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This is an archive article published on February 5, 2003

Diluted Fiscal Responsibility Bill gets nod

The Cabinet on Tuesday approved a diluted Fiscal Responsibility and Budget Management Bill which would in principle attempt to keep the defi...

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The Cabinet on Tuesday approved a diluted Fiscal Responsibility and Budget Management Bill which would in principle attempt to keep the deficit of the government within control. However, keeping in mind the present situation on the fiscal front, the Cabinet diluted a lot of earlier proposals of the Bill.

The Cabinet also approved a hike in the royalty of indigenous crude oil for the States from the present cap of Rs 850 per tonne to 20 per cent of well-head price linked to market rates. This move would benefit oil producing States like Gujarat and Assam.

The provisions which have been diluted on the Fiscal Responsibility and Budget Management Bill include doing away with the fixed target of cutting down revenue and fiscal deficits by 0.5 per cent of GDP per annum and doing away with lack of flexibility in the clauses provided in the original Bill regarding government borrowing through the Reserve Bank of India.

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The decision to dilute the Bill was taken in the Cabinet meeting after incorporating the recommendations of the parliamentary standing committee on finance, which provided for more flexibility than what was prescribed in the original Bill introduced in Lok Sabha on December 2000.

Announcing the Cabinet decision, Parliamentary Affairs Minister Sushma Swaraj told reporters that efforts would be made to have the Bill passed in the forthcoming Budget session.

“No target (to reduce deficit) has been fixed. The stringent provisions were removed as development may become a casualty and may affect growth,” she said, while adding that the finance ministry, which had examined the recommendations of the parliamentary standing committee, has affected the changes.

Meanwhile, elaborating on the hike in royalty of indigenous crude, petroleum ministry sources said 20 per cent royalty would be charged on the well-head price of crude oil produced from areas granted to national oil companies on nomination basis, exploration blocks awarded to private contracts prior to nelp (New Exploration Licensing Policy) and onland discovered fields awarded to private/ joint venture contractors.

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Presently, royalty on crude oil produced from pre-NELP blocks is taxed at Rs 850 per tonne while the NELP blocks are levied ad valorem rate of 20 per cent tax. For onland blocks royalty goes to State governments, while for offshore blocks it goes to the Centre. The new proposal states that for crude oil production from onland areas, royalty be paid at the rate of 20 per cent of the well-head price till 2006-07. From 2007-8, royalty rates would taper by 1.5 per cent each year so as to facilitate convergence with NELP rates of 12.5 per cent within a period of five years (2011-12). For crude oil production from shallow water offshore areas, royalty would be paid at the rate of 20 per cent of the well-head price during 2002-03 and thereafter at rates tapering by 2 per cent in each subsequent year till 2007-08, so as to converge with the nelp rate of 20 per cent.

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