Rs60,000 crore debt relief package benefiting four crore farmers, increase in spending on social sector schemes and relief to income-tax payers are some of the highlights of the Union Budget for 2008-09, presented by finance minister P Chidambaram in Parliament today.

With buoyancy in tax collections, the Harvard educated lawyer-finance minister announced something for each constituency through personal and income tax cuts, excise duty relief and massive funds for the agriculture sector, rural employment and other social projects.

Presenting his seventh Union Budget and last full budget of the UPA government, Chidambaram announced a new insurance scheme for workers in the unorganised sector, setting up of institutes of higher learning and 6,000 high-quality model schools, and provision of Rs16,000 crore to cover all rural districts under National Rural Employment Guarantee Scheme (NREGS).

Under the debt waiver and relief package, small and marginal farmers (with holdings up to 2 hectare) there will be a complete waiver of all loans overdue on 31, 2007 and which  December remained unpaid until 29 February 2008.

For other farmers, there will be a one-time settlement (OTS) scheme. Under the OTS, a rebate of 25 per cent will be given against payment of the balance 75 per cent.

Loans re-scheduled in 2004 and 2006 through special packages and those re-scheduled in the normal course will also be eligible for a waiver or an one-time settlement.

The debt relief scheme will be implemented by 30 June 2008 and the covered farmers will be entitled to fresh farm loans from banks in accordance with normal rules. The total value of overdue loans being waived is estimated at Rs50,000 crore and the one-time settlement relief at Rs.10,000 crore. The scheme is likely to benefit about three crore small and marginal farmers and one crore other farmers.

Expressing the hope that the target of agricultural credit for 2007-08 would be exceeded, the finance minister has set the target of Rs280,000 crore farm credit in 2008-09. Short-term crop loans will continue to be disbursed at interest rate of 7 per cent per year.

More investment is flowing into the irrigation sector under the Accelerated Irrigation Benefit Programme, 24 major and medium irrigation projects and 753 minor projects will be completed.

The outlay for this programme is being raised from Rs11,000 crore last year to Rs20,000 in 2008-09. The Rain-fed Area Development Programme will be implemented, with an allocation of Rs348 crore.

The government will establish the Irrigation and Water Resources Finance Corporation with an initial capital of Rs100 crore. This Corporation will mobilize resources for major and medium irrigation projects.

Initiatives for rejuvenating the agricultural sector include setting up of 500 soil testing laboratories, introduction of crop insurance scheme for plantation crops and support to cooperative sector reforms. 

The budget provides Rs32,667 crore for food subsidy under the Public Distribution System (PDS).  As a new initiative for efficient delivery of food grains under the PDS, smart cards are being introduced in Haryana and Chandigarh, on pilot basis.

Keeping in mind the high cost of housing construction for the poor, the housing subsidy per unit for new houses sanctioned under Indira Awas Yojana after 1 April 2008 is being enhanced from Rs25,000 to Rs35,000 in plain areas and from Rs27,500 to Rs38.500 in hilly / difficult areas.

The subsidy for upgradation of houses goes up from Rs12,500 per unit to Rs15,000. Loans up to Rs.20,000 per unit under the Indira Awas Yojana will be available at the interest rate of 4 per cent.

Calling the education and health sectors 'the twin pillars on which rests the edifice of social sector reforms', the finance minister announced 20 per cent increase in budget allocation for education and 15 per cent for the health sector.

In the area of school education, a model school programme with the aim of establishing 6,000 high quality model schools has been announced. Mid-day meal scheme is to be extended to upper primary classes in Government and Government-aided schools in all blocks of the country. Nehru Yuva Kendras will be opened in all the 123 districts, which presently do not have an NYK. In higher education, three IITs are to be set up in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and Thiruvananthapuram; two Schools of Planning and Architecture at Bhopal and Vijayawada; and one Central University in each of the hitherto uncovered States. To encourage children to take up science and R&D, scholarships will be given to students under a new scheme, Innovation in Science Pursuit for Inspired Research (INSPIRE).

Highlighting the need for launching a world-class skill development programme in mission mode, the budget seeks to establish a non-profit corporation. The Government will put Rs. 1,000 crore as initial equity in the corporation. Continuing the scheme of upgradation of ITIs, the budget provides Rs.750 crore for upgrading 300 more ITIs  in 2008-09.

In the health sector two major interventions are planned. Under the Rashtriya Swasthya Bima Yojana every worker in the unorganised sector falling under the BPL category and his / her family will get health cover of Rs30,000. For the elderly a National Programme for the Elderly is to be started in 2008-09.

The budget provides for Rs1,000 crore for the Aam Admi Bima Yojana that provides insurance cover to poor households. This will cover one crore poor households in addition to the one crore likely to be covered by 30 September this year. Funds have also been enhanced for the Indira Gandhi National Old Age Pension Scheme. This Scheme has been expanded from November 19 last year to include all persons over 65 years falling under the BPL category.

Allocations for the flagship programmes have been enhanced. Provision has been made to expand the guaranteed rural employment under the National Rural Employment Guarantee Scheme to cover all 596 rural districts. For providing potable water to schools in water deficient habitations, provision for installing stand-alone systems is being made under the Rajiv Gandhi Drinking Water Mission.

Schemes benefiting underprivileged sections falling exclusively under the scheduled caste and scheduled tribes have been provided Rs3,966 crore and for schemes where at least 20 per cent of the benefits are earmarked for SCs and STs, the budget provides Rs18,983 crore.

The schemes announced for the welfare of the minorities include a multi-sectoral development plan to be drawn for each of the minority concentration district and a scheme for modernizing Madrassa education. The allocation to the ministry of minority affairs has been doubled to Rs1,000 crore.

The budget has a number of initiatives for women and children. The allocation to the ministry of women and child development has been enhanced by 24 per cent to Rs7,200 crore.

For the first time, a statement on child related schemes has been introduced in the budget. The total expenditure on schemes for child welfare would be of the order of Rs33,434 crore. Rs11,460 crore has been provided for 100 per cent women specific schemes and Rs16,202 crore for schemes where at least 30 per cent is earmarked for women-specific programmes. LIC is being asked to extend the Janashree Bima Yojana to cover all women self-help groups that are credit-linked to the banks.   

The north eastern region continues to receive special attention in this year's budget also. The total budget allocation for this region has been raised by over Rs2,000 crore to Rs16,447 crore. The government proposes to identify the urgent need of border areas in the north east and address them through a special mechanism, and for this a Rs500 crore fund is being established.

The finance minister has raised the income tax exemption limit from Rs1,10,000 to Rs1,50,000, thus giving every assessee a relief at minimum of Rs4,000.  The tax rate will be 10 per cent for the income slab between Rs1,50,001 and Rs3,00,000 and 20 per cent between Rs3,00,001 and Rs5,00,000.  For income of Rs5,00,001 and above the income tax rate will be 30 per cent. 

The exemption limit for women assessees has been increased to Rs1,80,000 and for senior citizens to Rs2,25,000.  The finance minister has not proposed any change in corporate income tax and in the rate of surcharge. 

A taxpayer who pays the medical insurance premium for his / her parents will be allowed an additional deduction of Rs15,000 under Section 80D.  Justifying the changes in the slabs for personal income tax, said that moderation will beget revenues and fairness will beget compliance. 

The finance minister has brought four more services under the service tax net.  They include asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses, right to use goods in cases where VAT is not payable, and customized software. 

He also clarified that money changers, persons running games of chance and tour operators using contract carriage vehicles are liable to service tax.  He, however, increased the threshold limit of exemption for small service providers from Rs. 8,00,000 per year to Rs. 10,00,000.  He said 65,000 small service providers will go out of the tax net. 

On the indirect taxes front, the finance minister has made no change in the peak rates of customs duty. 

The customs duty on project imports has been reduced from 7.5 per cent to 5 per cent.  He has proposed to impose a 4 per cent special countervailing duty on a few specified projects in the power sector. 

Duty on steel melting scrap and aluminium scrap has been reduced from 5 per cent to nil.  Customs duty on certain life saving drugs and on the bulk drugs used in the manufacture of such drugs has been reduced from 10 per cent to 5 per cent and also to totally exempt them from excise duty or countervailing duty. 

Specific parts of set top boxes and specified raw materials for use in IT and electronic hardware industry have been fully exempted from customs duty.  Specific machinery for manufacturer of sports goods, vitamin pre-mixes, mineral mixtures and phosphoric acid used for manufacture of cattle and poultry fields have been given duty concession.  

In order to support domestic fertiliser production, customs duty on crude and unrefined sulphur has been reduced from 5 to 2 per cent.  Export duty on chrome ore has been increased from Rs2,000 to Rs3,000 per metric tonne to conserve chrome ore. 

The finance minister has proposed to reduce the general CENVAT on all goods from 16 per cent to 14 per cent.  Excise duty on all goods produced in the pharmaceutical sector has been reduced from 16 per cent 8 per cent. 

Excise duty on buses and their chassis, small cars, two and three wheelers has been reduced from 16 per cent to 12 per cent.    Water purification devices, flush doors, specified packaging material and breakfast cereals would attract excise duty at 8 per cent.

Anti AIDS drug, Atazanavir has been totally exempted from excise duty.  To encourage cold chain facilities, the Finance Minister has proposed to exempt excise duty on refrigeration equipment above two tonne refrigeration utilizing power of 50KW and above. 

Bulk cement will now attract excise duty of Rs400 per metric tonne or 14 per cent ad valorem whichever is higher.  Cement clinkers will be liable to excise duty of Rs450 per metric tonne.  Excise duty of packaged software has been increased from 8 to 12 per cent.  An excise duty of one per cent on polyester filament yarn, called NCCD, has been removed and imposed on cellular mobile phones. 

Emphasising that there has been an unmistakable boom in investment, the finance minister said the government will provide Rs16,436 crore as equity support and Rs3,003 crore has loans to Central Public Sector Enterprises.

In a boost to infrastructure development, the corpus of the Rural Infrastructure Development Fund is proposed to be raised to Rs15,000 crore during the coming year. Chidambaram said that there has been some moderation in the index of production of the six core infrastructure industries as well as in the overall index of industrial production from April to December, 2007.  He said the decline has been somewhat sharp in the case of consumer goods. 

The finance minister has provided Rs5,500 crore for the Rajiv Gandhi Grameen Vidyutikaran Yojana, Rs800 crore for the Accelerated Power Development and Reforms Project and increased the outlay on National Highway Development Programme from Rs10,867 crore to Rs12,966 crore. 

The outlay on Technology Upgradation Fund run by the ministry of textiles has been increased from Rs911 crore in the current year to Rs1,090 crore.  Rs340 crore has been allocated for the cluster approach to development of the handloom sector.  In order to scale up both infrastructure and production, the finance minister proposes to take up six centres for development as mega clusters. 

They include Varanasi and Sibsagar for handlooms, Bhiwandi and Erode for powerlooms and Narsaspur and Moradabad for handicrafts.  An initial provision of Rs100 crore has been made for the mega clusters. 

Recognising that exports have come under some pressure due to appreciation of the rupee, the finance minister said the government has given relief to exporters in three tranches of over Rs8,000 crore and Rs8,351 crore in the form of interest cost of market stabilisation bonds.  He said the government is sensitive the needs of the exports sector and will continue to respond sympathetically as the situation demands. 

On the capital market front, he announced some measures to expand the market for corporate bonds.  He said, the requirement of PAN would be extended to all transactions in the financial market subject to suitable threshold exemption limit. 

The finance minister has provided Rs624 crore for the commonwealth games, Rs75 crore to ICCR to promote India's music literature, dance, art and films, Rs50 crore to the National Tiger Conservation Authority to raise and deploy a special protection force. 

The allocation for the defence has been raised by 10 per cent from Rs96,000 crore to Rs105,600 crore. 

The total plan expenditure will be Rs243, 386 crore
Non-plan expenditure is estimated at Rs507,498 crore. 
The fiscal deficit for 2008-09 has been estimated at Rs133,287 crore which is 2.5 per cent of GDP. 

Chidambaram said, significant liabilities of the government on account of oil, food and fertiliser bonds are currently ''below the line'' and added that after the obligations on account of the Sixth Central Pay Commission become clear he would request the Thirteenth Finance Commission to revisit the roadmap for fiscal adjustment. 

(See: Budget 2008-09 Highlights)