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February 28, 2001                                       Feedback  

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Strategy of the Budget- 2001-02

Speeding up of agricultural reforms, intensification of infrastructure investment, continued reform in the financial sector and capital markets, human development through better educational opportunities, labour market reforms, stringent expenditure control of non-productive expenditure, structural reforms for expenditure management, rationalisation of subsidies, acceleration of the privatisation process and restructuring of public enterprises and revenue enhancement through widening of the tax base with a more equitable tax regime.

Budget Highlights
Macro-Economic Issues

  • A growth oriented budget with commitment towards reforms
  • Fiscal deficit as a proportion of GDP targeted at 4.7% for 2001-02
  • Most administered interest rates reduced by 1.5%
  • Wider range of services to be covered under service tax
  • Dismantling of APM in petroleum sector by March 2002
  • Complete decontrol of urea prices to be achieved by April 2006

Agricultural and Rural Development Initiatives
  • Credit flow to agriculture to increase by 24% from 15%
  • RIDF IV corpus increased by Rs.5 bn and interest charge reduced by 1%.
  • Personal insurance package to Kisan Credit Ccard holders
  • Higher role for state governments in PDS. Financial assistance to state governemnts instead of subsidised foodgrains
  • Subsidies extended for rural godowns for storing market surplus
  • Essential Commodities Act, 1955 to be reviewed - will prune restrictions on movement of foodgrains.

Industrial & Labour Sector Initiatives

  • SICA proposed to be repealed
  • National Company Law Tribunal to be set up
  • Approval from government for retrenchment/lay off of labour to apply to industrial establishments employing not less than 1000 workers instead of 100
  • Enhancement of separation increased from 15 days to 45 days for every completed year of service.
  • Amendment of Section 10 to remove the rigidity pertaining to contract labour and facilitate outsourcing of activities without any restrictions
  • Group insurance introduced for workers affected by liberalisation of the economy
  • High Level Expert Group to review the existing pension system for central government employees. New pension programme for employees joining after October 01, 2001

Social Sector Initiatives

  • Plan allocation for ministry of health & family welfare increased Rs.58 bn
  • Enhanced educational loan scheme announced for higher & technical education
  • National Scheduled Tribes Finance & Development Corporation set up - allocation for welfare schemes enhanced
  • Two more Social Security schemes for landless agricultural labourers and for education of children of parents below poverty line

Infrastructure Initiatives

  • Electricity Bill 2001 to encompass power sector reforms for improving financial viability of SEBs
  • Incentives to States embarking upon Accelerated Power Development Programme
  • Plan outlay for road sector increased by 93% to Rs.87.3 bn.
  • Corporatisation of more ports to be encouraged
  • Convergence Bill covering telecommunications, information technology, and information & broadcasting sectors in an integrated manner on anvil

Expenditure Management

  • Fresh recruitments in the government to be limited to 1% of total civilian staff strength - to lead to reduction in manpower in government sector by 2% p.a and achieve 10% reduction in 5 years
  • Employees in the Surplus Pool to be offered VRS package
  • LTC to Central Government employees suspended for 2 years
  • Significant reduction in government posts

Direct Taxation

  • Removal of all surcharges payable by corporates and non-corporates except the surcharge of 2% for earthquake relief
  • One-by-six scheme to be extended to all urban centres as defined by 1991 census
  • Tax on dividends distributed by domestic companies and income units of MFs and UTI reduced from 20% to 10%

Indirect Taxation

  • Special Excise duty rates reduced from 3 to 1 at 16%
  • One basic rate of CENVAT and one rate of Special Excise Duty will now prevail
  • Surcharge of 10% on customs duties removed. Peak level of customs duty to decline from 38.5% to 35%
  • Customs duties on items to be freed from QRs to attract higher rates to protect the domestic industry

PSU Restructuring & Privatisation Initiatives

  • Government approval for privatisation of 27 PSUs
  • Privatisation of VSNL, Air India , Maruti Udyog Limited among others on anvil
  • PSU disinvestment proceeds increased to Rs.120 bn - of which Rs.70 bn to be used for public sector restructuring and Rs.50 bn for social and infrastructure sectors

External Sector Initiatives

  • Indian companies can invest abroad upto US $ 50mn annually through automatic route without 3-year profitability condition
  • Foreign investments upto 100% allowed from the proceeds of ADRs/GDRs
  • Companies with ADR/GDR issues can acquire shares of foreign companies upto US $ 100 mn or equal to ten times of their annual exports
  • Converted local shares allowed to be reconverted to ADRs/GDRs
  • Indian companies allowed to list in foreign stock exchanges by sponsoring ADR/GDR issues against block share holding
  • Indian employees with ESOPs in foreign owned companies allowed to invest abroad upto US $ 20,000 annually instead of in a block of 5 years
  • Limit on FIIs investment under portfolio investment route increased upto 49%

Rediff-CRISIL Budget Impact Analysis
Budget 2001


Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

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