Full text of the budget speech

Mr Speaker, Sir,

I rise to present the Interim Budget for 2009-10.
Five years ago the people of India had voted for change. In the words of our Prime Minister, Dr. Manmohan Singh, people had sought "a change in the manner in which this country is run, a change in the national priorities and a change in the processes and focus of the Government". The Common Minimum Programme of the United Progressive Alliance, built around 'Aam Aadmi', was a response to this call for change. As indicated by Shri P. Chidambaram in July 2004, this programme spelt out seven clear economic objectives:

a) Maintaining a growth rate of 7-8 per cent per year for a sustained period;

b) Providing universal access to quality basic education and health;

c) Generating gainful employment and promoting investment;

d) Assuring hundred days of employment to the breadwinner in each family at the minimum wage;

e) Focusing on agriculture, rural development and infrastructure;

f) Accelerating fiscal consolidation and reform; and

g) Ensuring higher and more efficient fiscal devolution.

As I present the sixth budget of the Government of the United Progressive Alliance which completes its tenure in a couple of months, I can say with confidence that every effort has been made by the government to deliver on the commitments made.
For the first four years of the UPA government, our policies ensured a dream run for the economy with Gross Domestic Product (GDP) recording increase of 7.5 per cent, 9.5 per cent, 9.7 per cent and 9 per cent from fiscal year 2004-05 to 2007-08. For the first time, the Indian economy showed sustained growth of over 9 per cent for three consecutive years. With per capita income growing at 7.4 per cent per annum, this represented the fastest ever improvement in living standards over a four year period.
During this period, the fiscal deficit came down from 4.5 per cent in 2003-04 to 2.7 per cent in 2007-08 and the revenue deficit declined from 3.6 per cent to 1.1 per cent.
Investment and savings showed significant improvement. The domestic investment rate as a proportion of GDP increased from 27.6 per cent in 2003-04 to over 39 per cent in 2007-08. The gross domestic savings rate shot up from 29.8 per cent to 37.7 per cent during this period. The gross capital formation in agriculture as a proportion of agriculture GDP improved from 11.1 per cent in 2003-04 to 14.2 per cent in 2007-08
The buoyant growth of Government revenues facilitated fiscal consolidation as mandated in the FRBM Act. The tax to GDP ratio increased from 9.2 per cent in 2003-04 to 12.5 per cent in 2007-08 bringing us within striking distance of the target for fiscal correction. This also enhanced our capacity to raise resources internally to finance our growth at the rate of 9 per cent per annum during the Eleventh Five Year Plan.

All this would not have been possible without the guidance of UPA Chairperson, Smt. Sonia Gandhi, the inspiring leadership of Prime Minister, Dr. Manmohan Singh and the hard work put in by my predecessor, Shri P. Chidambaram.
Mr Speaker, Sir,
The growth drivers for this period were agriculture, services, manufacturing along with trade and construction. Hon'ble Members will agree with me that the real heroes of India's success story were our farmers. Through their hard work, they ensured "food security" for the country. With record procurement of 22.7 million tonnes of wheat and 28.5 million tonnes of rice for our Public Distribution System in 2008, our granaries are full. During this four year period, the annual growth rate of agriculture rose to 3.7 per cent. The production of foodgrains increased by about 10 million tonnes each year to reach an all time high of over 230 million tonnes in 2007-08. Despite a high base, the outlook for 2008-09 is encouraging with the country receiving normal rainfall during the agricultural season. Manufacturing, registered as well as unregistered, recorded a growth of 9.5 per cent per annum in the period 2004-05 to 2007-08. Similarly, communication and construction sectors grew at the rate of 26 per cent and 13.5 per cent per annum, respectively.
Though our growth is based largely on domestic efforts, foreign trade and capital inflows played a catalytic role. India's exports grew at an annual average growth rate of 26.4 per cent in US dollar terms during this period. Foreign trade increased from 23.7 per cent of GDP in 2003-04 to 35.5 per cent in 2007-08. The conscious policy to gradually integrate the Indian economy with the world, opened new opportunities for Indian corporates to build world scale plants and aim at global competitiveness.
In order to maintain a high GDP growth rate on a sustained basis with price stability, the Indian economy had to face two inter-related macro-economic challenges. These relate to capital inflows and global inflation. Profitable investment opportunities generated by high GDP growth attract foreign capital. In 2007-08, capital inflows spurted to an unprecedented 9 per cent of GDP, far in excess of current account financing requirements leading to large accumulation of reserves and build up of pressure on prices.
During 2008-09, international prices of many essential commodities particularly fuel oils, food and edible oils and metals rose to alarming levels. To cite just one example, the price of crude oil which was US $ 28 per barrel in 2003-04 shot up to US $ 147 per barrel in 2008. The sharp rise in global inflation, even with a moderated pass-through, put pressure on domestic prices. The WPI headline inflation shot up to nearly 13 per cent in the first week of August 2008. To ease supply side constraints, Government took a series of fiscal and administrative measures, in concert with monetary policy measures by the Reserve Bank of India. RBI raised the interest rates to mop up excess liquidity. This, in turn, had implications for the growth rate from the demand as well as supply side. These, along with easing of global price pressures, led to a decline in domestic prices with inflation rate falling to 4.4 per cent on January 31, 2009. We have weathered the crisis, but there is no room for complacency.

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Milestones mark Chidambaram's tenure as FM

P Chidambaram's tenure as finance minister in the last 54 months saw the Indian economy register 9 per cent plus growth in three consecutive years that resulted in buoyant tax collections.
But record-high crude oil prices and populist schemes announced by the Congress-led coalition government eroded many gains achieved in the first four years.
Chidambaram's initiatives on the tax policy front resulted in revenue collections posting a compounded annual growth rate (CAGR) of 22 per cent.
He made tax administration more efficient and introduced new taxes like the fringe benefit tax, the cash withdrawal tax and the securities transaction tax. He also widened the service tax net to cover many more services.

Also, the successful rollout of the value added tax by the state governments, with the Centre willing to compensate for any loss incurred for shifting to the new tax regime, happened in the last three years.
On the tax policy front, Chidambaram merged the tax rate of CENVAT, which is a tax on goods, and service tax, so that goods and services were equally taxed as part of the move to introduce a goods and services tax.

Buoyant tax revenues helped him rein in fiscal and revenue deficits under the Fiscal Responsibility and Budget Management Act, till March 2008.
From a fiscal deficit of 4.5 per cent in 2003-04, the aim was to bring it down to 3 per cent in the current fiscal ending March 2009. But the implementation of the Sixth Pay Commission recommendations, the populist farmers' debt waiver scheme and an economic slowdown will make the finance minister's task difficult.
Initial estimates show that the Centre is likely to run a fiscal deficit of 4.49 per cent of GDP in the current fiscal. This deficit will be much higher if off-budget liabilities on account of subsidies granted through bonds for the oil, food and fertiliser sectors are also included.

On the expenditure front, Chidambaram had enforced a tight leash with revenue expenditure growing by only 12.69 per cent year-on-year. But capital expenditure, which is required to create productive assets, actually registered a negative CAGR of 3.2 per cent during his tenure.
The last three years also saw a rush of capital into the country as portfolio investors pumped in record money into the stock market and private equity players too contributed to this growth.
This created a piquant problem for the government and also for the Reserve Bank of India.

Record flow of capital meant increase in money supply that put upward pressure on inflation. India's central bank responded by tightening its monetary policy by increasing key rates like repo rate (the rate at which the central bank lends money to the banks) from 6 per cent to a peak of 9 per cent.
The RBI also increased the cash-reserve ratio from 4.5 per cent to a peak level of 9 per cent to suck money out of the system.
These rates, however, were brought down in the last few months as the economy faced a liquidity squeeze in the wake of the global financial turmoil.

Headline inflation remained under control for most of his tenure but the increase in crude oil prices resulted in inflation hitting a 16-year high of 12.9 per cent this year.
When Chidambaram took over as finance minister, the Wholesale Price Index-based inflation was 5.02 per cent. As crude oil prices have declined in the last few weeks, the annual inflation rate too has come down to less than 9 per cent.
Many capital market reforms like corporatisation and demutualisation of stock exchanges, and permitting foreign investors to pick up equity in local exchanges, were initiated during his tenure.

Source