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February 28, 2001                                       Feedback  

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Highlights of the Union Budget 2001-2002

Union Finance Minister Yashwant Sinha on Wednesday presented an ambitious and bold budget with a strong reform direction.

The budget has introduced far-reaching reforms in:

  • Labour
  • Core sector
  • Capital account convertibility
  • Reducing cost of capital
  • Debt market restructuring.
  • Agri and Rural development reforms with special focus on management of food economy
  • Fillip to the primary market
  • Rationalising excise duty structure
  • Widening the service tax net
  • Initiating decontrol of prices including urea and sugar

Market reacts favourably, Sensex zooms

Budget Estimates

  • The target of 5.1% of fiscal deficit in 2000-01 has been achieved first time in many years.
  • Total expenditure in the budget estimates for 2001-2002 is estimated at Rs 3752.23 billion, of which Rs 1001 billion is for plan and Rs 2751.23 billion for non-plan.
  • The budget support for Central, State and UT Plans placed increased by Rs 138.62 billion (16%) over revised estimates of 2000-2001 to Rs 1001 billion.
  • Gross budgetary support for the Central Plan being enhanced from Rs 482.69 billion in the revised estimates 2000-2001 to Rs 594.56 billion in 2001-2002.
  • Central Plan assistance to States and Union Territories in 2001-2002 increased to Rs 406.44 billion from Rs 379.69 billion in the revised estimates 2000-2001.
  • Non-plan expenditure in 2001-2002 is estimated to be Rs 2751.23 billion compared to Rs 2492.85 billion in revised estimates for 2000-2001.

Financial sector reforms

  • Financial sector and capital markets reforms to continue.
  • A Clearing Corporation for further orderly development of money market (including repo), Government Securities market and settlement of forex transactions will be set up.
  • RBI to set up an electronic Negotiated Dealing System by June 2001 to facilitate transparent electronic bidding in auctions and dealings in Government securities on a real time basis.
  • Reserve Bank of India to set up Electronic Fund Transfer (EFT) and Real Time Gross Settlement Systems (RTGs) within the next year.
  • Removal of taxation anomalies to promote the issuance of STRIPS, zero coupon bonds, deep discount bonds, and the like Public Debt Act to be replaced by Government Securities Act.
  • 7 more Debt Recovery Tribunals to be set up during 2001-02.
  • Legislation to facilitate foreclosure and enforcement of securities in cases of default to be introduced.
  • Banking Services Recruitment Boards to be abolished by July 31,2001 or earlier. Banks to do all future recruitment themselves.

Structural reforms

  • The deadline of March 2002 for dismantling of the Administered Pricing Mechanism (APM) in the petroleum sector to be adhered to.
  • Phased programme of complete decontrol of urea by April 1, 2006 as recommended by the Expenditure Reforms Commission.
  • The unit specific Retention price Scheme (RPS) to be replaced by the Group Concession Scheme with effect from April 1,2001.
  • The rate of concession for urea units based on naphtha/FO/LSHS will be linked to international prices of these feed stocks with effect from April 1, 2001.
  • As a first step towards full decontrol of Sugar futures/forward trading in sugar to be introduced. The retail issue price of sugar under the PDS is being revised to Rs.13.25 per kg. with effect from March 1, 2001.

Industrial Restructuring

  • SICA to be repealed.
  • The Companies Act to be amended in order to set up a National Company Law Tribunal.
  • Prior Government approval for effecting lay-off, retrenchment and closure required by industrial establishments employing not less than 100 workers to be revised to those employing not less than 1000 workers.
  • The separation compensation will be increased from 15 days to 45 days for every completed year of service.
  • Contract Labour Act to be amended to facilitate outsourcing of activities and contract appointments. It would provide protection to labour engaged in outsourced activities in terms of their health, safety, welfare, social security, etc.
  • New "Ashraya Bima Yojana" to provide compensation of up to 30% of last drawn annual pay for a period of one year to workers who lose their jobs.
  • The four Government owned general insurance companies will administer this policy on a "No Profit No Loss: basis and will announce full details by June 2001.

Public sector restructuring

  • Privatisation to be accelerated
  • An amount of Rs 70 billion out of the expected receipt of Rs 120 billion from divestment will be used for providing restructuring assistance to PSUs, safety net to workers and reduction of debt burden.
  • Subject to realisation of the anticipated receipts of divestment a sum of Rs 50 billion will be used to provide additional budgetary support for the Plan primarily in the social and infrastructure sectors.

Agriculture and Rural Development

  • Corpus of NABARD's RIDF VII increased from Rs.4,500 crore to Rs 50 billion next year and interest charged reduced from 11.5 per cent to 10.5 per cent.
  • Pradhan Mantri Gram Sadak Yojana (Rs 25 billion) to provide connectivity of every village with a population of over 1,000 persons through good all weather roads by the year 2003 and those with a population of up to 500 persons by the year 2007.
  • Greater involvement of state government in procurement and distribution of foodgrains for PDS.
  • Financial assistance to the state governments to enable them to procure and distribute foodgrains to BPL families at subsidised rates.
  • Essential Commodities Act, 1955 to be reviewed and restrictions on the free inter-state movement of foodgrains to be removed.
  • The number of commodities declared as essential under the Act to be brought down.


Tax rate charges:

  1. No change in Direct tax rates
  2. All surcharges on corporate and non-corporate taxes except for calamity relief abolished
  3. One by six schemes extended to all Urban areas
  4. TDS extended to commission and brokerage incomes
  5. Wind Fall income - lotteries, games shows-at 30 per cent
  6. All companies to file a mandatory return
  7. No tax exemptions on interest paid on ECBs
  8. No tax gains if invested in Primary issues
  9. Dividend tax reduced to 10 per cent
  10. 20 year Tax holiday for core infrastructure
  11. 10 years tax holiday for infra in airports
  12. 15 years tax holiday for telecom projects
  13. Interest exemption on housing loans raised to Rs 150,000
  14. Foreign telecast channels to be taxed

Duty structure changes:

  1. Rate structure rationalised: One CENVAT rate of 16 per cent and one special excise duty of 16 per cent introduced
  2. Services Tax net widen
  3. 10 per cent surcharge on Customs Duty abolished
  4. Peak Custom Duty down to 35 per cent
  5. Customs Duty on select and IT products down to 15 per cent
  6. Second hand car customs duty at 180 per cent
  7. Customs Duty on cement and clinkers down to 25 per cent
  8. Duty on Gold reduced to Rs 250 per 10 grams
  9. Peak Customs Duty to be reduced to 20 per cent in 3 years

Budget Estimates:

  1. Fiscal Deficit target 4.7 per cent
  2. Expenditure set at Rs 3752.23 billion
  3. Total Revenues Receipts at Rs 1630.31 billion
Macro policy changes: a) Move towards Capital Account Convertibility
  1. FIIs can invest up to 49% in Domestic Companies
  2. Domestic Companies can invest 10 times their export earnings or 100 million abroad
  3. RBI to issue guidelines for companies
  4. FDI in NBFC upto 100% thru automatic route
b) Interest rate on Small Savings cut by 1.5 percentage points c) Interest on Central Loans to State government reduced by 50 basis points d) Labour Reforms introduced
  1. Industrial Disputes Act to be amended
  2. Retrenchment compensation increased to 45 days from 15 days
  3. For companies employoing less tha 1000, retrenemnt made easier
  4. Contract Labour Act to be amended
  5. Safety net for workers thru group insurance schme
e) Divestment:
  1. Rs 120-billion target
  2. Divestment of 12 PSUs to be completed this years; including VSNL, Air-India and Maruti
  3. Rs 50 billion set aside for outlay for infrastructure and social sectors
f) Second-hand car imports liberalised g) Prices decontrolled:
  1. Urea Prices to be decontrolled by 2006
  2. Decontrol of Sugar; Future and Options to be introduced
g. Policy changes at sectoral level a. Agricultural:
  1. Interest charged by Nabard reduced 1 per centage point to 10.5 per cent
  2. RIDF corpus increased to Rs 50 billion from Rs 45 billion
  3. Credit flow to agriculture to be increased by 2 per cent
  4. Personal insurance for Kisan credit card holders
  5. Nabrad to help agri graduates to launch agri clinics and agri business centre as a part of extension services
h) Strategy of Budget:
  1. Speeding up of Agricultural Reforms
  2. Change management of the Food Economy
  3. Improve infrastucture
  4. Deepen capital markets
  5. Improve quality of government expenditure
  6. Widening of tax base
  7. Structural reforms

Source: Business Standard

The Budget 2001-2002 Special

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