Union Budget 1997-98
SUMMARY PART - A

 The First Budget of the BJP led alliance gives a new direction to the economy with focus on building a strong and prosperous India. It envisages a special thrust to agricultural, rural development and infrastructure. The Budget presented by the Union Finance Minister, Shri Yashwant Sinha, in Parliament today is based on key objectives underlined in the National Agenda for Governance of the BJP and its allies. The 1998-99 Budget estimates a total expenditure of Rs. 268107 crore. The allocation for agriculture has been stepped up by 58 per cent, while Rural areas and Employment gets an increase of Rs.1556 crore. Allocation for Welfare has been increased by 91 per cent while that for Education doubled. Health and Family Welfare Ministry gets a 34 per cent increased allocation. The Department of Atomic Energy gets a 68 per cent increase while allocation for Space is up by 62 per cent. This Budget has special schemes to give a boost to investment and NRIs participation in development.

Agriculture and Rural Development

While emphasising the need to reverse the decline in agriculture and strengthening of rural economy, the Finance Minister announced several initiatives in the agriculture and rural development sector. He said that top priority will be given to development of rain fed areas on a watershed basis and thus increase agricultural productivity in a sustainable manner.

All the Watershed Development Programmes spread across various Ministries and Departments will be unified. The Plan allocation under this head has been increased to Rs.677 crore. The accelerated irrigation programme gets a 58 per cent step up. Shri Sinha announced Rural Infrastructure Development Fund (RIDF) IV with an enhanced allocation of Rs.3,000 crore.

The NABARD’s share capital has been increased by Rs.500 crore this year. While Government will give Rs.100 crore from the Budget, RBI will contribute the balance. The Finance Minister said that NABARD will be asked to expand the scope and coverage of the scheme for promotion of self help groups (SHG). Two lakh self help groups covering 40 lakh families can be assisted over the next five years through the scheme of micro credit. Ten thousand self help groups covering 2 lakh families will be assisted this year.

Rs.265 crore has been provided to carry forward the process of rehabilitation and recapitalisation of regional rural banks (RRBs). Sponsor Banks are being given an enlarged role in providing management operational and restructuring support to RRBs to meet the chronic problems of over due loans faced by farmers due to circumstances beyond their control, the Finance Minister said that the Government will follow policies which help in reducing the volume of non-performing assets of Banking Sector and encourage banks to provide appropriate relief on accummulated interest in deserving cases. He said the RBI will be issuing the appropriate guidelines to the banks for hassle free settlement of old cases of over dues.

NABARD is being asked to formulate a model scheme for issue of Kisan Credit Cards to farmers on the basis of their holdings. This is to facilitate uniform adoption by the banks so that the farmers may use them to readily purchase agricultural inputs such as seeds, fertilisers, pesticides etc. and draw cash for their production needs.

The Finance Minister announced that the Government will soon come out with a National Agricultural Policy Paper to meet the problems faced by farmers due to laws and regulation in production, marketing and movement of agricultural commodities. The Ministry of Commerce is systematically reviewing existing controls on exports of all agricultural commodities except foodgrains. To revitalise the cooperative sector, the Government will shortly bring forward a model cooperative law to replace the multi state cooperative societies act 1984. The Government has also accepted the proposal for exclusion of farm implements and tools from the list of items reserved for manufacture by the Small Scale Industries Sector. This is to benefit the farmers to avail a wider range of implements and tools at competitive prices with requisite after sale service.

Shri Sinha said that the Government is planning to introduce future trading in edible oil, oil seeds and their cakes to establish an efficient market environment and reduce volatility in prices in this sector. In order to correct the adverse NPK balance, the Finance Minister announced an increase in price of urea. The increase is also justified on the ground of rising costs, which have led to a more than 50 per cent increase in the subsidy on indigenously produced urea in the years between 1995-96 and RE 1997-98. It is, therefore, proposed to increase the selling price of urea by Re.1 per kg with immediate effect.

Proposing a multi pronged approach to rural water supply, the Finance Minister said enhanced allocation for accelerated rural water supply programme from Rs.1302 crore to Rs.1627 crore this year. He also announced a special thrust for Watershed Development Programme and said that the States will be encouraged to institutionalise community-based rural water supply programmes, which secure active participation of beneficiaries to own, operate and maintain rural water supply facilities.

In order to reduce the duplication caused by the multiplicity of poverty alleviation and employment generation programmes, the Finance Minister proposed to unify the various programmes under two broad categories of Self Employment Schmes and Wage Employment Schemes.

Small Scale Industries

To meet the problems of insufficiency of timely credit and harassment of the Inspector Raj, in the small scale industry sector, the Finance Minister has announced several special initiatives. The working capital requirement for the SSI units has been doubled from 2 crore to four crore. Credit availability to SSI units would be simplified and made available on better terms. The SIDBI will be delinked from IDBI and IDBI shareholding in SFCs will be transferred to SIDBI. As for the problems of Inspector Raj, the FM said that he would be announcing far reaching changes in the administration of Central Excise which will help SSI units significantly.

Private Investment in Industry

Stating that the Government accords high priority to boosting private investment including foreign investment in Industry, the Finance Minister stressed the need to minimise bureaucratic and procedural hurdles and create an investor friendly environment. Referring to industrial licensing, he said that the Government has further decided to delicense coal, lignite and petroleum products.

Commenting that the Industrial Deregulation will remain incomplete without reducing the burden imposed by Inspector Raj, FM said Government has initiated a dialogue with State Governments for consolidation of regulatory legislation relating to industry and reduce the inspection procedure. Emphasising the importance of promoting Foreign Investment, the Minister said that the hassle free procedure will be created. All foreign investors would be assured that a decision on their investment proposals will be taken within a period of 90 days. To help foreign investors, an officer of the administrative ministry would be designated as a monitoring officer to help processing and implementation of the project for every foreign investment proposal exceeding Rs.100 crore.

Housing

The Finance Minister announced that 20 lakh additional dwelling units will be built this year with 13 lakhs in rural areas and 7 lakhs in urban areas. The Budget allocation for Indira Awas Yojana has been stepped up to Rs.1600 crore from Rs.1144 crore in RE 1997-98. Scope of this scheme has also been widened to include loan cum subsidy programme. Urban land ceiling and regulation act will be repealed. Capital base of Housing and Urban Development Corporation (HUDCO) has been increased by 110 crore.

Infrastructure

The Finance Minister stated that one of the Major planks of this Budget is to provide strong stimulus to the infrastructure sector through larger public and private investment in these sectors. He announced an allocation of Rs.61,146 crore in energy, transport and communication sectors. This constitutes an increase of 35 percent over last year. Referring to ordinance for establishing Central and State Electricity Regulatory Commisions to rationalise electricity, the Minister announced that the procedures have been simplified for extending sovereign counter guarantees for a few "Fast Track" power projects which were held up for long . Government will evolve a guarantee scheme to cover Rs.10,000 crore outstanding dues from State Electricity Boards to major public sector undertakings like NTPC, Coal India, etc. On the strength of such gurantees, the Minister said that the PSUs concerned will be able to raise resources either by securitising these debts or directly entering the market for tapping resources.

In order to bring National Highways upto international standards, Rs.500 crores have been provided for the National Highways Authority of India to catalyse new road projects including four-laning of existing National Highways.

The Finance Minister announced that the infrastructure development finance company limited (IDFC) which was incorporated as a non-Government company in 1997, has now commenced operations, He said IDFC has tied up its paid up equity capital of Rs.1000 crore including equity participation of Rs.400 crore by nine foreign investors.

The Finance Minister also announced that upto 10 per cent of the new accretion to provident fund would be allowed to be invested in private sector securities which have an investment grade rating from at least two credit rating agencies.

Education

Stating that the Education is the key vehicle for social transformation, the Finance Minister announced nearly 50 per cent increase in total budgetary allocation to Education from Rs.4716 crore in RE 1997-98 to Rs.7047 crore in this Budget. He reiterated the Government commitment to raise the total resource allocation for education to 6 per cent of GDP in a phased manner. He announced integration of allocations under Kasturba Gandhi Shiksha Yojana and Mahila Samridhi Yojana to support a unified action plan for accelerating female education.

In order to harness the limitless energy of the youth, Shri Sinha announced that the Government will formulate a scheme for creation of a National Reconstruction Corps, which will mobilise youth for community- based Nation building activities. An Inter-Ministrial Committee is being set up to work out the details.

Information Technology

Aiming at the target of making India a Global Information Technology Power and one of the largest generators and exporters of software in the world within ten years, the Finance Minister announced setting up of a National Information Technology task force headed by Deputy Chairman, Planning Commission to formulate a National Informatics Policy. Since our companies need flexible systems of incentives to retain their human resources¸ it has been decided to formulate a special scheme to allow offer of stock option schemes in software sector.

Financial Sector

In order to strengthen the Financial System, the Finance Minister announced that decisions have been taken on some important recommendation of the Narasimham Committee Report. To reduce the relatively high level of Non-Performing Assets (NPAs), Debt Recovery Tribunals will be strengthened and more Tribunals will be set up to cover all states. Banks with high NPAs will be encouraged, on an experimental basis, to establish Asset Reconstruction Companies which will take over the NPAs of the bank at their realisable value and swap them with special bonds to be held by the bank. To strengthen the health of our banks, RBI is raising the minimum required Capital adequacy ratio for banks from eight per cent to nine per cent by March 31, 2000 and to ten per cent thereafter. Shri Sinha announced setting up of an expert group to propose precise legal amendments in the key laws to make the provisions consistent with modern financial and banking practices.

The Minister also announced opening of Insurance Sector to competition from Private Indian Companies. The Insurance Regulatory Authority will also be converted into a statutory body. The legislation in this regard will be introduced later this year.

FEMA

Finance Minister announced that a new bill will be introduced in this Session of Parliament for Foreign Exchange Mangement Act (FEMA) replacing FERA. He also announced that an anti money laundering bill will be introduced before the House simultanously with FEMA.

Capital Market

Shri Sinha announced a number of measures to strenthen the capital markets. He announced that the Government will bring forward an amendment to securities contracts (Regulation ) Act to enable derivative instruments to be treated as securities. The Foreign Institutional Investor (FII) debt funds would now be allowed to invest in unlisted domestic debt securities also. SEBI is being asked to devote special attention to strenthen institutional arrangement for protecting small investors from defaults and financial failures of brokers and other market intermediaries.

Non Resident Indians

With a view to encourage NRIs participation in the development of their country, the Finance Minister today announced that he proposes to raise the individual investment limit of one per cent for NRIs to five per cent and the aggregate limit for all NRI investments in a company from five per cent to ten per cent. Shri Sinha also announced that the procedure governing participation of NRIs in share markets is being thoroughly reviewed. The Finance Minister announced the launching of a new resurgent India Bond denominated in foreign currencies for subscription by NRIs. He has also announced a scheme for issuance of Persons of Indian Origin (PIO) Card for those living abroad and having foreign passports. The Card will confer special economic educational, financial and cultural benefits.

Disinvestment

The regular Budget takes credit for a receipt of Rs.5000 crore from Disinvestment in the current year. Shri Sinha announced that the Government has decided to expedite Disinvestment in IOC, GAIL, VSNL and CONCOR. Government has decided to restructure the capital in Indian Airlines and also undertake phased disinvestment. With a view to provide a safety net to workers of enterprises destined for closure, the Government has decided to provide a liberal and attractive compensation package under which it is proposed to make applicable the benefits of VRS Package namely 45 days wages for each completed year of service. As a further improvement to the package, the workers of these units will also be eligible for a maximum of 60 months or five year salary or wages as compensation in the case of all those who have completed not less than 30 years of service.

Government has decided to reduce its share-holding in public sector enterprises to 26 per cent except in case of enterprises involving strategic considerations where they can continue to retain majority holding.

The total expenditure for 1998-99 is estimated at Rs. 2,68,107 crore. The budgetary support for this Plan has been increased by Rs.11,372 crore from Rs.60,630 crore in Revised Estimates in 1997-98, which is the largest ever increase in absoluter terms. This constitutes 18.8 per cent increase. The total Central Plan outlay is Rs.1,05,187 crore which is higher by Rs. 24,154 crore from last year’s level of Rs.81,033 crore. Total Non Plan expenditure in 1998-99 is estimated to be Rs. 1,96,105 crore. In this Budget, Rs. 9,000 crore has been earmarked for food subsidy. The provision for subsidy on indigenous nitrogenous fertilizer is being reduced by Rs. 600 crore while that on decontrolled phosphatic and potassic fertilisers is being increased from Rs. 2,600 crore in RE 1997-98 to Rs. 3,000 crore. The grant to states is being enhanced to Rs. 6,314 crore representing an increase of Rs. 2,200 crore.