Union Budget 2007 - 2008 India Highlights

General
• GDP growth rate estimated at 9.2% in 2006-07.
• Manufacturing growth rate estimated at 11.3%.
• Saving rate of 32.4%, investment rate of 33.8% will continue.
• Tax as % of GDP at 11.4%
• Gross domestic capital formation up 23%.
• Fiscal deficit to be 3.7% in the current year and revenue deficit 2%.
• Fiscal deficit for 2007-08 pegged at 3.3% of GDP and Revenue deficit at 1.5%.
• Bank credit rate grew by 29% during first ten months of 2006-07.
• E-Governance expenditure hiked to Rs.719 crore
• Inflation during 2006-07 estimated at between 5.2 and 5.4% against 4.4% during
the previous year.
• Total expenditure during 2006-07 estimated at Rs.6,80,521 crore
• Defence Budget hiked to Rs.96000 crore.
• Overseas investment to be allowed by individuals via Mutual Funds.
• Government to allow short selling by institutions.
• Mutual Funds to be allowed to launch infrastructure funds.
• PAN to be made sole identity for participants in the security markets to strengthen
capital market.
• Foreign exchange reserves stand at 180 billion dollars.
• Tourism infrastructure to get an allocation of Rs 520 crore as against Rs 423 crore
last year.
• Northeastern region to get Rs 405 crore for highway development. Road-cum-rail
project over Brahmaputra in Bogibil, Assam.
• New industrial policy for the Northeast.
• Technology Upgration Fund to be continued during the 11th Plan. Rs 911 crore to
be provided for this
Direct Taxes
• Personal income tax exemption limit raised to Rs 1,10000
• Income Tax exemption limit to women hiked to Rs 1,45,000
• Personal Tax exemption for senior citizens hiked to Rs 1,95,000
• Deduction in respect of medical insurance under Section 80 (D) increased to Rs
15,000 for common person and Rs 20,000 for senior citizens.
• No change in slab rates for income tax.
• No change in corporate income tax.
• Surcharge on Corporate income tax on companies below Rs 1 crore removed.
• Scope of MAT widened to I-T companies.
• 1% cess hiked to fund higher education.
• ESOPs to be brought under FBT.
• No change in Service Tax rate.
• Service tax extended to commercial renters.
• Service tax on Residents Welfare Associations whose members contribute more
than Rs 3,000.
• Technology biz incubators exempt from service tax.
 • Dividend distribution tax raised from 12.5 to 15 per cent.
• Benefits of investment in venture capital funds confined to IT, bio-technology,
nano-technology, seed research, dairy among some others.
• Withdrawals by central and state governments exempted from Banking Cash
Transaction Tax. The limit for individuals and HUF raised from Rs 25,000 to Rs
50,000.
• Five year tax holiday for 2, 3, 4 star hotels and convention centres with a seating
capacity of 3,000 in NCT of Delhi, Gurgaon, Ghaziabad, Faridabad and Noida for
Commonwealth Games.
• R&D tax concessions extended to private research bodies.
Indirect Taxes
• Small scale industries excise duty exemption raised from Rs 1 crore to Rs 1.5
crore.
• No change in general CENVAT rate.
• National level Goods & services tax to be introduced from next fiscal year.
• Central Sales Tax rate to be reduced from 4% to 3%.
• Peak customs duty rate on non-agricultural items reduced from 12.5% to 10%.
• All coking coal fully exempted from duty
• Duties on seconds and defective reduced from 20% to 10%.
• Customs duty on polyster to be reduced from 10% to 7.5 %.
• Duty on lift irrigation, agricultural sprinklers and food processing equipment
reduced from 7.5% to 5%.
• Duty on sunflower oil to be reduced by 15%.
• Duty on pet food reduced from 30% to 20%.
• Duty reduced on watch dials and movements and umbrella parts from 12.5% to
5%.
• Import duty of 15 specified machinery to be reduced from 7.5% to 5%.
• 3% import duty to be levied on private importers of aircraft including helicopters.
• Ad valorem duty on petrol and diesel to be brought down from 8% to 6%.
• Export duty on iron ore and concentrate at the rate of Rs.300 per tonne.
Export duty on Chromium proposed at Rs.2000 tonne.
• Excise duty for plywood reduced from 16% to 8%.
• Food mixes to be fully exempted from excise duty.
• Bio-diesel to be fully exempted from excise duty.
• Water purification devices, small and big, fully exempted from excise.
• Specific rates of excise duty on cigarettes increased.
• Excise duty on pan masala without tobacco as mouth freshners reduced from 66%
to 45%.
• Excise duty on cement reduced from Rs.400 per tonne to Rs.350 per tonne for
cement bags sold at Rs.190 per bag at retail market. Those sold above Rs.190 to
attract excise duty of Rs.600 per tonne.
Social Sector
• Allocation on Healthcare to increase by 21.9 per cent.
• Allocation for education to be enhanced by 34.2 per cent.
• Allocation under Rajiv Gandhi Drinking Mission stepped up from Rs 4680 crore
to Rs 5850 crore.
 • Annual target of 15 lakh houses under Bharat Nirman Programme to be exceeded.
• Allocation for National Rural Health Mission stepped up from Rs 8207 crore to
Rs 9947 crore.
• Allocation for Integrated Child Development Scheme (ICDS) to be increased
from Rs 4087 crore to Rs 4761 crore.
• 130 more districts under National Rural Employment Guarantee Act (NREGA).
Additional allocation of Rs.12,000 crore for it.
• Rs 800 crore for Sampoorna Gram Rozgar Yojana in districts not covered by
NREGA.
• Swarna Jayanti Swarozgar Yojana allocation increased from Rs 250 crore to Rs
344 crore.
• Allocation for schemes only for SCs and STs to be increased to Rs 3271 crore.
• Allocation for SC/ST scholarships enhanced from Rs.440 crore to Rs.611 crore.
• Rs 63 crore for share capital for National Minorities Development Finance
Corporation following Sachar Committee recommendations.
• To prevent high rate of school dropout, a National Means-cum-Merit scholarship
to be implemented, with an allocation of Rs 6,000 per child.
• Rs 1290 crore to be provided for elimination of polio.
• Allocation for AIDS control programme to be raised to Rs 969 crore.
• Computerisation of PDS and integrated computerisation programme for FCI.
• Rs.22,282 crore allocated for women development.
• Death and disability cover for rural landless families to be introduced, known as
'Aam Aadmi Bima Yojana'.
• Health insurance cover for weavers to be enlarged to ancillary industries.
Allocation increased from Rs 241 crore to Rs 321 crore.
• The ceiling of loans for weaker sections under differential rate of interest scheme
will be raised from Rs 6500 to Rs 15,000 and in housing loan from Rs 5000 to Rs
20,000.
• Reverse mortgage scheme for senior citizens announced.
• Rs. 73.24 billion allocated for mid-day meal scheme.
• Two lakh more teachers to be employed and five lakh more classrooms to be
constructed.
• Government to provide 1 lakh jobs for physically disabled with a salary limit of
Rs 25,000 a month
• Backward Regions Grant Fund to be raised to Rs 5800 crore.
Agriculture
• Growth of 4% to be achieved in agriculture sector.
• No new forward contract to be launched on wheat and rice from 28 February 2007
• Additional irrigation potential of 24 lakh hectares to be implemented, including
nine lakh hectares under Accelerated Irrigation Benefit Programme.
• Rs 2,25,000 crore farm credit proposed in the new budget. A target of additional
50 lakh farmers to be brought under farm credit.
• Special Purpose Tea Fund to rejuvenate tea production.
• Rs. 100 crore allocated for National Rainfed Area Authority.
• One hundred per cent subsidy for small farmers and 50 per cent for other farmers
for water recharging scheme.
 • National Agricultural Insurance Scheme to be continued for Kharif and Rabi this
year.
• Bonds worth Rs 5,000 crore to augment NABARD to be issued.

Foreign Direct Investment in India

Foreign Direct Investment (FDI) in India in growing rapidly. Foreign direct investment is
an integral part of an open and effective international economic system and a major
catalyst to development. FDI is highly beneficial for a country like India. Empirical
studies suggest that FDI triggers technology spillovers, assists human capital formation,
contributes to international trade integration, helps create a more competitive business
environment and enhances enterprise development. All these factors contribute to higher
economic growth and consequently aid in alleviating poverty. Apart from bestowing
economic benefits FDI may also help improve environmental and social conditions by
transferring "cleaner" technologies and leading to more socially responsible corporate
policies.

Foreign Direct Investment in India is permitted as under the following forms of

investments:
• Through financial collaborations.
• Through joint ventures and technical collaborations.
• Through capital markets via Euro issues.
• Through private placements or preferential allotments.
FDI is not permitted in the following industrial sectors:
• Arms and ammunition.
• Atomic Energy.
• Railway Transport.
• Coal and lignite.
• Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper,
zinc.
Foreign direct investments in India are approved through two routes:

1. Automatic approval by RBI: The Reserve Bank of India accords automatic approval
within a period of two weeks (provided certain parameters are met) to all proposals
involving:
• Foreign equity up to 50% in 3 categories relating to mining activities.
• Foreign equity up to 51% in 48 specified industries.
• Foreign equity up to 74% in 9 categories.
Investments in high-priority industries or for trading companies primarily engaged in
exporting are given almost automatic approval by the RBI.

FDI in India on automatic route is not allowed in the following sectors:

• Proposals that require an industrial licence and cases where foreign investment is
more than 24% in the equity capital of units manufacturing items reserved for the
small scale industries.
 • Proposals in which the foreign collaborator has a previous venture/tie-up in India.
• Proposals relating to acquisition of shares in an existing Indian company in favour
of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB)
investor; and
• Proposals falling outside notified sectoral policy/caps or under sectors in which
FDI is not permitted and/or whenever any investor chooses to make an application
to the Foreign Investment Promotion Board and not to avail of the automatic
route.
2. FIPB Route: Foreign Investment Promotion Board (FIPB) is a competent body to
consider and recommend foreign direct investment, which do not come under the
automatic route. Normal processing time of an FDI proposal in FIPB is 4 to 6 weeks.
FIPB is located in the Department of Economic Affairs, Ministry of Finance. Its
constitution is as follows:
• Secretary, Department of Economic Affairs (Chairman)
• Secretary, Department of Industrial Policy & Promotion (Member)
• Secretary, Department of Commerce (Member)
• Secretary, (Economic Relation), Ministry of External Affairs (Member)
FIPB can co-opt Secretaries to the Govt. of India and other top officials of financial
institutions, banks and professional experts of industry and commerce, as and when
necessary.

Foreign Investment Implementation Authority (FIIA)

Government has set up Foreign Investment Implementation Authority (FIIA) to facilitate
quick translation of Foreign Direct Investment (FDI) approvals into implementation by
providing a pro-active one stop after care service to foreign investors, help them obtain
necessary approvals and by sorting their operational problems. FIIA is assisted by Fast
Track Committee (FTC), which have been established in 30 Ministries/Departments of
Government of India for monitoring and resolution of difficulties for sector specific
projects.