Indian Budget 2003-2004

84. Despite major developments in the water resource sector since Independence, the country has not really come out of the flood-drought-flood syndrome. This is principally on account of, among other reasons, three major factors: faulty water management practices, unbalanced development of irrigation sources in the country, and a highly uneven distribution of water resources.

85. To expedite the proposal for inter-linking of rivers, the Prime Minister has appointed a Task Force, which will suggest modalities for arriving at a consensus amongst the States on transfer of water to deficit areas and for identifying the priority links which could be implemented early, as well as a mechanism for their clearance and funding. Adequate outlay is being provided to support this Task Force.

86. A special programme, Maru Gochar Yojana, is proposed to be taken up for the desert districts of Rajasthan. This programme will provide for rehabilitation of traditional pastures – ‘Oran’ or ‘Gauchar’ – by developing at least one large pasturage nursery in each of the identified districts, as a Central scheme, for restoration of traditional water courses, and other measures so as to provide effective drought proofing. A Task Force will be established for working out modalities for its implementation. Rupees 100 crore will be provided for this purpose, over a period of three years, with only a quarter of the contribution coming from the State Government. Provision for 2003-04 for this purpose will be Rs.50 crore.

87. As Hon’ble Members know, in the current year so far, industry has stimulated overall growth, despite a decline in agriculture. We must, therefore, consolidate these gains and build on the robust industrial growth demonstrated in the last few quarters.

88. For this, we need to promote investment in the industrial sector, and improve the debt and equity markets. Mr. Speaker, I am also committed to bringing the small investors back to the equity markets by restoring their confidence.

89. From April 1, 2003, it is proposed that dividends be tax free in the hands of the shareholders. Correspondingly, there will be a 12.5 per cent dividend distribution tax on domestic companies. While mutual funds, including UTI-II, renamed UTI Mutual Fund, will also pay dividend distribution tax, it is proposed to exempt equity oriented schemes from the purview of the tax for one year. UTI-I, however, will be exempt from the dividend distribution tax.

90. In order to give a further fillip to the capital markets, it is now proposed to exempt all listed equities that are acquired on or after March 1, 2003, and sold after the lapse of a year, or more, from the incidence of capital gains tax. Long term capital gains tax will, therefore, not hereafter apply to such transactions. This proposal should facilitate investment in equities. I will, however, reexamine the effects of this exemption in the next Budget, and the Scheme will be in force until then.

91. My predecessor had already announced that stock exchanges will have a corporate structure. To enable this, necessary amendments to the Securities Control and Regulation Act will be proposed in the current session. With a view to enhancing investor confidence, it is necessary to separate the ownership of these stock exchanges from their management; resulting in demutualisation. In the process of corporatisation or demutualisation, it is possible that capital gains accrue. Therefore, as a one time measure, at the time of corporatisation or demutualisation of the stock exchanges, in accordance with a scheme approved by the SEBI, should gains arise, then the consequential transactions shall be fully exempt from capital gains tax.

92. Hon’ble members, as I have already said, knowledge is industry; and this is particularly so when our imperative is to be the best, in all aspects in general, but particularly in product design and quality. To encourage R&D, it is proposed to extend the tax holiday to R&D companies established up to March 31, 2004.

93. In industry, textiles is the largest employment provider in the country. It also contributes substantially to our exports. The main thrust of my proposals for the textile sector, therefore, is to have a moderate rate structure; to complete the CENVAT chain to promote compliance; to encourage modernisation; and, to eliminate evasion. Keeping these objectives in view, as a package of incentives, the following measures are proposed: