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February 29, 2000
Finance Minister Yashwant Sinha's Budget Speech
Sir (G M C Balayoyi, Speaker of the Lok Sabha),
I rise to present the first budget of this millennium.
This budget for 2000-2001 has some other firsts to its credit also. It is the first budget of the new Government which took office in October 1999 under the visionary leadership of Shri Atal Bihari Vajpayee. It is also the first budget of the second half century of our Republic and the first budget of the new century. I hope it will add many more firsts to its credit as time goes by. I thank the Hon'ble Prime Minister for entrusting me with this historic responsibility which I stand here to discharge in all humility.
The year 1999-2000 has been a year of many challenges: the 50 day war in Kashmir, the super cyclone in Orissa, long months of political uncertainty before the general elections, a somewhat weak monsoon, a near tripling of world oil prices and the continued fragility in world economic recovery. Nevertheless, we have met these challenges resolutely, accomplished a great deal and the nation is stronger as a result.
The economy's performance is described in detail in the Economic Survey I laid before the House yesterday. Let me just touch a few highlights. A broad-based industrial recovery is under way. Despite lower growth of agriculture due to inclement weather, overall economic growth this year is expected to be nearly 6%. The infrastructure sector is performing much better. For the first time in 17 years the inflation rate has stayed below 4% for 42 consecutive weeks. Even more remarkable, the Consumer Price Index (Industrial Workers) in November 1999 showed zero increase over the previous November. This is an enormous boon for the weakest sections of our society. Public food stocks are at record levels. Exports have achieved a remarkable turn around from negative growth last year to nearly 13% growth in dollar terms in April-December, 1999. Our software exports are also booming. Although surging international oil prices have increased our oil import bill by more than $6 billion, our foreign exchange reserves have nevertheless attained new record levels. With the return of investor confidence our stock markets have also soared to new heights.
In my last two budgets I have addressed the accumulated shortcomings in our policies and freed our companies to compete globally. We have strengthened our agricultural sector, energised our financial markets and laid the foundations of an exciting new economy. With this, my third budget, I propose to put India on a sustained, equitable and job-creating growth path of 7 to 8% per year in order to banish the scourge of poverty from our land within a decade. The next 10 years will be India's decade of development. To achieve this objective our strategy must encompass the following elements: Strengthen the foundations of growth of our rural economy, especially agriculture and allied activities. Nurture the revolutionary potential of the new knowledge-based industries such as infotech, biotechnology and pharmaceuticals. Strengthen and modernise traditional industries such as textiles, leather, agro processing and the SSI sector. Mount a sustained assault on infrastructure bottlenecks in power, roads, ports, telecom, railways and airways. Accord the highest priority to human resource development through programmes and policies in education, health and other social services, with special emphasis on the poorest and weakest sections of society. Strengthen our role in the world economy through rapid growth of exports, higher foreign investment and prudent external debt management. Establish a credible framework of fiscal discipline, without which the other elements of our strategy can fail.
In all these areas we must pursue thorough-going economic reforms to unlock the creative energies of our people and thus reap the gains of productivity growth. But our reforms must also be guided by compassion and justice. In his Address to Parliament in October 1999 the President has set out the broad outlines of our programme of second generation reforms. This budget carries forward the process of implementation.
Fiscal Management Today, we must squarely confront and overcome the critical challenge posed by a weakening fiscal situation.
A long history of high fiscal deficits has left us with a legacy of a huge public debt and an ever-growing bill of interest payments. This year we have incurred unanticipated expenditure on national defence, elections and the super cyclone in Orissa. The residual impact of the Fifth Pay Commission and the need for special fiscal assistance to the States have added to our burden. All this, combined with shortfalls in receipts from disinvestment and revenue, has raised our net borrowing requirements (our fiscal deficit) to over Rs.1,00,000 crore. This will add about Rs.10,000 crore to our interest bill next year. We must also find additional resources for Plan, Defence and for additional transfers to States under the interim award of the Eleventh Finance Commission. If we do not raise the resources and instead take recourse to even higher borrowing next year, then we will jeopardise our prospects for growth, reignite the flames of inflation, sow the seeds of another balance of payments crisis and place an unfair burden on the next generation.
We must put our fiscal house in order. This means hard decisions and sacrifices. At the same time we must preserve the intrinsic dynamism of our economy, which alone can deliver sustained growth with social justice. For this reason, despite the severe fiscal strain, the budget support to the plan is being increased by Rs.11,100 crore to a level of Rs.88,100 crore compared to Rs.77,000 crore in B.E. 1999-2000
Similarly, there cannot be any compromise on Defence. Our forces have once again demonstrated in Operation Vijay that they are second to none in the world. Government is committed to enhance the quality of our defence preparedness and to modernise our forces. In this budget I have made a provision of Rs.58,587 crore for defence, which is nearly Rs.13,000 crore more than in B.E. for the current year. This represents the largest ever increase in the defence budget in any single year. More will be provided whenever needed. We shall not shrink from making any sacrifice to guard and protect every inch of our beloved motherland.
Over the years the composition of Central Government expenditure has become highly rigid and prone to large, pre-committed increases. More than half of the annual budget outlays are transfer payments. Interest payments, Defence, Internal Security, Major Subsidies, Salaries, Allowances and Pensions and non-plan grants to States account for about 95% of non-plan expenditure and about 70% of total expenditure.
To curb built-in expenditure growth and bring about structural changes in the composition of our expenditure, I am introducing the following initiatives. All ongoing schemes will be subjected to rigorous zero base budgeting scrutiny. I had announced this initiative last year and I am glad that this exercise has been completed in 8 Departments. As a result 69 schemes are to be discontinued or merged. This process will be completed in a timebound manner in the remaining Departments.
The manpower requirements of Government departments will be reassessed by reviewing the norms for creation of posts. Fresh recruitment in Government departments and institutions will be limited to minimum essential needs. The scheme for redeployment of surplus staff will be made more effefctive and will provide facilities for retraining. A VRS scheme will also be introduced for staff in the surplus pool. All subsidies will be reviewed with a view to bringing in cost-based user charges wherever feasible. No new autonomous institutions will be created without approval of Cabinet. Budgetary support to autonomous institutions will be reviewed and they will be encouraged to maximise generation of internal resources. In order to align with the overall interest rate structure, the interest rate on General Provident Funds is being reduced by 1% to 11% from 1.4.2000. Excessive domestic borrowings to finance current expenditure has resulted in debt service payments approaching unsustainable levels. To reduce expenditure on this account, a portion of the disinvestment proceeds will be earmarked for retiring Government debt. An initial provision of Rs.1,000 crore has been made in the budget for this purpose. I will have something more to say on major subsidies a little later. These measures are necessary and are only a beginning. We shall pursue resolutely the objective of downsizing Government and prepare a roadmap for the purpose. For medium-term management of the fiscal deficit we also need the support of a strong institutional mechanism embodied in a Fiscal Responsibility Act. This had been suggested in the Agenda for Governance of the National Democratic Alliance. I have set up a committee to examine this issue and make suitable recommendations. I hope to bring the necessary legislative proposals to the House during the course of the year. The challenge of fiscal management is not confined to the Central Government. The financial position of the State Governments has deteriorated sharply in the last few years. Revenue deficits have widened and borrowings are being increasingly used to meet revenue expenditure. Fiscal reform at the State level has acquired great urgency.
While we have gone out of our way to help State Governments, the determination shown by some States to deal with these issues has also helped enormously. It will be my endeavour to take further collective measures in the next year for promoting fiscal reforms in the States. The final report of the Eleventh Finance Commission will provide valuable inputs for taking policy initiatives in this regard.
Agriculture and Rural Development It is my firm belief that sustained and broad-based growth of agriculture is essential for alleviating poverty, generating incomes and employment, assuring food security and sustaining a buoyant domestic market for industry and services.
We must take all necessary measures to strengthen the rural economy. Credit flow to agriculture through institutional channels of commercial banks, cooperative banks and Regional Rural Banks is estimated at about Rs.41,800 crore this year. It is expected to increase by over 20 per cent to a level of Rs.51,500 crore in 2000-2001. In my last two budgets we have launched a wide array of initiatives to promote the flow of rural credit. In this budget I propose to strengthen the earlier programmes and launch further initiatives:
The Rural Infrastructure Development Fund (RIDF) managed by NABARD has emerged as a popular and effective scheme for financing rural infrastructure projects. Last year I had announced an enhanced allocation of Rs.3,500 crore from the banking sector for RIDF V and extended the repayment period of loans to 7 years. The scope of RIDF was also widened to allow lending to Gram Panchayats, Self Help Groups, NGOs and other eligible organisations for implementing village level infrastructure projects. This year the corpus of RIDF VI will be increased to Rs.4,500 crore and the interest charged on this lending will be reduced by half a percent. Micro finance has emerged as an effective tool for alleviating poverty in many countries. In my last budget I had asked NABARD and SIDBI to cover 50,000 Self Help Groups to develop micro enterprises. NABARD by itself is likely to link 50,000 such Groups to banks during the current year. NABARD and SIDBI will cover an additional one lakh Groups during 2000-2001. To give a further boost to this programme a Micro Finance Development Fund will be created in NABARD with a start up contribution of Rs.100 crore from RBI, NABARD, banks and others. This Fund will provide start up funds to micro finance institutions and infrastructure support for training and systems management and data building. Special emphasis will be placed on promotion of micro enterprises in rural areas set up by vulnerable sections including women, Scheduled Castes, Scheduled Tribes and Other Backward Classes.
The cooperative system is a crucial channel for credit in rural areas. However, over time, problems have developed, mainly because of excessive bureaucratization and the overlapping jurisdiction of State Governments and NABARD. Some State Governments have already taken legislative action to promote genuinely cooperative institutions.
For rural credit, clear delineation of the supervisory role of RBI/NABARD on banking matters is also essential. To promote these two prerequisites for a more vibrant rural cooperative credit system I propose to establish a Fund in NABARD. The details will be worked out in the light of the forthcoming recommendations of the Capoor Committee earlier constituted by Government. In the meantime, RBI is advising the banks to accord priority to the credit needs of those cooperatives which are entirely controlled by user-members and managed by them prudently.
The programme of Kisan Credit Cards is progressing very well. Cooperative Banks, Regional Rural Banks and Commercial Banks together have so far issued more than 50 lakh cards and card-cum-pass books to the farmers. I am asking NABARD and Commercial Banks to redouble their promotional efforts so as to issue an additional 75 lakh Kisan Credit Cards by March 2001. Due to our efforts at recapitalizing RRBs, 158 RRBs are posting operating profits. Out of these, 48 RRBs have been able to wipe out their accumulated losses. In view of the importance of the RRBs in rural financing, we will continue with this programme of strengthening the RRBs.
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