Madam Speaker,
I rise to present the Budget for 2009-10.
2. Just 140 days back, I had the privilege to present the Interim Budget for 2009-10. It is a rare honour that I have been called upon to present the regular budget after the new
Government assumed office.
3. The Congress-led UPA Government has come back to power with a renewed mandate. As Prime Minister, Dr. Manmohan Singh, said recently “It is a mandate for continuity, stability and prosperity. It is a mandate for inclusive growth and equitable development.” It is a mandate that we accept with humility and a firm resolve to do all that we can for the welfare of this nation.
4. I am deeply conscious of the faith reposed by the people in our government and the responsibilities that come with it. I am sensitive to the great challenge of rising expectations of a young India . It reflects a population that is restless, yet engaged and is ready to seize the opportunities that it is presented with. There are new and powerful reasons for us to create, facilitate and sustain those opportunities.
5. In the Interim Budget for 2009-10, I had stated that the new Government would need to anchor its policies for 2009-10, in a medium term perspective that would have to:
(a) sustain a growth rate of at least 9 per cent per annum over an extended period of time;
(b) strengthen the mechanisms for inclusive growth for creating about 12 million new work opportunities per year;
(c) reduce the proportion of people living below poverty line to less than half from current levels by 2014;
(d) ensure that Indian agriculture continues to grow at an annual rate of 4 per cent;
(e) increase the investment in infrastructure to more than 9 per cent of GDP by 2014;
(f) support Indian industry to meet the challenge of global competition and sustain the growth momentum in exports;
(g) strengthen and improve the economic regulatory framework in the country;
(h) expand the range and reach of social safety nets by providing direct assistance to vulnerable sections;
(i) strengthen the delivery mechanism for primary health care facilities with a view to improve the preventive and curative health care in the country;
(j) create a competitive, progressive and well regulated education system of global standards that meets the aspiration of all segments of the society; and
(k) move towards providing energy security by pursuing an Integrated Energy Policy.
6. The Government recognizes the challenges that this task entails, particularly at a time when the world is still struggling with an unprecedented financial crisis and an economic slowdown that has also affected India . While we are determined to convert our words into deeds, Members would appreciate that a single Budget Speech cannot solve all our problems, nor is the Union Budget the only instrument to do so. Yet, it is an important means to share the vision of the Government, particularly as we begin a new term. I propose to do just that for the next hour or so, as I dwell on the challenges and outline the approach of the government in the short term and medium term perspectives.
7. The first challenge is to lead the economy back to the high GDP growth rate of 9 per cent per annum at the earliest. Growth of income is important in itself, but it is as important for the resources that it brings in. These resources provide us with the means to bridge the critical gaps that remain in our development efforts, particularly with regard to the welfare of the vulnerable segments of our population.
8. The second challenge is to deepen and broaden the agenda for inclusive development; and to ensure that no individual, community or region is denied the opportunity to participate in and benefit from the development process.
9. The third challenge is to re-energize government and improve delivery mechanisms. Our institutions must provide high quality public services, security and the rule of law to all citizens with transparency and accountability.
Overview of the Economy
10. Madam Speaker, at the time of the presentation of the Interim Budget, I had given a detailed analysis of the economic situation. Without repeating myself, I would like to highlight that the development course charted by the UPA Government in the last five years has been possible due to a step up in the growth rate of the economy and improved revenue buoyancy. The principal growth driver in this period has been private investment, which has been predominantly funded by domestic resources. During the year 2008-09, there has been a dip in the growth rate of GDP from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent. It has affected the pace of job creation in certain sectors of the economy and the investment sentiments of the business community. It has also resulted in considerably lower revenue growth for the government. Another feature of the year 2008-09 was a sharp rise in the wholesale price index to nearly 13% in August 2008 and an equally sharp fall close to 0% in March 2009. While a detailed analysis of the developments has been presented in the Economic Survey-2008-09, tabled in both houses of Parliament last Thursday, I draw your attention to a few aspects.
11. The structure of India ’s economy has changed rapidly in the last ten years. External trade and external capital flows are an important part of the economy and so is the contribution of the services sector to the GDP at well over 50 per cent. The share of merchandise trade (exports plus imports) as a proportion of GDP has more than doubled over the past decade to 38.9 per cent in 2008-09. Similarly, trade in goods and services taken together has also doubled to 47 per cent during this period. Gross capital flows rose to a peak of over 9 per cent of GDP in 2007-08 before falling in the wake of the global financial crisis. The significant increase in the inflow of foreign capital is important, not so much for bridging the domestic savings-investment gap, but for facilitating the intermediation of financial resources to meet the growing needs of the economy.
12. This growing integration of the Indian economy with the rest of the world has brought new opportunities and also new challenges. It has made the task of sustaining high growth more complex. Over the past month, we have critically evaluated Government’s efforts at both short term economic recovery as well as medium term economic growth. The economic recovery and growth is a cooperative effort of the Central and State Governments. That is why, for the first time, I held a meeting with Finance Ministers of States as part of the preparations for this Budget. I intend to make this an annual feature.
TOWARDS ECONOMIC REVIVAL
Short-term measures
13. To counter the negative fallout of the global slowdown on the Indian economy, the Government responded by providing three focused fiscal stimulus packages in the form of tax relief to boost demand and increased expenditure on public projects to create employment and public assets. The RBI took a number of monetary easing and liquidity enhancing measures to facilitate flow of funds from the financial system to meet the needs of productive sectors.
14. This fiscal accommodation led to an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09. The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus. This fiscal stimulus at 3.5% of GDP at current market prices for 2008-09 amounts to Rs.1,86,000 crore.
15. These measures were effective in arresting the fall in growth rate of GDP in 2008-09 and we achieved a growth of 6.7 per cent. There are signs of revival in the domestic industry and the foreign investors have also returned to the Indian market in the last couple of months. It is possible that the two worst quarters since the global financial meltdown in September 2008 are behind us. While the global financial conditions have shown improvement over the recent months, uncertainties relating to the revival of the global economy remain.
We cannot, therefore, afford to drop our guard. We have to continue our efforts to provide further stimulus to the economy.
16. Madam Speaker, what I unfold now are only the ‘First steps’. It will be my endeavour to make the process of budget formulation more participatory and a continuous exercise.
Infrastructure Development
17. To stimulate public investment in infrastructure, we had set up the India Infrastructure Finance Company Limited (IIFCL) as a special purpose vehicle for providing long term financial assistance to infrastructure projects. We will ensure that IIFCL is given greater flexibility to aggressively fulfil its mandate.
18. ‘Takeout financing’ is an accepted international practice of releasing long term funds for financing infrastructure projects. It can be used to effectively address the asset liability mismatch of commercial banks arising out of financing infrastructure projects and also to free up capital for financing new projects. IIFCL would, in consultation with banks, evolve a ‘takeout financing’ scheme which could facilitate incremental lending to the infrastructure sector.
19. Government has had some success in attracting private investment in a wide range of infrastructure sectors such as telecommunications, power generation, airports, ports, roads and even in railways through public private partnerships ( PPP ). To ensure that infrastructure projects do not face financing difficulties arising from the current downturn, as I indicated in my Interim Budget Speech, the Government has decided that IIFCL will refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months. The IIFCL and Banks are now in a position to support projects involving a total investment of Rs.100 thousand crore in infrastructure. Combined with the steps we are taking to increase public investment in infrastructure, this will provide a big boost to such investment.
20. The investment in infrastructure for the growth of economy is critical. I have urged my colleagues in the Central and State Governments to remove policy, regulatory and institutional bottlenecks for speedy implementation of infrastructure projects. I, on my part, will ensure that sufficient funds are made available for this sector.
Highway and Railways
21. The allocation during the current year to National Highways Authority of India (NHAI) for the National Highways Development Programme (NHDP) is being stepped up by 23 per cent over the 2008-09 (BE). I have also increased the allocation for the Railways from Rs.10,800 crore made in the Interim Budget for 2009-10 to Rs.15,800 crore.
Urban Infrastructure
22. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been an important instrument for refocusing the attention of the State governments on the importance of urban infrastructure. In recognition of the role of JNNURM, the allocation for this scheme is being stepped up by 87 per cent to Rs.12,887 crore in the current budget. To improve the lot of the urban poor, I propose to enhance the allocation for housing and provision of basic amenities to urban poor to Rs.3,973 crore in the current year’s budget. This includes the provision for Rajiv Awas Yojana (RAY), a new scheme announced in the address of the President of India. This scheme, the parameters of which are being worked out, is intended to make the country slum free in the five year period.
Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA)
23. To address the problem of flooding in Mumbai, Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA) was initiated in 2007. The entire estimated cost of the project at Rs.1,200 crore is being funded through Central assistance. A sum of Rs.500 crore has been released for this project upto 2008-09. I have enhanced the provision for this project from Rs.200 crore in Interim BE to Rs.500 crore to expedite the completion of the project.
Power
24. The Accelerated Power Development and Reform Programme (APDRP) is an important scheme for reducing the gap between power demand and supply. I propose to increase the allocation for this scheme to Rs.2,080 crore, a steep increase of 160 per cent above the allocation in the BE of 2008-09.
Gas
25. With the recent find of natural gas in the KG Basin on the Eastern offshore of the country, the indigenous production of Natural Gas is set to double with natural gas emerging as an important source of energy. LNG infrastructure in the country is also being expanded.
Government proposes to develop a blueprint for long distance gas highways leading to a National Gas Grid. This would facilitate transportation of gas across the length and breadth of the country.
Assam Gas Cracker Project
26. The Assam Gas Cracker Project sanctioned in April 2006 is being executed at a cost of Rs.5,461 crore. The capital subsidy of Rs.2,138 crore for the project is to be provided by the Central Government. The outlay for this project is being stepped up suitably.
Agricultural Development
I now turn to Agricultural development.
27. Agriculture has been the mainstay of our economy with 60 per cent of our population deriving their sustenance from it. In the recent past, the sector has recorded a growth of about 4 per cent per annum with substantial increase in plan allocations and capital formation in the sector. Agriculture credit flow was Rs.2,87,000 crore in 2008-09.
The target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To achieve this, I propose to continue the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7 per cent per annum. I am also happy to announce that, for this year, the Government shall pay an additional subvention of 1 per cent as an incentive to those farmers who repay their short term crop loans on schedule. Thus, the interest rate for these farmers will come down to 6 per cent per annum. For this, I am making an additional Budget provision of Rs.411 crore over Interim BE.
Debt Relief for farmers
28. The one-time bank loan waiver of nearly Rs.71,000 crore to cover an estimated 40 million farmers was one of the major highlights of the last Budget. Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having more than two hectares of land were given time upto 30th June, 2009 to pay 75% of their overdues. Due to the late arrival of monsoon, I propose to extend this period by six months upto 31st December, 2009 .
29. It is learnt that in some regions of Maharashtra , a large number of farmers had taken loans from private money lenders and the loan waiver scheme did not cover them. The matter requires special attention. To examine the matter in greater detail and suggest the future course of action, I propose to set up a Taskforce.
Accelerated Irrigation Benefit Programme
30. I propose to provide an additional Rs.1,000 crore over Interim BE for the Accelerated Irrigation Benefit Programme (AIBP), marking an increase of 75 per cent over the allocation in 2008-09(BE). The allocation for the Rashtriya Krishi Vikas Yojna (RKVY) is also being stepped up by 30 per cent over Budget Estimates of 2008-09.
Restoring Export Growth
31. Our exporters by virtue of their close links to the external sector have borne the brunt of the global economic crisis. It is, therefore, appropriate that we continue to provide all possible assistance to our exporters to help them overcome the short term disadvantages. More specifically:
(a) An adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 per cent to badly hit sectors had been initiated in December 2008 to mitigate the difficulties faced by the exporters. In view of the continuing contraction in exports, I propose to extend the benefits of this scheme up to March 2010.
(b) The Market Development Assistance Scheme provides support to exporters in developing new markets. With many traditional markets still under financial stress, greater effort is required to identify and develop new markets. I propose to enhance the allocation for this scheme by 148% over BE 2008-09 to Rs.124 crore.
(c) With a view to insulating the employment - oriented export sectors from the global meltdown, Government had provided an interest subvention of 2 per cent on pre-shipment credit for seven such sectors. These sectors are textiles including handlooms, handicrafts, carpets, leather, gems and jewellery, marine products and small and medium exporters. I propose to extend the interest subvention beyond the current deadline of September 30, 2009 to March 31, 2010 .
(d) Micro, Small and Medium Enterprises (MSMEs) have been affected by the slowdown in exports and the indirect effect of the global crisis on domestic demand. To support this sector, I propose to facilitate the flow of credit at reasonable rates, by providing a special fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank (SIDBI). This fund of Rs.4,000 crore will incentivise Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing 50 per cent of incremental lending to MSEs during the current financial year.
(e) In February, 2009 the Print Media was given a stimulus package comprising waiver of 15% agency commission on DAVP advertisements and a 10% increase in the DAVP rates to be paid as a ‘special relief’ subject to documentary proof of loss of revenue in non-governmental advertisements. Since Print Media is still passing through difficult times, I have decided to extend the stimulus package for another six months from 30th June, 2009 to 31st December, 2009 .
Medium-term sustainability
32. The short term fiscal stimulus has to be balanced against long term prudence and fiscal sustainability objectives. To quote Kautilya, “In the interest of the prosperity of the country, a King shall be diligent in foreseeing the possibility of calamities, try to avert them before they arise, overcome those which happen, remove all obstructions to economic activity and prevent loss of revenue to the state”. I intend to take Kautilya’s advice and return to the FRBM target for fiscal deficit at the earliest and as soon as the negative effects of the global crisis on the Indian economy have been overcome. On the medium term fiscal perspective, I await the recommendations of the 13th Finance Commission.
33. To bring the fiscal deficit under control, we have to initiate institutional reform measures during the current year itself. This is essential for maintaining a stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment. These measures have to encompass all aspects of the budget such as subsidies, taxes, expenditure and disinvestment.
Fertilizer subsidy
34. &n
