Budget 1998-99 Inadequate Policy Initiatives

In an attempt to carry along all sections of society the budget has measures to improve the farmers' lot, has not changed the direct tax structure so as not to hurt the middle class, and has given protection to industry whilst increasing expenditure on infrastructure. This accommodative stance has not allowed the government to rein in the fiscal deficit and the budgetary targets may not be met. New measures are needed to strengthen the institutional weaknesses of the financial system such as raising liability limits on shareholders, giving tax sops for NPAs taken off the books of banks, and limiting entry into banking. With indirect taxes still a dominant source of revenue, the exemption limit for personal taxes needs to be reduced and all savings exempted from such taxation so that the introduction of a full-fledged VAT is not regressive. With the emphasis of the agricultural reforms on the terms of trade being misplaced, total factor productivity improvements via research and investments in agricultural infrastructure are called for.