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| HOME | BUSINESS | BUDGET 2000-2001 | BUDGET SPEECH | |||
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February 29, 2000
NEWSLINKS
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Finance Minister Yashwant Sinha's Budget Speech
SIDBI is presently administering the Technology Development Modernisation Fund Scheme for assisting technology development and modernisation of SSI units. The Scheme has certain concessional features including interest at prime lending rate for direct assistance and refinancing at 2% below prime rate for indirect finance. The operation of this scheme is being extended by another 3 years. The Khadi and Village Industries Commission (KVIC) has been playing a very important role as an instrument to generate large scale employment in the rural areas with low per capita investment. Government will continue to encourage the Khadi and Village Industry Sector so that its products can become more competitive. For intensifying marketing efforts, the KVIC will introduce a common brand name for its products and also set up a professionally managed marketing company for domestic as well as export marketing. Industry and Capital Market In earlier millennia, India led the world on the basis of knowledge. Today history is repeating itself. Young Indian entrepreneurs are at the forefront of the infotech revolution, whether in Silicon Valley, Bangalore or Hyderabad. They have shown us how ideas, knowledge, entrepreneurship and technology can combine to yield unprecedented growth of incomes, employment and wealth. Companies unknown 5 years ago have become world leaders. We must do everything possible to promote this flowering of knowledge-based enterprise and job creation. A key ingredient for future success lies in Venture Capital Finance. After a thorough review, I am proposing a major liberalisation of the tax treatment for venture capital funds. I will describe the details later. To simplify the procedures, SEBI will be the single point nodal agency for registration and regulation of both domestic and overseas venture capital funds. Venture activity is not limited to dot.com companies! Ideas and entrepreneurship, which merit venture finance, can be found in all sectors of the economy. The tax laws and SEBI guidelines are being formulated accordingly. I should add that this liberalisation will give a strong boost for Non Resident Indians in Silicon Valley and elsewhere to invest some of their capital, knowledge and enterprise in ventures in their motherland. In recent months stock markets have been buoyant all over the world, including India. Experience has taught us that there can be hard times as well. It is in such difficult times that institutions like investor protection funds of stock exchanges become really important. I will have something to say on this in part B of my speech. Thanks to our prudent macro-economic management and calibrated approach to currency convertibility, we have successfully weathered the East Asian crisis of the past two years. But we must not confuse caution with timidity. We must encourage Indian firms and businesses to grow into strong, India-based multinationals. To promote this trend, it is necessary to accord our firms increasing flexibility to undertake capital account transactions, especially for acquisitions of businesses abroad. Last month, Government had announced a policy to allow Indian companies to raise funds for investments through issue of ADRs/GDRs without prior Government approval. Up to 50% of these proceeds can be used by them to acquire companies in overseas market. We had also announced on 27th December, 1999, a liberalized mechanism for acquisition of software companies in the overseas market through stock swap options up to US$100 million on an automatic basis. I plan to further liberalize this policy for acquisition of companies abroad to enable Indian corporates, in knowledge-based sectors to grow rapidly and lay the foundation for Indian multinationals in areas where we have comparative economic advantage. For acquisition in other sectors too, I propose to increase the ceiling under the automatic route from existing US$15 million to US$50 million for Indian corporates and beyond this, through approval by the Committee on Overseas Investment. Under existing policy on portfolio investment, Foreign Institutional Investors (FIIs) are permitted to invest in a company, upto an aggregate of 24% of equity shares, which can be increased to 30% subject to approval by the Board of Directors and a Special Resolution of the General Body of the Company. To give our best companies greater access to foreign portfolio investment, I am increasing this limit from 30% to 40%. Science and Technology . The sustained growth of our knowledge-based industries will ultimately depend on the quality and extent of scientific and technological progress and training in our society. We must harness our potential in science and technology to realise the dream of modern India envisioned by the Prime Minister in his address to the Indian Science Congress last month. For taking up relevant technology vision projects and for increasing cooperation between our Universities and R&D institutions, I am making an additional provision of Rs.50 crore in the budget of the Technology Information Forecasting and Assessment Council under the Department of Science and Technology. I am also making a provision of Rs.50 crore in the budget of the Department of Scientific and Industrial Research for launching a New Millennium Indian Technology Leadership Initiative. It will focus on areas which fulfil national objectives and will be based on partnership between the Government and private sector. To fully benefit from the new intellectual property rights regime, we need to encourage our scientists and R&D institutions to maximise their patenting efforts. Government have decided to allow Universities and Research Institutions to retain the revenue generated from intellectual property rights through publicly funded research and also share a part of the revenue with the inventor. Modernisation of the Patent Office and the Trade Mark Register is long overdue. Government have sanctioned a modernisation project of Rs.75 crore for the Patent Office and we will strive to remove all impediments for early implementation of this project. Banking and Finance The recent East Asian crisis has underlined the critical importance of undertaking reforms to strengthen the banking sector. In recent years, RBI has been prescribing prudential norms for banks broadly consistent with international practice. To meet the minimum capital adequacy norms set by RBI and to enable the banks to expand their operations, public sector banks will need more capital. With the Government budget under severe strain, such capital has to be raised from the public which will result in reduction in Government shareholding. To facilitate this process, Government have decided to accept the recommendations of the Narasimham Committee on Banking Sector Reforms for reducing the requirement of minimum shareholding by Government in nationalised banks to 33%. This will be done without changing the public sector character of banks and while ensuring that fresh issue of shares is widely held by the public. The Committee had also expressed the view that the Boards of the banks should have sufficient autonomy to take decisions on corporate strategy and all aspects of business management and be responsible to the stakeholders, that is, the shareholders, the customers, the employees and the public at large. In particular, the interests of the employees of the nationalised Banks will be fully safeguarded. It is proposed to bring about necessary changes in the legislative provisions to accord necessary flexibility and autonomy to the Boards of the banks. As Honourable Members are aware, the Report of the Working Group on Restructuring Weak Public Sector Banks had suggested the constitution of a Financial Restructuring Authority (FRA). It has been decided to have a modified version of the FRA. Thus, in respect of any bank which is considered to be weak or potentially weak, the statutes governing public sector banks would be amended to provide for supersession of the Board of Directors on the basis of recommendations of the RBI and constitution of a FRA for such a bank, comprising experts and professionals. The amendments would also enable the FRA to exercise special powers including all the powers of the Board of the bank. Government will not close down any public sector bank. As responsible owner of the banks, Government have decided to consider recapitalisation of the weak banks to achieve the prescribed capital adequacy norms, provided a viable restructuring programme acceptable to the Government as the owner and the RBI as the regulator is made available by the concerned banks. The high level of Non-Performing Assets (NPAs) in our public sector banks is a cause for continued concern. Efficient and effective mechanisms for recovery of bank dues are critically important for reducing NPAs. I am happy to inform the House that comprehensive amendments have been carried out to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by issue of Ordinance. Five more Debt Recovery Tribunals (DRT) and four more Debt Recovery Appellate Tribunals have been set up or are in advanced stage of being set up. I further propose to set up four more DRTs at Mumbai and one more DRT each at Calcutta, Delhi and Chennai to facilitate expeditious adjudication and recovery of dues of banks and financial institutions. The growth of fresh NPAs can also be curbed through better institutional mechanisms for sharing of credit related information on borrowers and potential borrowers among banks and financial institutions. A Working Group constituted by RBI to examine modalities for setting up a Credit Information Bureau has recently submitted its report. Based on its recommendation a Credit Information Bureau will soon be established. In the fast changing world of modern finance it has become necessary to accord greater operational flexibility to the RBI for conduct of monetary policy and regulation of the financial system. Accordingly, I intend to bring to Parliament proposals for amending the relevant legislation. Similarly, to facilitate development of the Government debt market the legislative framework needs to be strengthened and modernised through a Government Securities Act, which I propose to bring to replace the old Public Debt Act, 1944. The Industrial Investment Bank of India is the only Calcutta-based development financial institution. To enable it to improve its viability and profitability by diversifying and extending its business, Government will subscribe to the preference capital of the company. NBFCs perform a significant role as financial intermediaries and in promoting growth of industry and services. Over the past 3 years RBI has taken a number of measures for strengthening the regulation of this sector with a view to ensuring that only financially sound and well run NBFCs are permitted to accept public deposits. I propose to bring a new bill which will strengthen the hands of depositors in situations of malafide or fraudulent actions of NBFCs. Infrastructure Infrastructure services remain a key bottleneck to rapid and sustained growth of our economy. We have made substantial progress in encouraging private infrastructure service providers and in establishing independent regulatory frameworks in most infrastructure sectors. We have also sought to give greater operational and commercial autonomy to existing public entities in these sectors. We will be moving ahead with programmes for corporatisation of public sector service providers in the areas of telecommunications, ports and airports during the course of the coming year. The Prime Minister has announced a major initiative for road development, the National Highways Development Project (NHDP). The cost of the project is estimated at around Rs.54,000 crore. In my earlier budgets, I had announced the levy of cess of one rupee per litre on petrol and diesel and a substantial part of this is expected to be available for funding the NHDP. To further augment resources, for commercially viable components of this project, I shall have something more to say in Part B of my speech. The plan outlay for the Central PSUs in the power sector has been increased from Rs.7,626 crore to Rs.9,194 crore. Increased budgetary support has been provided for the Tehri Hydro and the Nathpa Jakhari Hydro projects so that both these projects can be commissioned by March 2002. For commissioning of high priority projects by SEBs/State generating companies, a provision of Rs.300 crore has also been made for subsidizing interest on loans from Power Finance Corporation. In order to give a fillip to the reform process in the power sector and for undertaking investments on renovation and modernisation of old and inefficient plants and for strengthening the distribution system, a new scheme for providing assistance to State utilities will be introduced. Under this scheme, additional Central Plan assistance of Rs.1,000 crore will be provided to State and Union Territory Governments. The State Electricity Boards have large overdues to the Central Sector Power and Coal utilities. A Scheme for securitisation of these dues with the support of Central Government has been finalized to assist the SEBs to clear these dues. Central Government support will be linked to reforms in the operation of SEBs. Hon'ble members are aware that the Sethu Samudram Ship Canal Project has the potential of providing a shorter route between the East and West Coast Ports. I am glad to inform that Government have approved the undertaking of a detailed feasibility study and environmental impact assessment of the project at a total cost of Rs.4.8 crore. I have made necessary provision for this in the budget. Disinvestment/Privatisation/Public Sector Restructuring Government's policy towards the public sector is clear and unambiguous. Its main elements are:- Restructure and revive potentialy viable PSUs; Close down PSUs which cannot be revived; Bring down Government equity in all non-strategic PSUs to 26% or lower, if necessary; and Fully protect the interests of workers. In line with this policy during the last two years financial restructuring of 20 PSUs has been approved by Government. As a result, many PSUs have been able to restructure their operations, improve productivity and achieve a turn around in performance. Hon'ble members are aware that Government have recently approved a comprehensive package for restructuring of SAIL, one of our Navaratna PSUs. There are many PSUs which are sick and not capable of being revived. The only remaining option is to close down these undertakings after providing an acceptable safety net for the employees and workers. Resources under the National Renewal Fund have not been sufficient to meet the cost of Voluntary Separation Scheme (VSS) for such PSUs. At the same time, these PSUs have assets, which if unbundled and realised, can be used for funding VSS. Government will put in place mechanisms to raise resources from the market against the security of these assets and use these funds to provide an adequate safety-net to workers and employees. Government have recently established a new Department for Disinvestment to establish a systematic policy approach to disinvestment and privatisation and to give a fresh impetus to this programme, which will emphasize increasingly on strategic sales of identified PSUs. Government equity in all non-strategic PSUs will be reduced to 26% or less and the interests of the workers will be fully protected. The entire receipt from disinvestment and privatisation will be used for meeting expenditure in social sectors, restructuring of PSUs and retiring public debt.
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