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Fiscal Developments

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Budget 1998-99
Budget 1997-98
Budget 1996-97


Fiscal Developments

The budget for 1998-99 was formulated in the backdrop of serious fiscal slippage and a deceleration in economic growth. Its objective was, to (a) restore the momentum of industrial growth, (b) ensure macroeconomic stability, (c) raise investment, particularly in infrastructure, (d) provide impetus to social sector development (e) reverse the decline in agriculture production, and (f) calibrate the pace and character of integration with the world economy. The budget announced a modest reduction in the gross fiscal deficit (GFD) from 6.1 per cent of gross domestic product (GDP) in 1997-98 (RE) to 5.6 per cent of GDP in 1998-99 (BE). Consequent to the release of new series of national accounts, the fiscal deficit as a proportion of GDP at current market prices is now placed at 5.5 per cent and 5.1 per cent for 1997-98 (RE) and 1998-99 (BE) respectively (Table 1.6) . The Revenue deficit, which indicates the extent of borrowing required to finance current expenditure, was budgeted at Rs.48068 crore (2.7 per cent of GDP) for 1998-99 compared with Rs. 43686 crore (2.8 per cent of GDP) for 1997-98 (RE). The primary deficit, which is an indicator of current fiscal operations of the Central Government, was estimated at Rs. 16025 crore (0.9 per cent of GDP) for 1998-99 compared with Rs. 20645 crore (1.3 per cent of GDP) attained in 1997-98 (RE).
The Central Government finances during the current year continue to be under stress. The fiscal deficit in April-December, 1998 was exacerbated on account of a higher growth in total expenditure at 26 per cent compared with a growth of only 4.7 per cent in total revenue receipts. Thus, preliminary estimates indicate that the fiscal deficit was higher by 77.1 per cent in April-December, 1998 over that in April-December, 1997, and accounted for about 80.7 per cent of the budgeted fiscal deficit for 1998-99. With continuing shortfalls in collections of indirect taxes due to sluggish growth in industrial production and imports, it is unlikely that the year end fiscal deficit would be contained within the budgeted amount.
A number of measures were taken to strengthen the infrastructure and rural sectors. The plan outlay for infrastructure (comprising energy, transport and communications) was budgeted to go up by 35 per cent from Rs.45252 crore in 1997-98 (RE) to Rs.61146 crore in 1998-99. National Highways Authority of India (NHAI) was provided Rs.500 crore to catalyse new road projects. To generate funds for development of roads, an additional duty at the rate of one rupee per litre on petrol was introduced. This is expected to garner Rs.790 crore in a year and will entirely go towards augmenting the corpus of NHAI. Housing was another thrust area. The allocation for the Indira Awas Yojna Programme was enhanced to Rs.1600 crore, from Rs.1144 crore in 1997-98 (RE). The budget provided more fiscal concessions to stimulate housing activity and an ordinance was promulgated for repeal of the Urban Land Ceiling Regulation Act.
A number of programs were strengthened to enhance agricultural productivity in a sustainable manner. The plan allocation for Watershed Development Programmes was hiked to Rs.677 crore from Rs.517 crore in 1997-98 (RE). The outlay for Accelerated Irrigation Benefit Programme was enhanced by 58 per cent over the 1997-98. Rural Infrastructure Development Fund (RIDF) IV was launched with an enhanced allocation of Rs.3000 crore. The share capital of National Bank for Agriculture and Rural Development (NABARD) was further augmented by Rs.500 crore with a contribution of Rs.100 crore from the budget and Rs.400 crore from RBI. This will enable NABARD to leverage additional resources from the market to meet the credit needs of the agriculture.
The Infrastructure Development Finance Company (IDFC) was designated an all India public financial institution with all attendant fiscal incentives, to enhance long-term finance for infrastructure investment in the private sector. As Provident Funds can be an important source of funding for private sector infrastructure projects, the Union Budget has allowed investment up to 10 per cent of the new accretion in private sector securities which have an investment grade rating. Inland waterways and inland ports have also been included in the definition of infrastructure and given associated fiscal incentives of tax holiday. The budget proposed a guarantee scheme to cover the outstanding dues of Central PSUs such as NTPC and Coal India from SEBs. This would enable the former to raise resources either by securitising these debts or directly entering the market for tapping resources.
The effort to simplify and widen the personal income tax continued. Two additional presumptive tax indicators were introduced and the ambit of the presumptive tax effort extended from 12 cities to 35 cities. This has been accompanied by making it obligatory for assesses to quote their Permanent Account Number (PAN) or GIR number in respect of certain high value transactions. With a view to simplify the tax return, a one-page tax return called "Saral" was introduced for all non-corporate taxpayers.
To encourage industrial activity in backward areas, the tax holiday granted to industrial undertakings located in any industrially backward State or district was extended till March 31, 2000 and for power generating units till March 31, 2003.
On the excise side, the process of rationalisation and reduction of duty rates were carried forward so as to ensure convergence towards a mean rate of 18 per cent ad-valorem. Towards this end, an excise duty of 8 per cent was imposed on a number of commodities. With a view to off set the State and Local taxes paid by domestic producers a special additional non-modvatable levy of 8 per cent was imposed on imports, which was subsequently scaled down to 4 per cent. However, this levy excludes a wide range of goods and categories of imports.
For the small-scale industries sector the exemption limit for excise purposes was enhanced from Rs.30 lakh to Rs.50 lakh. Furthermore, to reduce litigation in payment of direct and indirect taxes, a new scheme called "Samadhan" was introduced. This would offer waiver of interest, penalty and a part of tax and immunity from prosecution on payment of arrears. The scope of service tax was widened.

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