Union Budget 2006-2007

AN OVERVIEW OF THE ECONOMY

2004-05: Growth rate 7.5% with manufacturing sector at 8.1%; gross domestic saving increased to 29.1% of GDP and the rate of gross capital formation, 30.1% of GDP
2005-06: GDP growth likely to be 8.1% with manufacturing sector at 9.4% and agricultural growth at 2.3%; non-food credit growing by over 25%.

FLAGSHIP PROGRAMMES

Fund allocation for eight flagship programmes to increase by 43.2% from Rs.34,927 crore in 2005-06 to 50,015 crore.
North Eastern Region (NER): Allocation of Rs. 4,870 crore under flagship programme in addition to 10% of the plan budget for each ministry. Total allocation for NER comes to Rs. 12,041 crore.
Sarva Siksha Abhiyan: 500,000 additional class rooms to be constructed and 150,000 more teachers to be appointed. Rs. 8,746 crore to be transferred to the Prarambhik Siksha Kosh from revenues through education cess.
Mid-day Meal Scheme: 12 crore children now covered. Allocation to be enhanced from Rs.3,010 crore to Rs.4,813 crore.
Drinking Water and Sanitation: 56,270 habitations and 140,000 schools to be covered in the current year. Provision for Rajiv Gandhi National Drinking Water Mission to be increased from Rs. 3,645crore to Rs. 4,680 crore and for Rural Sanitation Campaign from Rs 630 crore to Rs 720 crore.
National Rural Health Mission: Allocation increased from Rs 6,533 crore to 8217 crore.
Integrated Child Development Services (ICDS): Total allocation for ICDS increased from Rs.3315 crore to Rs. 4,087 crore.
National Rural Employment Guarantee Scheme: Allocation of Rs 14,300 crore for rural employment in 2006-07 with Rs. 11,300 crore under NREG Act and Rs.3000 under SGRY Act.
Jawaharlal Nehru National Urban Renewal Mission: Estimated outlay of Rs. 6,250 crore for 2006-07 with grant of Rs.4,595 crore. Government to promote establishment of new towns, preferably focused on a specific industry.
National Social Assistance Programme: Old age pension to destitutes above the age of 65 years to increase from Rs.75 per month to Rs.200 per month.

BHARAT NIRMAN

Against Rs.12,160 crore in the current year, Rs. 18,696 crore to be provided in 2006-07 for the programme, increase of 54 per cent.

TAX PROPOSALS

Direct Tax

The rates remain same on personal income tax and corporate income tax. Further, no new taxes have been imposed.
One-by-six scheme will stand abolished.
There is a marginal revision in certain tax rates. Minimum Alternative Tax (MAT) rate is increased to 10% from the present 7.5%; long-term capital gains arising out of securities is included in calculating book profits; the credit period for MAT has been increased to seven years.
There is an increase of 25%, across the board, on all rates of STT.
Section 80IA of the Income Tax Act applies to infrastructure facilities; the terminal date for developing an industrial park extended to March 31, 2009 and for the power sector to March 31, 2010.
Investments in fixed deposits in scheduled banks included in section 80C provided the term is not less than 5 years; limit of Rs. 10,000 for the contribution of certain pension funds is removed from 80CCC subject to overall ceiling of Rs. 1,00,000.
Open-ended and close-ended equity-oriented schemes to be treated on par fro exemption from dividend distribution tax.
Exemption under section 10(23G) removed.
Primary Agricultural Credit Societies and Primary Cooperative Agricultural and Rural Development Banks is still exempt from tax under section 80P; all other cooperative banks are excluded.
Benefit of section 54ED withdrawn w.e.f. April 1, 2006; scope of section 54EC restricted to two institutions, viz., NHAI and REC; for NABARD, SIDBI and NHB route of zero coupon bonds to raise low cost funds already opened.
Donations to wholly charitable institutions to be taxed at the highest marginal rate; such donations to partly religious and partly charitable institutions/trusts to be taxed only if the donation is specifically for an educational or medical purpose.
Banking Cash Transaction Tax (BCTT) to continue until the Annual Information Returns (AIR) system can capture all significant financial transactions.
Fringe Benefit Tax (FBT) introduces last year is proposed for the following changes:

FBT on 'tour and travel' reduced to 5%. - For airline companies and shipping industry, value benefit in the form of 'hospitality' and 'use of hotel boarding and lodging facilities,' at 5% instead of 20%.
Expenses on free samples of medicines and medical equipment distributed to doctors excluded.
Under section 115WB(1)(c) contribution by an employer to an employee per year a threshold of Rs. 1,00,000 has been prescribed to attract FBT.

Indirect Tax

Customs

Non-agricultural products peak rate reduced to 12.5% from 15%; duty of alloy steel and primary and secondary non-ferrous metals reduced to 7.5% from 10% (also includes duty for ferro alloys); on steel melting scrap, the duty raised to 5%.
Apart from few exceptions, the duty on mineral products reduced to 5%.
Duty on ores and concentrates reduced to 2% from 5%.
On refractories and number of materials for manufacture of refractories reduced to 7.5%.
On basic inorganic chemicals reduced to 10% from 15%; on basic cyclic and acyclic hydrocarbons and their derivatives to 5%; on catalysts the duty to be reduced to 7.5% from 10%.
Duty reduced to 5% from 10% on major bulk plastics such as PVC, LDPE and PP; on naptha for plastics it is nil; on raw materials of plastics like styrene, EDC and VCM, the duty is 2%.
On 10 anti-AIDS and 14 anti-cancer drugs customs duty has been reduced to 5%; on certain life saving drugs, kits and equipment it is reduced to 5% from 15%; these drugs are exempted from excise duty and CVD.
On packaging machines, duty reduced to 5% from 15%.
Concessional project rate of 10% is to be extended to pipeline projects for the transportation of natural gas, crude petroleum and petroleum products.
4% CVD on all imports with few exceptions.
On vanaspati, custom duty to be increased to 80%.
Reduction of import duty on all man-made fibres and yarns, and raw materials lik DMT, PTA and MEG to 10% from 15% and on paraxylene to 2%.

Excise

Reduction of excise duty on all man-made fibre yarn and filament yarn to 8% from 16%.
Duty on aerated drinks and small cars to be reduced to 16%.
Customised software and software packages downloaded from the internet, DVD Drives, Flash Drives and Combo Drives is to be fully exempted from excise duty but 8% duty to be imposed on packaged software sold over the counter.
Duty on ready-to-eat packaged foods and instant food mixes such as dosa and idli mixes to be reduced to 8% from 16% where as condensed milk, ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast is fully exempted. · Extracts of vegetable tanning such as quebracho and chestnut is exempted while duty of footwear with retail price between Rs. 250 to Rs. 750 is reduced to 8% from 16%.
To all LPG stoves, concessional rate of 8% to be extended.
Duty to be reduced to 8% from 16% on compact fluorescent lamps.
Increase in excise duty on cigarettes by 5%.

Service Tax

Service tax rate increased to 12% from 10%.
New services to be included like ATM operations, maintenance and management, share transfer agents, sale of space or time (other than print media), sponsorship of events (other than sports events), ship management, etc.
Leasing and hire purchase to be treated as loan transactions.
Proposal to set April 1, 2010 as the date for introducing Goods and Service Tax (GST).

VAT and CST

To moderate the price, LPG has been included in the list of 'declared goods' under the CST Act.

AGRICULTURE

Irrigation: Outlay for 2006-07 to be increased to Rs.7,121 crore, with grant of Rs.2,350 crore. 20,000 water bodies with a command area of 1.47 million identified in the first phase for repair, renovation and restoration.
Credit: Farm credit to increase to Rs.1,75,000 crore in 2006-07 with addition of 50 lakh farmers. Loan taken for kharif and rabi in 2005-06 will be reimbursed.
With effect from Kharif 2006-07, farmers will receive short-term credit at 7% with upper limit of Rs. 300,000 on the principal amount.
Sanctions under Rural Infrastructure Development Fund XII to increase to Rs.10,000 crore.
Agricultural Insurance: National Agricultural Insurance Scheme to contnue.
Plantation Sector: A Special Purpose Tea Fund to be setup, expected contribution of Rs.100 crore in 2006-07.

MANUFACTURING

Employment: Five industries, namely textiles, food processing, petroleum, chemicals and petro-chemicals, leather and automobiles, with employment opportunities identified in the manufacturing sector.
Textiles: Fund allocation for Technology Upgradation Fund (TUF) enhanced to Rs. 535 crore from Rs. 435 crore; Rs. 189 crore allocated for Scheme for Integrated Textiles Parks (SITP); Jute Technology Mission to be launched; a National Jute Board to be established.
Handlooms: 100 more clusters to be added to Cluster Development at a cost of Rs. 50 crore; provisions for this sector to be increased to Rs. 241 crore from Rs. 195 crore; a 'handloom' mark to be launched.
Food Processing Industry: NABARD to create a refinancing window with a corpus of Rs. 1,000 crore. National Institute of Food Technology Entrepreneurship and Management to be set up.
Small and Medium Enterprises: 180 items identified for dereservation; corpus of Credit Guarantee Fund to be raised to Rs. 2,500 crore from Rs. 1,132 in five years; Credit Guarantee Trust for Small Industries to be proposed to reduce guarantee fee from 2.5% to 1.5% for all loans; 10 schemes drawn up under five-year National Manufacturing Competitiveness Programme.

SERVICES SECTOR

Tourism: development of 15 tourist destinations and circuits to be undertaken; 50 villages with core competency in handicrafts and other related work to be identified and developed; 4 new institutes of hotel management to come up in Uttaranchal, Chhattisgarh, Haryana and Jharkhand; plan allocation is increased to Rs. 830 crore from Rs. 786 crore.
Foreign Trade: Share in world exports to be doubled by 2008-09.

INFRASTRUCTURE

Telecommunication: To reach 250 million connections. More than 50 million rural connections to be rolled out in three years.
Power: Five ultra mega power projects of 4,000 MW each to be awarded before December 31, 2006; Rs. 597 crore provided for non-conventional energy resources; 10,000 villages in 2005-06 and 40,000 more to be electrified in 2006-07.
Coal: Reserves of 20 billion tonnes to be de-blocked for power projects.
Petroleum: Under NELP VI, 55 blocks and area of 355,000 sq kms offered. Rs. 22,000 crore expected in the refinery sector in next few years.
Road Transport: Budget support for NHDP enhanced from Rs. 9,320 crore to Rs. 9,945 crore in 2006-07; allocation of Rs. 550 crore for North Eastern region; 1,000 kms of access-controlled Expressways to be developed on Design, Build, Finance and Operate (DBFO) model.
Maritime Development: Plan allocation for Department of Shipping increased by 37% to Rs. 735 crore.

FINANCIAL SECTOR

Banking, Insurance and Pensions: Net capital support to banking sector standing at Rs. 22,808 crore, to be restructured to facilitate increased access of banks to additional resources for lending to the productive sectors. Bill on insurance to be introduced in 2006-07.
Capital Market: Limit on FII investment in Government securities to be increased to $2 billion from $1.75 billion and limit to FII investment in corporate debt to be increased from $0.5 billion to $1.5billion; ceiling on aggregate investment by mutual funds in overseas instruments is to be raised to $2 billion from $1 billion with removal of requirements of 10% reciprocal share holding.

BUDGET ESTIMATES FOR 2006-07