Government is firmly committed to the goal of comprehensive tax reform through the introduction of the Direct Taxes Code

Finance Minister, Shri Pranab Mukherjee’s opening speech, delivered in the Lok Sabha today, at the beginning of consideration of the Finance Bill-2010, is as follows:

“As I rise to move the Finance Bill, 2010 for consideration of this august

House, it is with some satisfaction that I report the positive developments in
the Indian economy in the last few
months. The turnaround of the economy
which started in the second quarter of 2009-10 is likely to result in a growth
of 7.2 per cent for the full year 2009-10
as indicated in the Advance Estimates of the
Central Statistical Organization.

The upward shift in India’s growth trajectory has been anchored strongly in

robust growth in consumption. The salutary impact of the fiscal stimulus along
with the monetary measures implemented by the RBI, facilitated the growth
recovery by regenerating the investment
impulses and private spending.
In the Budget for 2010-11, I have initiated a partial roll back of stimulus
measures and a resumption of the fiscal consolidation process with fiscal
deficit at 5.5 per cent of GDP. The Medium Term Fiscal Policy Statement 2010-11
provides the roadmap with fiscal deficit declining to 4.8 per cent of GDP in
2011-12 and further to 4.1 per cent of GDP in 2012-13. A focus on bringing down
the level of public debt as envisaged in the Thirteenth Finance Commission’s
Report and as announced in the Budget for 2010-11 would anchor the fiscal
consolidation process in a sustainable debt framework

Inflation

The year 2009 started with low WPI inflation of 1.3 per cent in April, 2009,

which relapsed to the negative zone during June to August, 2009. The WPI
inflation turned positive in September 2009, thereafter, an upward trend has
been observed. Clearly, the current levels of inflation are elevated and more
generalized and the WPI inflation in March 2010 stood at 9.9 per cent. What has
led to deep concern is the double-digit food inflation. The gradual increase in
food inflation observed till December 2009 was due to expectations of
supply-side constraints of food items, especially due to unfavorable south-west
monsoon. As per the Second Advance Estimates of production of food grains for
2009-10, the total food grains production has been estimated at 216.85 million
tones, which is about 5 per cent lower than the second advance estimate of last
year.
The Government has utmost concern about the current price situation. We have
taken a number of short term and medium term measures to improve domestic
availability of essential commodities and
to moderate inflation. These include: reducing import duties for rice, wheat,
pulses, edible oils and sugar to zero; allowing import of raw sugar at zero duty
under open general licence; removing levy obligation for imported raw sugar and
white/ refined sugar; banning export of non-basmati rice, edible oils and pulses
and imposing stock limit orders in the case of paddy, rice, pulses, sugar,
edible oils and edible oilseeds. A Core Group of Chief Ministers and Central
Ministers has been constituted on 15th March, 2010 to discuss issues related to
prices of essential commodities. Besides, to protect the interest of poor and
vulnerable sections of the society, the
Central Issue Prices for rice and wheat have been kept unrevised at 2002 levels.

We have sufficient stocks of wheat and
rice to meet the demands of the Public Distribution System and other welfare
schemes. As on 15.4.2010, 25.4 millions of wheat in RMS 2009-10 and 25.9 million
tonnes of rice have been procured in KMS 2009-10 (October to September). The
Central Pool stock of wheat is at a high of 183.88 lakh tonnes and of rice at
269.50 lakh tonnes as on 1.3.2010.

In the case of pulses, the shortfall of domestic production has been made up by
higher imports. Considerable support has been provided to the Public
Distribution System. For pulses and edible oil, the Government is bearing a
subsidy of Rs.10 per kg. and Rs.15 per kg. respectively for distribution through
PDS/Fair Price Shops. The Core Group of Chief Ministers and Central Ministers
held its first meeting on 8th April, 2010. Three Working Groups consisting of
Chief Ministers of various States are now engaged in drawing up recommendations
on agricultural production, consumer affairs and food and public distribution.
The reports are expected by the middle of June, 2010.

Indications of softening of food inflation are clearly visible. There has been a
significant decline from the peak food inflation of over 20 per cent recorded in
December 2009 to 17.7 per cent in March 2010. Besides, the inflation in
essential commodities also declined from the peak of 23.8 per cent in January
2010 to 19.8 per cent in March 2010. It is expected that this decline would
continue in the recent months uninterruptedly.

The monetary policy stance has also been gradually fine-tuned by RBI to face the
inflationary challenges. The Repo Rate has been increased from 5 per cent to
5.25 per cent and Reverse Repo Rate from 3.50 per cent to 3.75 per cent. The CRR
has also been increased from 5.75 per cent to 6 per cent. These measures are
expected to anchor the inflationary expectations.

Growth Prospects

While the slowdown in agriculture, inflicted by the monsoon failure, poses
concern on the food and food prices front, the impressive recovery achieved by
the Indian industry in the recent months is heartening. The Index of Industrial
Production recorded a growth of 10.1 per cent during April-February 2009-10,
compared to 3.0 per cent during April-February 2008-09. While both manufacturing
and mining grew around 10 per cent, electricity grew at 5.8 per cent during
April-February 2009-10. All the major segments of industry except consumer
non-durables staged a strong recovery. The intermediate goods grew at 13.7 per
cent and consumer durables recorded an appreciable 25.5 per cent growth in
April- February 2009-10. The growth of capital goods at 18.2 per cent in April-
February 2009-10, on top of their reasonable growth in the previous year, is
indicative of the pickup in investment demand.

Tax Reform

I have already informed the House that the Government is firmly committed to the
goal of comprehensive tax reform through the introduction of the Direct Taxes
Code (DTC) as well as the Goods and Services Tax
(GST). I am happy to inform the Hon’ble Members that, in the case of DTC, the
process of consultation with the stakeholders for revising the first draft is
almost over. We expect to place a revised Discussion Paper in the public domain
by next month. After a quick round of consultations with some of the major
stakeholders, we should be able to submit the draft legislation to Parliament in
the monsoon session.
I have indicated my intent to introduce GST in the country with effect from 1st
April, 2011. Central Government is closely engaged with the Empowered Committee
of the State Finance Ministers in finalizing the GST design. Some of the States
apprehend that they may lose some revenue in the initial years of the GST
regime. Central Government is willing to provide compensation to the States for
these initial years, provided there is agreement on the broad framework for a
common threshold for Goods and Services between the Centre and the States;
common exemption lists between the Centre and the States; mechanism to check
deviations and acceptable level of overall GST rates. The design and modalities
of providing this compensation would be worked out in discussion with the State
Governments and the Empowered Committee.

Outlook for 2010-11

There are several factors that have emerged from the performance of the economy
in the recent period which augur well for the Indian economy. Attesting the
impressive recovery of the industrial sector, there is a revival in investment
and private consumption demand, though demand recovery is yet to attain the
pre-2008 momentum. The favourable capital
market conditions with improvement in capital flows and business
sentiments are also encouraging. There is also a significant pick-up in
corporate earnings and profits. The outlook is further brightened by the fact
that a normal monsoon is predicted this year

Going by these indications and considering that agriculture had a set-back in
2009-10 and is only gradually getting back to the projected path, the Indian
economy is expected to grow around 8.5 during 2010-11 and to breach the 9 per
cent mark in 2011-12.

Since the presentation of the Budget on 26th February, 2010, we have received a
large number of representations and suggestions both from trade and industry as
well as my colleagues in this august House. While some seek modifications to the
existing proposals, others have urged for fresh reliefs. Some valuable
suggestions were also made by the Hon’ble members during the general discussion
on the Budget in the first phase of this session. I expect to receive many more
suggestions in the course of the ensuing discussion on the Finance Bill. I shall
cover the reliefs we propose to grant, the amendments that we seek in the Bill
and our response to the issues that are raised in discussions, in my reply.

With these words, Madam Speaker, I move for consideration of the Finance Bill,

2010.”