UNION BUDGET 2002-2003

The Hon’ble Finance Minister, Shri Yashwant Sinha while presenting the Union Budget for 2002-2003 in the Parliament on February 28, 2002 said in his speech that the Year 2001 was a year of many tragic events. It started with the Gujarat earthquake on January 26 and ended with the terrorist attack on the Indian Parliament on December 13, 2001, punctuated by the September 11, 2001 incident in the United States and the October 1, 2001 outrage in Srinagar.   World economic growth has slowed down to 2.4%.  However, despite the hostile economic and security environment the basic fundamentals of the economy remained strong with inflation falling to 1.1%, foreign exchange reserves crossing US$ 50b and food stocks rising to almost 60m tonnes.   The economic growth has, therefore, been targetted at about 5.4 percent. The budget for 2002-2003 is aimed at devising a strategy to consolidate and implement the second generation reforms to meet the above objectives.

The table below gives estimates and revised figures of revenue and expenditure for the last year, i.e. 2001-2002, and the figures proposed for the next year 2002-2003 and deficits of revenue, fiscal and primary as percentage of GDP. 

(Rs. in Crore) 
S.No. ITEM 2001-2002
1.  Receipts
(a) Revenue Receipts 231745 212572 245105
(i)   Tax Revenue  (Net to Centre) 163031 142348 172965
(ii) Non-Tax Revenue 68714 70224 72140
(b) Capital Receipts 143478 151864 165204
(i) Recoveries of Loans 15164 15143 17680
(ii) Other Receipts 12000 5000 12000
(iii) Borrowings and Other liabilities 116314 131721 135524
Total (a+b) 375223 364436 410309
2. Expenditure 375223 364436 410309
(a) Revenue 310566 304305 340482
(b) Capital 64656 60131 69827
3. Revenue Deficit % of GDP 78821
4. Fiscal Deficit % of GDP 116314
5. Primary Deficit  % of GDP 4014

    The break-up. of estimated receipts and expenditure both under the revenue and capital heads in terms of percentage is given as under : 

Tax Receipts 50 Revenue Expenditure 76
Excise Duties  19 Interest Payments 25
Customs Duties  10 Defence 14
Corporate Tax  10 Subsidies   8
Income-Tax  9 State share of taxes and duties  13
Other Taxes Non-Plan assistance to States & UTs  4
  Other Non-plan expenditure 12
Non-Tax Receipts  50 Capital Expenditure  24
Borrowings and other liabilities  29 Central Plan  14
Non-debt Capital Receipts  6 State UTs Plan assistance  10
Non-Tax Revenue  15    
TOTAL  100 100

Highlights of the Budget Small Scale Industry 

To increase flow of credit to the Small Scale Industry sector :

  •  The limit for composite  loans has been raised from Rs.2 lakh to Rs.5 lakh.
  •  The exemption limit for collateral security has been increased from Rs.20,000 to Rs.5 lakh.  The project cost  limit under the National Equity Fund has been increased from Rs.25 lakh to Rs.50 lakh. 
  •  Laghu Udyami Credit Card (LUCC) Scheme to be introduced by public sector banks for providing simplified and borrower friendly credit facilities to small businessmen, retail traders, artisans and small entrepreneurs, professionals and other self employed persons including those in the tiny sector.
  •  50 items of knitwear, certain agricultural implements, auto components, some chemicals and drugs and others to be dereserved.
Large Industries : 

Banking / Financial Sectors & Capital Markets: 

  •  Banks  now allowed to deduct upto 7.5% instead of 5% of their total income against provision made by them for the bad and doubtful debts.  The budget for 1999-2000 had granted an option to banks to deduct upto 5% of their NPAs falling in the category of loss or doubtful assets as on the last day of the accounting year.   Now both banks and public financial institutions can avail of optional deduction of 10%. 
  •  A new bill on Banking Sector Reforms is to be introduced.
  •  A pilot Asset Reconstruction Company to be set up by June 30, 2002 with the participation  of public and private sector banks, financial institutions and multilateral agencies. 
  •  The Deposit Insurance Credit and Guarantee Corporation (DICGC) to be converted into the Bank Deposits Insurance Corporation (BDIC). 
  •  Legislative changes to corporatise IDBI.
  •  The nominee Directors of public financial institutions and banks to be exempted from  incurring disqualification for election in case of certain defaults by the company. 
Housing Finance 
  •  The National Housing Bank (NHB) to launch a Mortgage Credit Guarantee Scheme, which would be provided to all housing loans thereby fully protecting lenders against default. 
  •  About 2.25 lakh units to be financed under Golden Jubilee Rural Housing Finance Scheme for 2002-03. 
  •  Allocation of Rs.1,725 crore in 2002-2003 to the Indira Awas Yojana.
Agriculture and Rural Development :

Decontrol and .deregulation of agriculture proposed on the following lines : -

  •  Removal of SSIs reservations related to various agricultural equipment items.
  •  Review of essential commodities Act, 1955, to remove restrictions on storage, selling and movement of food and agricultural products.   This will include amendment of the Milk and Milk Products Control Order (MMPO). 
  •  Decanalization of export of agricultural commodities and expansion of forward trading to cover all agricultural commodities. 
  •  The Prime Minister to propose legislative and other changes for preparing a modern integrated food law and related regulations.
  •  Allocation of  Rs.70 crores each to  the Credit Linked Subsidy Scheme for construction of Cold Storages and to Rural Godown Scheme for the year 2002-03.
  • The funds for RIDF to increase from Rs.5,000 crore to Rs.5,500 crore and the rate of interest to be reduced from 10.5% to 8.5%.
  • Corpus of agriculture research to increase from Rs.684 crore to Rs.775 crore.
  •  Rs.2,500 crore allocated to Pradhan Mantri Gram Sadak Yojana (PMGSY) in 2002-03 to provide connectivity through all weather roads to the villages. 
  •  Rs.164 crore allocated to introduce a new scheme called the Accelerated Rural Electrification programme. 

An Infrastructure Equity Fund of Rs.1,000 crore to be set up to help in providing equity investment for infrastructure projects.  Contributions to the Funds to be managed by the Infrastucture Development Finance Company Limited (IDFC) and would initially be made by public sector insurance companies, financial institutions and some banks. 

Administered Price Mechanism (APM) for Petroleum

Dismantling of Administered Price Mechanism in the Petroleum Sector w.e.f. April 01, 2002. 


  •  To provide incentives to State Governments for export promotion through the creation of new export promotion industrial parks and associated facilities. 
  •  Comprehensive package for establishment of Special Economic Zones.
Human Development : 


The plan allocation to the Deptt. of  Elementary Education and Literacy is being enhanced from Rs.4,000 crore this year to Rs.4,900 crore for 2002-03. 

Social Security

  •  New pension scheme to be launched to provide an adequate social security coverage in the unorganised sector.
  •  Medical insurance scheme - “Janaraksha” - to provide indoor treatment (upto Rs.30,000) and outpatient treatment (upto Rs.20,000) on payment of a nominal rupee one per day.
Development of the North Eastern Region 

The provision for expenditure in North Eastern States out of the Central Plan increased from Rs.3,457 to Rs.5,016 crore. 

Direct Taxes :

  •  No change in rate structure.
  •  5% surcharge imposed on all taxpayers except individuals earning upto Rs.60,000 per annum.
  •  20% income tax surcharge imposed due to the Gujarat earthquake abolished.
  •  0% rebate under section 88 only for those with income below Rs.1,50,000/-.
  •  Those earning between Rs.1,50,000/- and Rs.5,00,000/- will get a rebate of only 10% of the amount invested.
  •  The Special 3% rebate for people earning less than Rs.1,00,000/- to continue.
  •  Distribution tax of 10% on the dividends of companies and mutual funds abolished; recipients will now have to pay this tax.
  •  Persons quoting a false Permanent Account Number (PAN) to face a penalty of  Rs.10,000.
  •  To give impetus to fresh investments in the industrial sector, additional depreciation @ 15% on new plant and machinery acquired on or after April 01, 2002 for setting up a new industrial unit or for expanding the installed capacity of existing units by atleast 25% proposed.
  • Corporate tax applicable to foreign companies reduced from 48% to 40%.
  • Capital gains exemption under section 54EC of the Income-Tax Act allowed to amounts invested in bonds issued by SIDBI.
  • Full exemption from tax granted to the income of Credit Guarantee Fund Trust.
  • Capital gains exemption provided in section 54EC of Income-Tax Act allowed to bonds issued by the National Housing Bank (NHB). 
Fiscal relief to be provided to tourism sector. The following measures were proposed :-
  •  Expenditure Tax on hotels to apply only to room charges of above Rs.3,000/-.
  •  Deduction available u/s 80HHD of the Income-Tax Act in respect of foreign exchange earnings of hotels or tour operators to be enhanced.
  •  A deduction of 50% of profits earned by units setting up and operating large convention centres will be allowed for 5 years u/s 80-1B.
  •  Deduction of 50% of the profits earned by units constructing and operating multiplex theatres allowed in non-metropolitan towns.
Indirect Taxes :

(a)  Excise Duty :

  •  Ad-volorem excise duty structure further rationalised with more items added in the category of 16% CENVAT and number of items removed from the Special Excise Duty (SED) list.
  •  On LPG, auto CNG, kerosene and diesel engines upto 10 HP increased from 8% to 16%.
  •  Excise duty applicable to motor spirits reduced from 90% to 32%.   A surcharge of Rs.6/- per ltr. imposed on motor spirit.
  •  Rates applicable to indigenous crude oil increased from Rs.900 per metric tonne to Rs.1800 per metric tonne w.e.f. March 01, 2002.
  •  Rates of excise duty on fabrics, made ups and garments would be 12%.   Industrial fabrics would howver, continue at 16%.
  •  Exemption on air travel within the North East states now extended to air travel to and from North East States. 
  •  Excise duty on tea reduced from Rs.2 per kg to Re.1 per kg.
  •  Specified anti-AIDS drugs exempted from excise duty. 
  •  Service tax extended to the followings services : LIC; Inland Cargo handling; Storage and warehousing services; Event management; Rail travel agents; Health clubs and Fitness Centres; Beauty parlours; Fashion designers; Cable operators and Dry cleaning services;
(b) Customs Duty :
  •  Peak rate of Basic Customs Duty reduced from 35% to 30%.
  •  Two basic rates of customs duties proposed by the year 2004-05 namely 10% covering generally raw materials, intermediates and components and 20% covering generally final products. 
  •  Special Economic Zones would be entitled to procure duty free equipment, raw materials, components, etc. whether imported or purchased locally.   The benefits of such exemption shall be applicable to both the developers of Special Economic Zones as well as the units located therein.
Duty increased :
  •  Cellular phones  and pagers from 5% to 10%.
  •  Tea and coffee from 70% to 100%.
  •  Natural rubber, poppy seeds, pepper, cloves and cardamom from 35% to 70%.
  •  Pulses from 5% to 10%.
  •  Kerosene imported for supply under PDS scheme from 5% to 10%.
  •  Specified 88 drugs - Nil to 5%.
Duty decreased :
  •  Copper, zinc and lead from 35% to 25%.
  •  Aluminium and tin from 25% to 15%.
  •  Specified equipment for Ports and Airports from 25% to 10%.
  •  I.T. items reduced from 10% or 5% as per WTO binding.
  •  Specified agricultural machinery and equipment from 25% to 15%.
  •  Custom duty on Glucometers and test strips reduced from 25% to 10% to give relief diabetic patients.
  •  Kerosene other than that imported for supply under the PDS scheme from 35% to 20%.
  •  Cement and clinkers from 25% to 20%.

  •  Specified 28 textile processing machinery, automatic shuttle looms and specified jute machineries - CENVAT exemption extended.