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Issues and PrioritiesBudget 1998-99
Budget 1997-98
Budget 1996-97
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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. |
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| 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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