Unveiling another batch of sops before the elections, the Interim Budget for 2004-05 on Tuesday promised to reconsider the present income tax exemption limits, the standard deduction for salaried class, raised the free baggage allowance and merged 50 per cent of dearness allowance with basic pay for central government employees.
However contrary to expectations, no changes in the Income-Tax structure were proposed in the Budget presented by Finance Ministger Jaswant Singh in the Lok Sabha.
In a bid to step up investment in the power sector, Singh said fiscal benefits available to new projects in the sector should be extended by six years beyond 2006.
Projecting a high 7.5-8 per cent growth, Singh pegged the fiscal deficit at a low 4.8 per cent of GDP as against the target of 5.6 per cent for the current fiscal.
He also reduced by 50 per cent stamp duty on all central government stamp papers.
In the wake of massive stamp paper scam, a comprehensive reform for the entire stamp duty regime is being addressed in consultation with the state governments.
Free baggage allowance is proposed to be raised from Rs 12,000 to Rs 25,000. Customs duty on such baggage will also be reduced from 50 to 40 per cent with immediate effect.
Singh announced setting up of a non-lapsable Defence Modernisation Fund of Rs 25,000 crore (Rs 250 billion) to ensure money for modernisation and procurement of weapons systems.
Outlining the mid-term perspective on the direct tax front, Singh said the regime of listed equities acquired on or after March 1, 2003, now exempt from long-term capital gains, should be extended for a further period for three years.
To make Indian shipping industry internationally competitive, a tonnage tax with notional income at a fixed rate on the basis of net registered tonnage should be considered.
Capital gains on acquisition of agricultural land should be exempt from tax. It is also proposed that there should no deduction of tax at source on the interest earned on enhanced compensation for acquisition of such land.
If outsourced services are ancillary and auxiliary in nature and adequate remuneration is paid to the Indian call centre, then there shall be no tax on such foreign companies, which have outsourced their activities to India.
The finance minister announced measures to fully consolidate and enhance growth momentum, which the country has achieved.
As part of measures to ensure availability of timely credit at affordable rates to farmers and rural areas, Singh said banks were being urged to offer loans for agricultural purposes at rates lower than the prevailing rates.
Banks were being instructed not to insist routinely on additional collateral through a mortgage of entire land holding. All eligible farmers will receive kisan credit cards by March 31 this year and existing cards would be modified for use in ATM machines.
Singh also announced that farm insurance schemes, introduced on a pilot basis, will be extended to 100 districts.
A special tea term loan repayable in five years with a moratorium of one year is to be provided. In the case of small tea growers, banks have agreed to extend fresh working capital limits upto Rs 200,000 at an interest rate of nine per cent.
Sugar, another major agro-processing industry of the country, will also benefit from a package for the revitalisation of the industry in consultation with stake-holders. As a measure of temporary relief, restructuring of loans taken by sugar factories will be examined by the lending agencies.
Underlining the important role played by cooperative banks in the delivery of rural credits, the finance minister announced a scheme to revitalise the cooperative credit structure with an outlay of Rs 15,000 crore (Rs 150 billion) to be shared by the Centre and states.
The public sector banks will increase credit limit of cards under the Laghu Udyami Credit Card Scheme. This will be for borrowers with a satisfactory track record and would range from Rs 200,000 to 10 lakh (Rs 1 million).
Underlining the problem of water scarcity, Singh announced the prime minister's decision to initiate an accelerated supply of drinking water scheme for mega cities like Bangalore, Chennai, Delhi and Hyderabad. The provision for infrastructure development in mega cities is to be augmented by accessing infrastructure fund, LIC and other sources.
Agriculture Infrastructure Credit Fund is being renamed as Lok Nayak Jaiprakash Narayan Fund. Similarly, the small and medium enterprises fund will address the problem of inadequacy of financial resources for the small sector. The industrial infrastructure fund will provide credit at competitive rates for power generation, seaports, airports, telecomunication and urban infrastructure.
On the indirect tax front, the finance minister said his ministry would examine the suggestion that wherever there is exemption from countervailing duty on an imported capital good, deemed export benefits should be given to the very same capital goods manufactured indigenously. The suggestion is to be examined in consultation with the commerce ministry.
Singh also announced a number of user-friendly tax administration measures and said round-the-clock electronic customs document for clearance of goods would be extended to 23 customs formations.
Customs clearance is to be based on self-assessment and selective examination from June this year. An eight-digit code classification of goods for levy of excise to be adopted from September this year and e-filing of excise returns from June this year.
On the service tax front, only a simple verification is to be made for grant of registration. For assessees providing more than one taxable service, a single registration and single return will suffice.
On revenue and budget estimates for the current year, Singh said the revised estimates have shown a decrease of Rs 11,143 crore (Rs 111.43 billion) as compared to the Budget estimates. This reduction in expenditure has been achieved despite spending on rural development, the Sarva Shikshan Abhiyan, Delhi metro rail project and additional support for the Railways.
The net tax revenues have shown an increase of Rs 3,370 crore (Rs 33.7 billion). Non-tax revenue is estimated to be Rs 5722 crore (Rs 57.22 billion) more than the estimated level. Divestment receipts at Rs 14,500 crore (Rs 145 billion) were also higher than the budget estimates of Rs 13,200 crore (Rs 132 billion).
The finance minister said the fiscal deficit stood at 4.8 per cent of GDP and revenue deficit at 3.6 per cent of the estimated GDP. He said the government has demonstrated its resolve on fiscal consolidation by performing better than the budgetary targets.
The gross budgetary support for the Plan 2004-05 has been fixed at Rs 1,35,071 crore (Rs 1,350.71 billion), an increase of 11.6 per cent over the current year. Out of this, an amount of Rs 81,367 crore (Rs 813.67 billion) is the budgetary support for central plan, a 12.8 per cent increase over the current year.
On the non-Plan side, the budget estimate for the next year shows a net increase of Rs 16,218 crore (Rs 162.18 billion). The increase is mainly due to interest payment, debt servicing, defence, grants and loans to state governments and food subsidies.