Budget speech 2006-07: Full text

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Keywords: 2006-07, Fm Speech

109. I may add that I have made appropriate provision in the Budget for debt consolidation and relief. I have also provided Rs.3,000 crore towards compensation for VAT losses, if any, in 2006-07.

Subsidies

110. The issue of subsidies is proving to be a divisive one, but I would urge Honourable Members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy. My Ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertilizer and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertilizer and petroleum subsidies, the latest being the Dr. C. Rangarajan Committee. I would urge Members to help the Government evolve a consensus on the issue of subsidies.

Gross Budgetary Support and Gross Fiscal Deficit

111. Mr. Speaker, Sir, please allow me to draw your attention to two path breaking developments on the fiscal front. Firstly, the strategy of enhanced revenue mobilization through reasonable rates, better compliance and widening of the tax base is yielding tangible results. For the Centre, the gross tax-GDP ratio, after rising from 9.2 per cent in 2003-04 to 9.8 per cent in 2004-05, has increased further to 10.5 per cent in 2005-06 (RE). Government estimates that, through better tax administration, it will increase to 11.2 per cent in 2006-07(BE).

112. Secondly, the year 2004-05, for which the actuals are available, has proved to be a turning point. After 20 years, the Gross Fiscal Deficit is less than the Gross Budgetary Support for Plan in that year. What does this mean? This means that Government is not financing the Plan entirely through borrowing. Whether this trend continued in 2005-06 will be known only after the actuals are available. However, in the BE for 2006-07, I have been able to confine the gross fiscal deficit to a number much smaller than the gross budgetary support for the Plan.

113. Last year, reluctantly, I pressed the ‘pause’ button on fiscal correction. I had estimated the revenue deficit for 2005-06 at 2.7 per cent and the fiscal deficit at 4.3 per cent. I am happy to report that I have been proved wrong. We have improved upon both measures. According to revised estimates, the revenue deficit for the current year will be only 2.6 per cent and the fiscal deficit will be only 4.1 per cent.

XIII BUDGET ESTIMATES FOR 2006-07

114. I turn to the Budget Estimates for the next fiscal.

Plan Expenditure

115. Plan expenditure for 2006-07 is estimated at Rs.172,728 crore, up by 20.4 per cent. As a proportion of total expenditure, Plan expenditure has increased from 26.6 per cent in 2004-05 to 28.3 per cent in 2005-06 (RE) and further to 30.6 per cent in 2006-07 (BE). This points to the improvement in the quality of Government expenditure.

Non-Plan Expenditure

116. Non-Plan expenditure in 2006-07 is estimated to be Rs.391,263 crore. The increase of 5.5 per cent over non-plan expenditure in 2005-06 (BE) is due to normal growth and is one the smallest in recent years.

Revenue Deficit and Fiscal Deficit

117. Mr. Speaker, Sir, in the Budget Estimates for 2006-07, the total expenditure is estimated at Rs.563,991 crore. I estimate total revenue receipts of the Central Government at Rs.403,465 crore and the revenue expenditure at Rs.488,192 crore. Consequently, the revenue deficit is estimated at Rs.84,727 crore which is 2.1 per cent of the GDP. The fiscal deficit is estimated at Rs.148,686 crore, which is 3.8 per cent of the GDP. I believe that I have redeemed my promise that the process of fiscal correction will be resumed in 2006-07.

PART-B

XIV TAX PROPOSALS

118. Mr. Speaker, I shall now present my tax proposals. In the UPA Government’s first Budget, and more so in the second, I had attempted significant tax reforms. The results are encouraging. In 2004-05, gross tax revenues (provisional actuals) increased by 19.9 per cent over the actuals of the previous year and, according to Revised Estimates, in 2005-06, they are expected to increase by 21.4 per cent over the provisional actuals of the previous year. These figures confirm our belief that we should keep our tax rates moderate and stable.

Indirect Taxes

119. I shall begin with my proposals on indirect taxes. Firstly, customs duties.

120. In line with the Government’s policy of reducing customs duties, I propose to reduce the peak rate for non-agricultural products from 15 per cent to 12.5 per cent. I believe that we are now only a short distance away from East Asian rates.

121. As the peak rate comes down, there is a need to reduce the duty on raw materials and intermediates.

122. The duty on primary steel is at 5 per cent. I propose to reduce the duty on alloy steel and primary and secondary non-ferrous metals from 10 per cent to 7.5 per cent. This will also be the rate of duty for ferro alloys.

123. In 2004-05, in view of the high international prices of steel, I had reduced the import duty on steel melting scrap to zero. With prices of steel coming down, I propose to restore the duty to 5 per cent and bring it on par with primary steel.