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India budget aims to reduce poverty, unemployment

PALLAB BHATTACHARAYA, New Delhi
Indian Finance Minister P Chidambaram yesterday presented Congress-led government's first full-fledged budget that stresses social sector reforms increasing allocations for employment generation and rural health and infrastructure and treads cautiously on the path of economic reforms.
Presenting the 2005-06 budget in parliament, he came out with a number of initiatives aimed at reducing poverty and unemployment including National Rural Employment Guarantee Scheme with an allocation of Rs.11,000 crore and a National Rural Health Mission envisaging training to health volunteers, more medicines and strengthening primary and community health system.
The allocation for Defence sector has been increased to Rs 83,000 crore to meet the salaries of a 1.1 million strong army, stores and works and proposed fighter aircraft and submarine deals.
However, the allocation for the Defence sector remains very much within 2.5 percent of GDP, lower than that of China and Pakistan.
The allocation for education will be Rs.18,337 crore and for rural development Rs. 18,334 crore and estimated expenditure on health and family welfare is Rs.10,280 crore.
The budget also announced a number of measures for the welfare of minorities especially for their educational development providing increase in equity support for National Minorities Development and Finance Corporation.
A corpus of Rs.8000 crore will be provided for the Rural Infrastructure Development Fund (RIDF).
The revenue deficit amounts to Rs. 95312 crore which is 2.7 percent of GDP and fiscal deficit pegged at Rs 151144 crore which is 4.3 percent of GDP.
The finance minister gave a mixed bag to the salaried class with no tax for salary of up to Rs. one lakh per year and no surcharge up to Rs. 10 lakh taxable income but removed the facility of standard deduction and instead proposed a consolidated limit of Rs. 100,000 for savings to be deducted from the income before tax is calculated.
In a novel scheme aimed at checking tax evasion, a new tax at the rate of 0.1 percent has been proposed on cash withdrawals exceeding Rs.10,000 from banks.
The budget also brought down peak customs duty structure to be brought closer to that of East Asian countries. Peak rate for non agricultural products reduced from 20 percent to 15 percent.
Customs duties on selected capital goods and parts thereof are also be cut to below 15 percent, to 10 percent in some cases and to 5 percent in some other to promote investment.
With regard to infrastructure sector, the finance minister proposed cut in import duty from 20 percent to 10 percent for textile machinery in order to help the textile industry acquire a competitive edge in the post-quota regime.
A Rs. 30, 00o crore fund has been set up for the textile sector which is estimated to generate 12 million jobs in the next five years. A 10 percent capital subsidy scheme will be introduced for the textile processing sector, a cluster development approach to be adopted for the production and marketing of handloom products and a number of steps announced for the welfare of handloom weavers.
In order to give a leg-up to the leather and footwear industry, the budget proposed to reduce the customs duties on seven specified machinery from 20 percent to 5 percent. The duty on ethyl vinyl acetate (EVA), an input for the footwear industry, is also proposed to be brought down from 20 percent to 10 percent.
Keeping in mind the rising pharmaceuticals and biotechnology sectors, the minister announced a cut in customs duty on nine specified machinery used in these two sectors to 5 percent.
The minister further proposed to reduce customs duties on specified parts of battery-operated road vehicles and for printing presses from 20 percent to 10 percent. The reduction in the duties on the infrastructure will help in reducing the costs of the end product.
He also announced reduction of duties on industrial raw materials including catalysts, refractory raw materials, basic plastic and molasses. Duty on polyester and nylon chips, textile fibres, yarns and intermediates, fabrics and garments is proposed to be reduced from 20 percent to 15 percent.
Duty on specified capital goods and all inputs required for the manufacture of Information Technology Agreement (ITA) bound items is proposed to be removed..
The minister said he did not
propose to make any change in the customs duty applicable to agricultural goods but has decided to increase the duty on cut flowers from 30 percent to 60 percent. The duty rate on cloves however has been reduced to 35 percent as there is little domestic production.
The minister proposed to cut customs duty on crude petroleum from 10 percent to 5 percent while there will be no customs duty and excise duty on LPG for domestic consumption and on subsidized kerosene. Customs duty on other petroleum products, including motor spirit (MS) and diesel (HSD) is to be reduced from 20 or 15 percent to 10 percent.
On the investment front, Chidambaram said an equity support of Rs.14,040 crore and loans of Rs.3,554 crore would be provided to Central Public Sector Enterprises including Railways in 2005-06.
As regards the manufacturing sector, the finance minister announced the launching of a Manufacturing Competitiveness Programme to help small and medium enterprises.
Chidambaram also announced steps to strengthen the capital market under which foreign institutional investors will be permitted to submit appropriate collateral when trading in derivatives on the domestic market.
Pointing out that the services sector accounts for about 52 percent of the GDP, the finance minister cast the tax net wider to include some more services. However, as a relief to small service providers, he proposed to exempt from service tax those service providers whose gross turnover does not exceed Rs.4 lakh per year.