Box 1.1

Major Economic Reforms in 2000-01



l Strong thrust to knowledge based industry by reducing customs duty on several
      items of IT, telecom and knowledge-based industries.

l Foreign direct investment permitted through automatic route in all industries except
      for a small negative list.

l Non-banking financial companies allowed to hold foreign equity up to 100% if they
     are the holding companies. Their subsidiaries, which are the operating companies,
     also allowed to hold foreign equity up to 75%.

l Dereservation of the garment sector from the purview of SSI reservation.


l Securitisation of dues of central sector power and coal utilities for assisting the
     SEBs in clearing dues.

l Domestic long distance service opened up without any restriction on the number of

l Corporatisation of Department of Telecom Services (DTS) and Department of
     Telecom Operations (DTO) by creating Bharat Sanchar Nigam Limited (BSNL)
     w.e.f. October 1, 2000.

l Revenue sharing regime, in place of existing fixed licence fee, introduced for both
      basic and cellular service operators.

l Thrust to accelerated implementation of Prime Minister’s National Highways
     Development Project (NHDP) from petrol and diesel cess and additional fund raising
     measures for NHAI.

l Divestment of Government equity proposed in Indian Airlines and Air India.

l Extension of tax holiday benefit to solid waste management and water treatment for
     developing urban infrastructure.

Direct taxes

l Non-agricultural income of farmhouses made taxable.

l Venture Capital Funds accorded complete pass through status with the income
      being taxed only in the hands of investors.

l Interest from bonds issued by local authorities, as specified by Central Government,
      made tax free to make funds available for infrastructure.

l Minimum Alternate Tax (MAT) to be charged at 7.5 per cent of the "book profits" by
      all companies as determined under the Companies Act instead of the effective rate
      of 10.5 per cent earlier.

l Tax holiday benefits liberalised in respect of newly established industrial
      undertakings in Free Trade Zones, Software Technology Parks, Electronic
      Hardware Technology Parks and 100 per cent Export Oriented Undertakings.

l Weighted deduction for expenditure incurred on scientific research on in-house
      research and development facility enhanced from 125 to 150 percent.

l Benefit of exemption of export income by entertainment industry extended to
      non-corporate assesses.

l "One-by-six" criteria, introduced in the Union Budget 1998-99, for identifying
      potential taxpayers, extended to 79 more cities (from 54 cities) having population
      of 2 lakh or more.

Indirect taxes

l Peak protective customs tariff rate reduced from 40 per cent to 35 per cent
     ad valorem.

l The existing five major ad valorem rates of basic customs duty reduced to four
      ad valorem rates.

l The system of central excise was overhauled with the introduction of a single Central
      Value Added Tax (CENVAT) of 16 per cent ad valorem on all manufactured goods
      with a few exceptions.

Fiscal management

l The Fiscal Responsibility and Budget Management Bill, 2000, was introduced in
      the Lok Sabha in December 2000. The proposed legislation provides for a legal
      and institutional framework to eliminate revenue deficit, bring down the fiscal deficit
      and stabilise debt as a proportion of GDP within a time frame.

l The interest rate on general provident funds reduced by 1 per cent to 11 per cent
     with effect from April 1, 2000.

l Several measures taken for controlling growth in non-plan, non-developmental

Financial sector

l Tightening of entry norms for IPOs through modifications to SEBI (Disclosure and
      Investor Protection) guidelines.

l Modified guidelines issued for 100 percent one-stage book building process.

l Legislation initiated for reducing minimum Government shareholding in nationalised
     banks to 33 per cent.

l Establishment of IRDA.

l Enlargement of functional area and greater autonomy to NABARD through
     amendment to the NABARD Act, 1981.

l Revised norms for entry of new banks in private sector.

l Permission to banks and NBFCs for undertaking insurance business.

Trade policy

l Setting up of Special Economic Zones (SEZ) to encourage export production.

l Evolution of a scheme for granting assistance to states based on their export
     performance for development of export related infrastructure.

l Permission to import second hand capital goods, less than 10 years old without
     obtaining any license on surrender of SIL.

Capital account

l Foreign Direct Investment (FDI) up to 100 per cent permitted in e-commerce,
     subject to specific conditions.

l The dividend balancing condition for FDI in twenty-two consumer goods industries

l The existing upper limit of Rs.1500 crore for FDI in projects involving electricity
      generation, transmission and distribution (other than atomic reactor plants)
      dispensed with.

l FDI under the automatic route permitted up to 100 per cent for all manufacturing
     activities in Special Economic zones (SEZs), except certain activities.

l Foreign equity participation up to 26 per cent in insurance sector allowed under
      the automatic route.

l Policy liberalisations effected for facilitating the use of ECB as a window for
      resource mobilisation.

l Policies pertaining to international offerings through ADR/ GDR by Indian
     companies further liberalised.