'Does this Budget help the poor? It does'

Let me make a candid confession. If you say that I have helped the businesses, and, this Budget is pro-business, yes, it is. I have no hesitation in saying that it is pro-business. Does it help the middle-class, does it help the neo-middle class? It does. Does it help the poor? It does. There is no contradiction in an economy that if something encourages industrial activity in the country, it is bound to be anti-poor. You need to be pro-industry. It is only then that you will gather sufficient revenue so that you are able to service the poor in the country.

I have been hearing an argument - a few days ago, earlier also, I addressed it - and, particularly, my friends from the Left. Taxes are being foregone. Now, a practice started several years ago, and it picked up when UPA (United Progressive Alliance) was in power, that a booklet comes with the Budget, which says "list of taxes foregone", and some Rs 5 lakh crore are mentioned. Now, these are not taxes which were due, these are not taxes which are to be collected. These are taxes, for instance, if the bound rate of a product is 70 per cent but an applied rate is 40 per cent, then 30 per cent is notionally taken as tax foregone because if your rate was 70 per cent, then probably the product would not be going to be manufactured at all. Now, under section 80 (C), Rs 1 lakh was the rebate given. I have increased it to Rs 1.5 lakh. That is tax foregone. So, in giving rebates to the middle class, I have foregone taxes. So, tax foregone actually means in the larger interest of the economy, you are making it more competitive. These are not taxes, which are due from people, and which we are deliberately not collecting. This was the practice when UPA was in power; this is the practice when the present government is in power. Therefore, I was mentioning that as a rule we had a moderation in the taxes itself.

I have taken a large number of steps both in terms of the fiscal policy as otherwise to give encouragement to the manufacturing sector. The sunset clause is for investment in power. If there is no power in this country, if power production does not pick up, our industrialisation won't take place. So, I have extended the sunset clause when power sector rebates in taxation are given.

"Industrial corridors" was an initiative that the UPA government started. I have adopted that initiative and I intend to continue it. Electronic goods, we have given a relief to. So, unless you are able to expand our manufacturing, those are serious problems, and I am not saying it in an adversarial manner, with regard to the taxation policy, which was followed by the UPA. And I will tell you what the problems were.

I have already mentioned that the retrospective tax was a retrograde idea. It was retrograde because it sent a very negative signal to the world of investors. Investors started drying up after the retrospective tax. In fact, when the UPA government was in its last days, I was hoping against hope that they find a solution to solve this problem and then go away. But you left the knot tied up and left it to us to untie the knot, and it is a very difficult knot to untie. So, we announced in the Budget that we recognise that Indian Parliament has the sovereign right to legislate retrospectively. As a policy, our government won't use that power. If on account of your 2012 Bills, new notices are to be issued, the assessing officers will not issue them. We have created a mechanism under the CBDT (Central Board of Direct Taxes). It will be referred to that mechanism. The idea is not to create fresh controversies on retrospective tax. And the big challenge was: what do we do with regard to the litigations, which are already pending as a result of 2012 retrospective law? There were two possible views. Either by legislation, I decide those litigations against the government or I allow the litigations to be contested on the forums on which they are being contested. We consulted various people and finally found that the second course was more prudent. Legislation is a methodology of following disputes and so is the legal methodology is a course of following disputes. We have left it to that.

On FDI (Foreign Direct Investment), my friend Anand Sharmaji was right when he said that we were reluctant when they brought the proposal of 49 per cent in insurance. But that is only half the truth. I think I must place the full truth before you.

The idea of 49 per cent was first conceived by the National Democratic Alliance government. When we consulted the then Congress Party, we were told that the Congress Party was only prepared for 26 per cent. So, we stepped back on our 49 per cent proposal because we needed your support and you were only agreeable to 26 per cent. Wisdom dawned on you when you came to power and said that you were agreeable to 49 per cent. By December last year, we made considerable headway. Mr (P) Chidambaram was discussing the issue with my colleague Sushma (Swaraj) ji and I. But then the elections came and the government changed. We had, therefore, gone back to our original proposal, which you had also accepted which is 49 per cent subject to Indian majority and Indian control in the management.

The insurance sector is investment starved. Our health sector is not picking up because it is not backed by insurance. You know what happens when somebody gets admitted to a private nursing home for surgery for a few days or in the ICU. How much of the back up insurance do we have in this country? Do we need to expand that insurance or not? That is a decision we have to take. And it is not a question of their proposal which we are now accepting it. That is a hard reality. We need to expand insurance in several areas.

In defence, the current position is that we are today importing directly or indirectly 70 per cent of defence requirement from international suppliers. We buy it from companies outside India.

We have examined this policy. A lot of investors, who have technology and investment outside, are willing to come. Indian capacities have also slightly built up. There are some of our major corporates, and I can name some of them because they are at my fingertips, and large reputed groups in India which have now built up defence capacities for manufacturing in India. We have further evolved the policy to say that it would be 51 per cent Indian and the foreign investment can go up to 49 per cent and this will be subject to usual terms and conditions, which will be finalised by the government when the issue comes up before the Cabinet.

Edited excerpts from Finance Minister Arun Jaitley's reply to the debate on the General Budget 2014-15, July 25, in New Delhi