Speaking at a seminar organised by SP Jain Institute of Management, Tarapore said: "The budget is more realistic this year and has provided for a 11.5 per cent increase in expenditure. Last year's budget estimate of only 1.6 per cent increase had resulted in large overruns. The revenue receipts have also been pegged at moderate levels, and I am hopeful that the budget will not derail from the estimates."

On the possibility of a reduction in interest rates, Tarapore said: " The central bank needs to raise an average of Rs 15,000 crore per month in the first half of the next financial year for the government.''

"The government requires around Rs 1,17,000 crore in 2000-01 and 75 per cent of the borrowing will be completed in the first half of the financial year. However the banking system's annual deposit is only around Rs 10,000 crore thus making an interest rate reduction impossible," Tarapore said. "The basic pre-requisite for a reduction in interest rates is a substantial reduction in fiscal deficit. It is totally erroneous to argue that a reduction in interest rates would wipe out the fiscal deficit," he said.The proposal to reduce the government stake in public sector banks to 33 per cent, Tarapore felt, may raise a question of corporate governance with the withdrawal of government as majority shareholder".

According to Tarapore, the decision to retain the public sector character of banks means that strategic investments will not be allowed, and the government would miss the opportunity to collect a large premia.

Tarapore advocated the need to split the post of the chairman and managing director of public sector banks for better functioning. "The chairman should be made responsible for board related matters, while the managing director should be in charge of day-to-day operations," he said.

On the hike in dividend tax, the former deputy governor called for the restoration of status quo wherein corporates pay their taxes and the recipients of the dividend are made to pay taxes depending on their income."The principle should be that income tax is made neutral as between different instruments such as company dividends, mutual funds and interest on bank deposits. High networth individuals are gaining at the cost of those with moderate incomes while corporates use income schemes of mutual fund as tax shelters. Company dividends and income from mutual funds should be taxed in the hands of the receipient before abolishing dividend tax," he said.