The National
Common Minimum Programme mandated the Government to maintain a
growth rate of 7-8 per cent a year, to promote investment, to
generate employment, to ensure a higher fiscal devolution, and
to focus on agriculture, manufacturing and infrastructure.
The NCMP also mandated the Government to provide universal
access to education and health care and to assure one hundred
days of employment to one person in each family. The economy is poised to continue on the high
growth path of the last two years.
There are strong signs of a consolidation of the possible
higher trend rate of growth of the economy.
ECONOMIC
AFFAIRS
Viability-Gap
support
To accelerate and increase public
private partnerships in infrastructure, a major initiative has
been taken by the Ministry of Finance, i.e. provision of viability
gap funding for the projects, which are developed, financed, constructed,
maintained and operated by an entity with at least 51 per cent
private equity.
Fiscal Responsibility and Budget Management
In the Budget 2006-2007, the promise
made in Budget 2005-2006, to resume the process of fiscal correction,
has been redeemed. The
Budget presented is consistent with the FRBM roadmap.
Transparency and E-Governance
A structured single-window
mechanism has been set up for redressal of customer grievances
on a decentralized transparent basis using information technology
with a view to improving the interface between the Government
to the small investors.
Pension Reforms
In line with an announcement made
in the Budget 2004-05, the Pension Fund Regulatory and Development
Authority Bill 2005 is under the Government’s consideration. The Bill
proposes that the main mandate of PFRDA is to regulate the New
Pension System (NPS) as amended from time to time by the Central
Government. Already about 100,000 employees have joined the system.
Corporatisation
and Demutualisation of Stock Exchanges
The Securities and Exchange Board
of India (SEBI), has approved and notified the Corporatisation
and Demutualisation Scheme of 19 Stock Exchanges.
This is a major step for modernisation of securities markets.
India is the only country, which achieved this corporatisation
and demutualisation in the shortest possible time.
National Institute of Securities Markets (NISM)
The Government has authorised Securities
and Exchange Board of India to establish the National Institute
of Securities Markets (NISM), an educational institute to cater
to the needs of securities market education, training and research.
Investor Protection Fund (IPF)
Pursuant
to the announcement in Budget 2006-07, an investor protection fund is being set up under the aegis of SEBI,
to be funded by fines and penalties recovered by SEBI. This will bolster confidence among retail investors
who should be the key drivers of the capital market.
BANKING AND INSURANCE
SME Credit
A "Policy Package on Stepping up credit
to SME sector" was announced in Parliament on August 10,
2005. The objective is to double the flow of credit to the sector
by 2009-10, which would cater adequately to the credit needs of
SME sector. As against the proposed 20 per cent year on year growth
in credit to SMEs, the Banks have shown 18.53% growth for the
year 2005-06 up to the quarter ending December 31, 2005, which
appears to be a significant improvement.
One Time Settlement (OTS) Scheme and
Debt Restructuring Mechanism for SME sector covering outstanding
amount up to Rs. 10 crore in the books of banks has been announced.
Credit Guarantee
Scheme
A Credit Guarantee Fund Trust for Small Industries (CGTSI)
with a corpus of Rs.800 crore, has been set up to implement a
guarantee scheme. The Scheme facilitates availment of credit by
SSI/Tiny units. Small loans upto Rs.25 lakh are eligible to be
covered under the scheme. Guarantee covers upto 75 per cent of
loan amount.
India Infrastructure Finance Company Ltd.
India Infrastructure Finance
Company Limited (IIFCL) was incorporated on January 5, 2006 with
a paid up capital of Rs. 10 crore and an authorised capital of
Rs. 1,000 crore. IIFCL would render financial assistance through
direct lending to eligible projects, and Refinance to Banks and
FIs for loans with tenure of five years or more.
Setting up of Stressed Assets Stabilisation Fund (SASF)
In order to address
the NPAs of IDBI so as to enable it to sustain its developmental
role of providing long term finance to industrial projects, the
Stressed Assets Stabilisation Fund (SASF) has been created.
Autonomy to Banks
As promised, in its National Common
Minimum Programme (NCMP) and with a view of making the Public
Sector Banks (PSBs) more competitive and market driven, the present
Government granted further autonomy and operational flexibility
to them, in February, 2005. Further, Nationalised Banks have been granted
autonomy in respect of appointment of statutory auditors.
Universal Health Insurance Scheme
The Public Sector Insurance
Companies are implementing Universal Health Insurance Scheme(UHIS)
that is mainly targeted to provide health insurance benefits to
BPL families. This scheme covers reimbursement of hospitalisation
expenses upto Rs.30,000 to the members of the family, personal
accident cover of Rs.25,000 for death of earning head of the family
and reimbursement of wage loss @ Rs.50/- per day for the maximum
period of 15 days. The premium is Rs.365 for an individual, Rs.548
for a family of five members and Rs.730 for a family of seven.
Central Government gives a subsidy of Rs.200 for an individual,
Rs.300 for a family of five and Rs.400 for a family of seven.
Complaint Redressal Mechanism (Banking Ombudsmen Scheme)
With a view
to widening the ambit of the Scheme, streamlining the process of settlement of customer complaints, increasing
the awareness level of the Scheme and enhancing the control of
Reserve Bank over the functioning of the Scheme and introducing
accountability at the level of the Banking Ombudsman, a revised
Banking Ombudsman Scheme, 2006, effective from January 1, 2006,
has been announced by RBI.
Credit Information Companies (Regulation) Act, 2005
The Credit Information Companies (Regulation)Act,
2005 has been enacted to facilitate setting up of Credit Information
Companies for collection, sharing and dissemination of credit
information, which would significantly improve the quality of
credit appraisal and decisions.
Amendments
in the Banking Regulation Act, 1949
The Banking Regulation Act,
1949 has been amended to empower RBI to issue licences to Multi-State
Cooperative Societies to carry on banking business and make these
Multi-State Cooperative Banks eligible for Deposit Insurance Cover
of Deposit Insurance Credit Guarantee Corporation.
Amalgamation of Regional Rural Banks (RRBs)
The Government has initiated
a process for structural consolidation of RRBs by amalgamating
RRBs, sponsored by the same bank within a State, aiming that the
amalgamated RRBs will provide
better customer service due to better infrastructure, computerization
of branches, pooling of experienced work force, common publicity
and marketing efforts etc. So far, notifications have been issued for
amalgamation of 93 RRBs into
27 new entities.
Agricultural Credit
With a view to doubling the flow of agricultural credit
in three years, the Government announced a package of measures
on June 18, 2004, and impressed upon all the agencies concerned
the urgent need to significantly enhance the quantity and quality
of credit flow to the agriculture sector. The actual disbursement
in 2004-05 registered a growth of 44.61 per cent over the previous
year. The actual disbursement
in the year 2005-06 registered a growth of 25 per cent.
Self Help Groups
(SHGs)
The SHGs bank linkage programme has
emerged as the major micro
finance programme in the country. Upto 28.2.06, 3.05 lakh SHGs
have been credit linked during 2005-06.
The active participation of women around 90 per cent and
a timely repayment continued to be the prominent features of the
programme.
Micro Finance
In pursuance of the Budget
Announcement Micro Finance Development Fund has been redesignated
as Micro Finance Development & Equity Fund.
Cooperatives
Following recommendations of the Vaidyanathan
Committee, a financial package of Rs. 13,596 crore has been approved
by the Government to revitalise Short Term Cooperative Credit
Structure in the country.
Credit Deposit Ratio
Implementing the National Common
Minimum Programme (NCMP), the Government appointed a Group of
Experts to go into the nature and magnitude of the problems of
low Credit Deposit Ratio (CDR) across States/Regions and to suggest
step to overcome the problem. The recommendations of the Group
have been accepted by the Government with certain modifications.
The revised parameters for monitoring the Credit Deposit
Ratio have been issued by RBI to all the scheduled commercial
banks.
DEPARTMENT
OF EXPENDITURE
Ø
Debt
consolidation and relief schemes under the Twelfth Finance Commission
are expected to provide substantial relief to the States: interest
relief of Rs.21,276 crore, lower repayment of Rs.11,929 crore
and loan waiver of Rs.32,199 crore, contingent upon the States
passing fiscal responsibility laws and meeting other conditions.
So far 19 States have passed such laws.
Ø
During
2005-06, Department of Expenditure gave its approval for Government
schemes/projects as well as investments proposals of Central Public
Sector Undertakings aggregating to of Rs.1,74,436 crore compared
to Rs.1,18,112 crore in 2004-05.
Ø
The General Financial Rules 1963 and connected Government Orders
were comprehensively revised and new Rules notified from July
1, 2005, to provide greater flexibility, transparency and clarity.
Ø
In its efforts to shift focus from “outlays” to “outcomes”
in public expenditure management, the
Outcome Budget 2005-06 was presented to Parliament on August
25, 2005. Outcome Budgets 2006-07 were presented by the Ministries
by March 21, 2006 under guidelines issued by the D/o Expenditure.
The Finance Minister presented “Outcome Budgets 2006-07 of the
Flagship Programmes’ on March 21, 2006. It included highlights
of the Outcome Budgets in respect of “Bharat Nirman” and 8 “Flagship” Programmes. Orders were issued that the Expenditure Finance
Committee and the Public Investment Board will not consider any
scheme/project for appraisal unless the intended outcomes and
timelines are clearly indicated in the proposal.
Ø
Norms
governing re-appropriation of funds have been reviewed and substantial
delegation of these powers are shortly being notified.
Ø
Flexibility has been allowed to the Ministries in using the
services of airlines other than Air India/Indian Airlines in domestic
and overseas travel and telecom companies, other than MTNL/BSNL,
guided only by the considerations of economy in expenditure.
Ø
Greater delegation of powers to line Ministries, upto Rs.15
crore on non-plan side (upto Rs.100 cr. for Ministry of Defence),
upto Rs.100 crore for plan side (with special dispensation for
Ministry of Power).
Ø
Economy/austerity measures taken to curb non-essential expenditure,
establishment expenses and observance of discipline in transfer
of funds to States, Public Sector Undertaking, and Autonomous
Bodies.
Ø
Government has announced its intention to set up 6th
Pay Commission. Process of consultation with the States is going
on.
REVENUE
State VAT
Introduction of State VAT is the most significant tax reform
measure at State level. The State VAT has replaced the earlier
Sales Tax systems of the States. VAT has been introduced by 30 States/ UTs by
now. The transition to the new tax system has been fairly smooth.
The introduction of VAT did not lead to any general price increase
and in fact, the rate of inflation has shown a decline in the
period after introduction of VAT. The initial trend of revenue
collection in the VAT implementing States is quite encouraging.
Central Sales Tax Act, 1956
The Central Sales Tax Act, 1956 was
amended, inter-alia, (a) to provide that the sale of ATF to any
designated Indian carrier for its international flights shall
be deemed as export, with a view to provide level-playing field
to the Indian carriers vis-à-vis their foreign counterparts, (b)
to expand the scope of benefit of CST exemption in respect of
SEZ and (c) to streamline the provisions relating to constitution
and functioning of CST Appellate Authority.
Indian Stamp Act, 1899
The Indian Stamp Act, 1899 was amended,
to empower the States to collect stamp duty through alternative
modes of payment other than physical stamps/ stamp papers like
through electronic modes of payment, payment through use of franking
machines, etc.
Enactment of Prevention of Money Laundering Act
In order to combat money laundering
and to provide for confiscation of property derived from, or involved
in, money laundering, the Prevention of Money-laundering Act,
2002, along with the Rules under it, came into force on July 1,
2005. The Act is being implemented by two organizations,
viz., the Financial Intelligence Unit and the Enforcement Directorate.
Action on Volcker Committee Report
Following serious public allegations
into the administration and management of the United Nations Iraq
Oil-for-Food Programme and after finding names of Shri K. Natwar
Singh and the Congress Party in the Report of the Volcker Inquiry
Committee about the alleged payment of surcharge for obtaining
contracts, which were considered as matters of definite public
importance, the Government of India set up a single member Inquiry
Authority headed by Mr. Justice R.S. Pathak, former Chief Justice
of India and former Judge of the International Court of Justice,
named as Justice R.S. Pathak Inquiry Authority.
CBDT
Tax Collection
The
rate of growth of Direct Taxes has been more than 25 per cent in the last three consecutive years. The net collection of direct taxes for financial
year 2005-06 has been provisionally reported at Rs.1,64,093 crore.
Rationalisation and Simplification measures
Ø
Education cess at the rate of 2% was levied to fulfill the
commitment of the Government to provide and finance universalized
quality basic education.
Ø
Filing of TDS and TCS returns in computer media made mandatory
for certain tax deductors
Ø
Tonnage tax scheme which is a presumptive tax scheme for shipping
companies introduced
Ø
The basic exemption limit was raised to Rs. 1 lakh. In case of senior citizens and women, the basic
exemption limit was raised to Rs. 1,85,000 and Rs. 1,35,000, respectively.
The existing tax slabs were widened.
Ø
Corporate tax regime was rationalized by reducing the tax rate
for domestic companies from 35 per cent to 30 per cent.
Ø
The rate of tax on royalty and fees for technical services
in the case of non-residents was reduced from 20 per cent to 10
per cent.
Ø
Exemption has been provided to any specified income arising
from any International sporting event held in India and notified
by the Central Government.
Ø
Exemption from levy of dividend distribution tax has been extended
to close-ended equity-oriented mutual funds in addition to open-ended
equity-oriented mutual funds.
Ø
Provisions of Minimum Alternate Tax (MAT) were amended to provide
that 10 per cent of book profits of corporates would be the amount
of MAT from assessment year 2007-08.
Further, the benefit of carry forward of MAT credit was
extended from 5 to 7 years.
Ø
Credit for payment of MAT and tax paid in a country or specified
territory outside India for the purposes of charge of interest
Ø
Exemption of the family pension received by the family members
of armed forces (including para-military forces) personnel killed
in action in certain circumstances.
Ø
Income-tax deduction for persons suffering from autism, cerebral
palsy or multiple disabilities. Expenditure on treatment of a
dependent person suffering from these disabilities is also allowed
as a deduction.
Ø
Gift of money received by a person from unrelated persons in
excess of twenty-five thousand rupees were brought to tax.
Ø
With a view to tax unaccounted money being contributed to charitable
trusts or institutions by way of anonymous donations, such donations
have been brought to tax @ 30 per cent.
Ø
Certain authorities viz Registrar for property/motor vehicles,
Stock exchanges, Depositories, RBI etc. have been mandated to
file Annual Information Returns containing therein transaction
relating to Investments/ Loans/ deposits/ Expenditure/ purchase-Sale
of Property/Motor Vehicles etc.
In last two years, three new direct
taxes have been introduced by the Government i.e. Securities Transaction
Tax, Fringe Benefit Tax and Banking Cash Transaction Tax. In 2005-06 an amount of Rs. 7,572 crore has
been collected under these new taxes.
CBEC
Tax Collection
The actual indirect tax collections
during 2005-06 have not only exceeded the Budget Estimate but
also enhanced Revised Estimates.
Initiative for
small taxpayers
The 2005-06 Budget announced setting up of Help Centres
for small taxpayers. The Help Centres were made functional from
July 1, 2005. Around 70 Help Centres are currently functioning
in the field formations.
Central Excise
CBEC has put in place
the mechanism for extension of the scheme for refund of input
service credit for goods and services exported. Simplified procedure
for sanction of refund of unutilised credit/rebate claims in case
of exports has been introduced.
Customs
The
Government has introduced E-auction of imported uncleared/unclaimed
goods, confiscated goods and time-expired warehouse goods to ensure
that cartels and syndicates do not manipulate the prices of such
goods. Simplified procedure for disposal of uncleared and unclaimed
goods has also been introduced.
The Government has issued instructions
regarding reduction of export documentation requiring the exporters
to file only basic documents such as invoice, packing list, self-declaration
form, shipping bill and application for removal of excisable goods
(ARE-I) and dispensing with various declarations.
The
important trade facilitation measures taken by the Government
include: The important measures are: Simplified procedure for
amendment of Import General Manifest, waiver of bank guarantee
in transshipment of import and export cargo, Fast Track Clearance
procedure for Export Oriented Units, increased use of E-filing,
reducing procedural formalities at airports by doing away with
the permission required from customs for palletisation of cargo.
Bilateral Customs
Cooperation Agreements
India
has entered into bilateral Customs Mutual Administrative Assistance
Agreements with China, SAARC countries, South Korea and Australia
during the last two years.
Automation of Customs
and Central Excise
Facility
provided for Remote filing of documents. Using the ICEGATE facility
an exporter or importer can file his documents for assessment
and clearance of goods from his office without having to visit
the Custom House. This facility is available round-the-clock and at present roughly
60 per cent of the documents are filed in the ICES
system using the ICEGATE by the importers and exporters.
E-payment
of Central Excise duties using the web-based application provided
by the authorized banks was introduced.
DISINVESTMENT
The Government, on January 27, 2005,
approved in principle (a) listing of currently unlisted profitable
CPSEs each with a Net Worth in excess of Rs.200 crore, through
an Initial Public Offering (IPO), either in conjunction with a
fresh equity issue by the CPSE concerned or independently by the
Government, on a case by case basis, subject to the residual equity
of the Government remaining at least 51 per cent and the Government
retaining management control of the CPSE (b) the sale of minority
shareholding of the Government in listed, profitable CPSEs either
in conjunction with a Public Issue of fresh equity by the CPSE
concerned or independently by the Government subject to the residual
equity of the Government remaining at least 51 per cent and the
Government retaining management control of the CPSE.
The Government has decided, in principle,
to list, large profitable Central Public Sector Enterprises (CPSEs)
on domestic stock exchanges and to selectively sell small portions
of equity in listed, profitable CPSEs other than the navratnas.
During 2004-05, Government realised
Rs. 2,684.07 crore from the sale of 432.9 million equity shares
of Rs 10 each of National Thermal Power Corporation Ltd, Rs 64.81
crore from sale of shares to employees of IPCL and Rs 15.99 crore
as balance amount of realisation from the Offer for in ONGC.
During the
year 2005-06, in January 2006, the Government realised a sum of
Rs 1,567.60 crore from the sale of 8 per cent of equity out of
its shareholding of 18.28 per cent in Maruti Udyog Limited (MUL),
to public sector financial institutions and banks.
The average realization was Rs.678.24 per share, which
was much higher than the floor price of Rs.620 per share.
Further, Rs.2.08 crore was received by the Government in
March 2006, from the sale of 31,507 equity shares in MUL to officers/employees
of MUL at a price of Rs. 660 per share.
The Government has constituted a
“National Investment Fund” (NIF) in 2005-2006, into which the
proceeds from disinvestment of Government equity in CPSEs would
be channelised. Seventy-five per cent of the annual income
of NIF will be used to finance selected social sector schemes,
to promote education, health and employment. The residual 25 per
cent of the annual income of NIF will be used to meet the capital
investment requirements of profitable and revivable CPSEs that
yield adequate returns, in order to enlarge their capital base
to finance expansion / diversification.
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