Rs. 21.00 to Ri. 21.25 per thousand.

The overall

revenue from cigarettes will remain practically unchanged.

There should, therefore, be no justification for manufacturers

to mark up ihe prices of cigarettes. With these changes, the

overall ratio between the yield from basic and special excise

duties on the one hand and additional excise duties on the

other ia expected to improve to 2 : 1 taking the three items

sugar, tobacco and textile;.' together. This will result in a

transfer of about Ks. 21.72 crorcs from revenues under Central

Excise to the revenue under additional

excise duty.

114. 1 have also a minor proposal which is basically of

interest to the State Governments. Under the Medicinal and

roilct Preparations Act, 1959, excise duties are leviable on

mtttactnes and toilet preparations which contain alcohol,

narcotics and narcotic drugs.

Certain changes have

been

proposed in the Act with a view to effecting a switch over

to the metric system

and also to eliminate avoidance of

duty in certain casca

The changes

proposed,

however

have very little revenue significance.

115. I shall now turn to concessions in the area of indirect

taxes. This Government is committed to

the pursuit of a

vigorous policy

of promoting small

scale industry in the

interest both of employment and broader development

entrepreneurship.

Accordingly,

I propose to increase the

duty exemption limit under the general scheme of excise

duty concessions applicable to 72 excisable commodities

from Rs. 5 lakhs in terms of value of clearances to Rs, 7.5

lakhs.

Clearances in excess of Rs, 7.5 lakhs will continue

to benefit from the existing concessional duty limited

three-fourths of the applicable rates of excise duty up to

a clearance of Rs. 15 lakhs in a financial year as at present.

This measure should benefit a substantial number of small

manufacturers

and enable them to compete more effectively

with large units. I am sure that all sections of the House

will welcome this enlargement of the scheme of conces-

sions enjoyed by small scale industry.

116. Under the excise duty concessions available at present

to small manufacturers of tome products, notably Item 68

goods

and specified electronic goods, one of the criteria for

eligibility is the value of investment in plant and machinery.

I propose to increase the eligibility limit of such investment

from the present figure of Rs. 10 lakhs to (Rs. 20 lakhs, in

line with the revised definition of 'small scale units' under

the new Industrial Policy.

Here ngain I am confiden' that

my proposal wil be welcomed by all the Hon'ble Members.

117. In the last Budget I had announced wide ranging duty

concession^ with a view to encouraging the development of

the electronics industry. As a further step in this direction, 1

propose to extend the scope of the import duty concessions so

as to cover 59 new items of capital equipment and 23 new

Items of raw materials and components used by the electro-

nics industry.

118. At present,

the

handloom

sector of

the woollen

industry does not enjoy any special duty concessions.

This

sector has a good grow'h potential. I, therefore, propose to

reduce substantially the processing stage duty on woollen

fabrics produced on haridlooma on the lines of the concessions

which are available to co'.ton fabrics produced on handlooms.

119. 1 also propose to extend the concessional import duty

of 25 per cent ad valorem to a few more important drug inter-

mediates.

This step should induce indigenous manufacturers

to go in for production of more basic drugs.

120. Last year,

I had fully exempted cotton and cotton-

viscose blend hosiery from excise duty.

T now propose to

extend this exemption to all hosiery

articles falling under

Item 68 of the Central Rxcise Tariff.

121. Another duty concession relates to 'flocked' fabrics

where the excise duty is being reduced from the present level

of the base fabric duty plus 30 per cent ad valorem to the

base fabric duty plus. 15 per cenl ad valorem On the considera-

tion that the present duty burden is heavier than warranted,

particularly on dock-printed

fabrics. Further, DO colour

scanners for the printing industry, the basic customs duty is

being reduced from 100 per cent ad valorem to 60 per cent

ad valorem.

122. In this International Year of the Disabled, it is

fitting that appropriate tax relief measures should be extended

to our handicapped brethren. Artificial limbs and rehabilita-

tion aids for the handicapped are already exempted

from

Central excise

duty under Item 68.

I now propose

exempt fully from excise

dutv Braille watches for

the

use of the blind.

123. I also propose to exempt from excise duty Braille

paper which is necessary for printing books for use by tho

blind.

124. I further propose to substantially reduce the customs

duty on hearing aids and Braille watches imported for personal

use by post or air.

125. The increased levy of auxiliary duties of customs to

which I have earlier referred will not be applied to Roods

such as orthopaedic appliances,

Braille watches and parts,

tricycles for the crippled, hearing aids and parts. I am sure

that this House will wholeheartedly endorse these proposals.

126. The variou8 concessions and reliefs in excise

and

customs duties which I have announced will entail a sacrifice

of revenue of Rs. 9.35 crores in a full year.

127. My taxation proposals will yield a sum of about

Rs. 35.57 crores in a full year by way of excise duties and

R'.v 285.00 crores by way of customs duties. The concessions

I have announced add up to Rs. 7.05 crores on the excise side

and Rs. 2.30 rrores on the customs side. The net yield is,

therefore, Rs. 28.52 crores from excise duties and Rs. 282.70

crores from customs duties. The accrual to the Central Ex-

chequer in a full year will be Rs. 300.50 crores.

128. I hope it

would not have

escaped the notice of

Hon'ble Members that

this is perhaps

the first Budget In

recent years in which no increase has been effected in excise

duties for raising general revenues.

129. I would now like to say a few words on behalf of

my Hon'ble colleague,

the Minister of Communications. A

substantial programme of development of telecommunication

facilities is envisaged during the Sixth Five Year Plan, It is,

therefore, appropriate that the Department should generate

internal resources to a reasonable extent for financing Its

Plan.

The additional dearness allowance sanctioned to em-

ployees and other Increases in the cost of operations

have

already eroded the existing surplus of

tho Department.

has, therefore, become necessary to revise certain telecommuni-

cation tariffs.

At present the rate of telephone call charge

in measured rate telephone system is 30 paise per call

unit for calls exceeding 250 but not more than 1750 in

quarter.

Tt is proposed to increase this charRe to 40 paise

per call unit.

The manual trunk call charges for calls of

ordinary category for a unit period of 3 minutes in the

distance slabs of 100 to 200 kilometres are being increased

from Rs, 6 to Rs. 8 and in the distance slab of 200 to 500

kilometres

form Rs. 10 to Rs. 12. These

measures

are

estimated to yield Rs. 35,78 crores in a

full vejr.

The

additional revenue during 1981-82 will be of the order of

Rs. 20 crores and has been taken into account in estimating

the receipts of Posts and Telegraphs. Tt is also proposed to

increase the rates of deposits for telephone connections under

'Own Your Telephone' system.

This revision will yie'd

about Rs. 5 crores to the Government by way of additional

deposits in 1981-82. The details of these revisions are shown

in a memorandum which is bcinR circulated along with the

Budget papers. The changes will be (riven effect to from

date to be notified after the Finance Bill is passed by Parlia-

ment. There will be no change in either rostui or telegraph

rates.

130. T had earlier stated that the resources qap estimated

at existing rates of taxation is Rs, 1810 crores. The various

tax measures I have presented, together with the reliefs offer-

ed will yield net additional revenue of Rs. 271 crores to

the Centre

This leaves an uncovered deficit of Rs. 1539

crores.

This deficit may appear Irrge. but taking ii total

view of the economic situation I be*ieve tt Ii within the limits

1399 01/80—4

1 6 4

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART 1—SEC. 1]

of fiscal prudence. The Inflationary potential of the Budget

must be viewed in the context of the full package of policy

measures

which I have outlined.

This package

contains

many incentives for higher production and increased utilisa-

tion of capacity. This should stimulate a considerable supply

response during the coming year and as I have mentioned,

signs of this upturn are already evident

I attach great im-

portance }o expanded supplies a3 the critical element in keep-

ing inflationary pressures in check.

The package also con-

tains important incentives to savings which will undoubtedly

help in this regard.

Furthermore,

monetary and credit

policies will be so designed M to ensure that Government

ici-oursc to deficit financing takes place within a balanced

and measured overall expansion of credit in the system.

131. Mr. Speaker, Sir, the economic

situation

remains

difficult and yet full of great opportunities for development

and growth,

I have tried to present a Budget which

gives

maximum support to forces that can move us forward on the

path of growth wjth stability and social justice. It sets the

stage for all of us to work towards the achievement of our

economic and social goals so clearly laid out in the Sixth

Plan. Economic policy can only do this much. Hard work,

discipline and the innate good sense of the people of

this

ancient land must do the rest.

132. Sir, I commend this Budget to the House.

A. C TIWARI, it. Secy.

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