The Finance Minister Yashwant Sinha could not have inherited a worse economic situation from his predecessors. The Interim Budget presented a very gloomy state of affairs. The fiscal deficit has been mind-boggling at 6% of the GDP. The government expenditure has risen sharply above the danger mark. The proposed collection from PSU disinvestments has fallen short by Rs. 4000 and the net tax collection has fallen short by 13% from the budgeted level. For the first time in last 10 years, the GDP growth is likely to be at a far from satisfactory level of below 5%. Indian exports which saw a growth rate of more than 20% between 1993 and 1997 has dropped to an absurd rate of 4%.

Added to this are the negative fallouts of the US sanctions in the wake of the Nuke Test. The exports to USA account for 20% of total exports. There is going to be a definite slowdown in this area. Japan has been actively funding India for infrastructure development through the Overseas Cooperative Economic Fund. It may now not support further projects.

Tough task lies ahead for the Finance Minister. He has to strike a balance between the Swadeshi manifesto and the need for the superior technology from the West. Inspite of the urge for Swadeshi, we need to encourage foreign direct investments in the core sector. Efforts have to be made to make Rupee intrinsically stronger, instead of maintaining artificial parity. PSU reforms and disinvestments need further boost. The current state of the stock market is far from satisfactory and requires many fundamental changes.

The immediate agenda is to arrest the impending overall recession and to give a major boost to the growth. Increased focus needs to be placed on increasing government spending on infrastructure. As far as the income tax is concerned, lots of fundamental changes are expected from the Finance Minister. I will state here some of the anomalies in the tax system which need immediate corrections.

• The Voluntary Disclosure of Income Scheme has proved beyond doubt that it was the inefficiency of the previous governments which had resulted in such vast accumulation of unaccounted money. There are many transactions where the dark coloured money keeps growing. Real estate is one area where the largest chunk of black money is created. The reason: exorbitant stamp duty and registration charges. Lot of black money is generated because many units suppress turnover in order to remain within the exempt limits under Central Excise Law. Over-invoicing imports and under-invoicing exports also generates a great deal of unaccounted money. All these factors are extraneous to the IT dept. : black money generation would continue even if the IT Act is simplified and rationalised, unless these factors are taken care of.

• The shift from raid raj to the regime of voluntary compliance is the need of the hour. 'File, smile and go', which the Government has always promised, is what is required. Efforts are required on the part of the Government to convince the tax payers that the Income Tax Department exists for service to society, and not as an instrument of harassment. This change in attitude is imperative to bring people closer to tax- compliances.

• The last budget saw lots of concessions being given to salary earners. The concessions are commendable, but it has resulted in certain anomalies. While a salary earner enjoys tax exemption to an extent of Rs. 75000, a professional, or a person deriving income from house property, does not get any such benefits. A deduction similar to the standard deduction should be provided to these types of assessees also. Similarly, a standard deduction needs to be provided to the partners from the salary earned by them from the firm.

• In recent years, infrastructure projects have received some incentives. More incentives also need to be given to such projects. The scope of the definition of the infrastructure facility under section 80-IA also needs to be widened to include land area development, establishment of townships, water and sewerage system, education, and health care. Section 80L needs to be amended to provide for deduction of interest paid by the infrastructure project to the investor.

• A very bold measure was announced in the Finance Act, 1997, exempting dividends from taxation. By inserting Section 10(33), dividends declared, distributed, and paid by domestic companies have been made exempt. Here lies the anomaly. The dividends declared by the Unit Trust of India do not qualify for such exemption, as it is available to domestic companies only. UTI has always been the favoured Institution and to deny the benefits to UTI investors seems to be totally unjustified. It seems this was an obvious error, which the Finance Minister should rectify in this Budget.

• Greater incentives need to be provided for exports. Section 80HHC which provides for deduction in respect of profits derived from exports, artificially restricts the amount of rebate to a low figure. The unfortunate thing with tax deductions has been that whenever the Government has announced tax deductions, it puts so many conditions to ensure that an unscrupulous assessee does not derive any benefit out of it, that it ceases to be of much benefits even to a genuine claimant. I think, the better course is to make the provisions more liberals, so that the genuine assessees are all benefited, even if it results in benefit to a small number of unscrupulous assessees.

• The Income Tax Act has seen hundreds of amendments since its inception. What now remains of the Act is a very confusing and distorted law. Every measure to simplify and rationalize has resulted in making the law more complicated. Instead of trying to simply this law further, it needs to be scrapped altogether, and replaced by a more cohesive and simple-to-understand law. The trend in the USA has been to write laws in plain English, understandable to a layman, instead of archaic legal expressions. Our lawmakers should also follow suit.

• Great hardship has resulted to industries due to the amendment in the law relating to depreciation provided in the Finance Act, 1996. After this amendment, unabsorbed depreciation is treated at par with unabsorbed business loss, and can be carried forward for eight years only, instead of the unlimited carry forward which was allowed earlier. It is submitted that the investments in infrastructure and large projects can not be recovered in eight years. It is a standard system worldwide to allow unlimited carry forward of depreciation. It is hoped that the Finance Minister will restore the position as it existed before the amendment.

• Better days will lie ahead for the economy only if the new government gets convinced that the prevailing tax rates are still not the lowest, but there still is a long way to go. Indian tax collection has always been a low of 2-3% of GDP, as compared to most South East Asian countries, who have been collecting revenue exceeding 8%. The government has always put the blame on irrelevant factors such as low tax morality, lack of proper administrative machinery, inefficient set-up and so on, ignoring the real reason which is abnormally high tax rates.

Yashwant Sinha was the Finance Minister who had taken the decision to pledge the gold reserves to bring the almost bankrupt economy out of red. Since then, he has come a long way. He is a known reformist. He also possesses the reputation of going to the root of the problems. But the question is, whether this man will be able to do justice to the economic priorities, while trying to balance the swadeshi factor? The question is whether he shall be able to provide sufficient cushions in the budget to withstand the US and international sanctions? The question is whether he will be able to satisfy all the constituents of his government, which patronise to different ideologies. But for that we will have to wait till the Budget is announced.