The government would take steps to rein in untargeted subsidies and ensure that the value-added tax regime is implemented across the country on April 2003, Prime Minister Atal Bihari Vajpayee said.
To address the state governments' concerns, Union Finance Minister Jaswant Singh assured that the Centre would fully compensate for any revenue losses because of VAT in the first year.
A proposal for the amendment to the Constitution on the service tax would be sent to the empowered committee of state finance ministers on VAT for approval ahead of the Bill being tabled in Parliament in the next session.
VAT was expected to become a major source of revenue for states, Singh told reporters on Saturday after the 50th meeting of the National Development Council to adopt the Tenth Five-Year Plan.
Earlier, addressing the NDC meeting, Vajpayee said: To ensure fiscal consolidation at both Central and state levels, we need to enhance revenues and address the problem of untargeted, run-away subsidies. We should ensure that the VAT regime is implemented in all states on April 1. This will open the door to enhance revenues for states.
The Prime Minister indicated his government's resolve to tackle needless subsidies.
When existing subsidies do not fulfil their objectives, we should put in place a firm road map for applying correctives, Vajpayee said.
He also announced constitution of four empowered sub-committees to go into governance reforms with special reference to e-governance, removal of barriers to internal trade, creation of an investor-friendly climate and financial and administrative empowerment of the panchyati raj.
To ensure that the 8 per cent growth target for the Tenth Plan was met, the government would focus on infrastructure development, especially in power, roads and water sectors and building public-private partnerships, Vajpayee said.
Expressing concern at the poor state of infrastructure, Vajpayee said: In particular, I can see danger lights flashing because of the slow pace of reform in the power sector.
The government's divestment programme also figured prominently at the meeting, with the Plan targeting to garner Rs 80,000 crore (Rs 800 billion) from selling government equity in public sector companies in the next five years.
Apart from 8 per cent growth target, the Plan envisages creation of 50 million jobs, reducing poverty by five per cent, and garnering Rs 80,000 crore through divestment and phased cut in food, fertiliser and petroleum subsidies.