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Sinha to slice exemptions, focus on rural economy

A K Bhattacharya & P Vaidyanathan Iyer

Finance minister Yashwant Sinha will take a hard look at all the exemptions available under the current personal income-tax and corporation tax regime. In an hour-long interview to Business Standard just nine weeks ahead of his fifth Budget, Sinha said, "Tax exemptions are the bane of our system."

The basis of Sinha's review would be the various committee reports on taxation issues submitted to the government. He also said there would be a strict scrutiny of evasion on the personal income-tax front.

"Especially, in the case of high net worth individuals, there should not be any evasion," he said. Given the backdrop of a global slowdown, the minister said, the corporate tax system would be used to encourage investment.

The key objective of his taxation policy next year would continue to be two-fold - rationalisation of direct and indirect tax rates and simplification of the various tax procedures.

Outlining the broad agenda for Budget 2002-03, the finance minister said that agriculture and the rural economy would be a key thrust area.

The various recommendations made by the Rakesh Mohan committee on the Indian Railways would be a serious item on the agenda. When asked if the government would consider levying service tax on the railways, Sinha said, "That is a possibility."

In an interview that covered a wide range of issues, Sinha said he had made substantial progress on labour market reforms, downsizing of the government and formulation of a new package for voluntary retirement scheme and pension payments to government employees .

A group of ministers, headed by the Planning Commission deputy chairman, had finalised its report on amending the Industrial Disputes Act, on the basis of which a cabinet note on amending the legislation was being prepared.

The finance minister said, the group of ministers set up by the Prime Minister to discuss the amendments to the Contract Labour Act and the Industrial Disputes Act has now reached a consensus. "We will introduce the amendments to the Acts in the next session of Parliament," Sinha said.

The Prime Minister has set December 31 as the deadline for all central ministries to revert to him with an action plan for downsizing their staff as per the recommendations made by the Expenditure Reforms Commission.

The plan for introducing a voluntary retirement scheme for government employees and a new pension package for them had also been finalised, he said.

The minister also said he has received the recommendations of the standing committee on finance on the fiscal responsibility and budget management Bill, which had diluted its key provisions.

"I will accept some and reject some of their recommendations," he said, adding, " I would like the Bill to be a fiscal responsibility Bill."

Referring to the immediate problem of coping with the global slowdown, Sinha said, "We have to create a climate for investment in the manufacturing and the infrastructure sectors." The withdrawal symptoms of the private sector in power and its limited participation in roads, called for public investment in these areas, he said.

The minister, however, immediately qualified by saying, "While investment expenditure is important, the government's capacity to spend is also a major factor."

The government is not the most efficient spender of funds, he admitted. While he said that the government expenditure was under control, the revenue shortfall was a cause of concern. "We are keeping a close watch on the situation," Sinha said.

Talking about his "unfinished agenda", Sinha said, agriculture assumed the top priority for the next fiscal. "We want to achieve a convergence of the large number of schemes in the agriculture and rural sector besides correcting the MSP policy," he said.

In a strong defence of his performance, Sinha said the last budget was criticised for the "tall promises" it had made. "I was even charged of first degree murder", he said.

He was convinced that he had already crossed the first hurdle of making reforms acceptable to the people and within the party and its allies. The next hurdle was implementation now, he said.

Claiming credit for introducing privatisation in India a few years back and now putting labour market reforms on the government's agenda, Sinha said, "You can blame me for implementation delays, but not for inaction."

The finance minister said, "When I started out in 1998, there was an unfinished agenda on the first phase of reforms itself. It took me a year to finish the first phase of reforms." At the same time, he said, his ministry started drawing up the agenda for the second generation reforms.

"The unfinished agenda now is to complete the implementation of the reforms measures already announced," he added.

Economy has resilience to absorb impact of war

Finance minister Yashwant Sinha has asserted that India had the resilience to withstand the impact of any limited war against Pakistan, although he has not ruled out an increase in defence expenditure.

"We have the resilience. We have overcome crises like these in the past. We have clearly demonstrated our capability to meet such challenges," Sinha told Business Standard in an interview on December 22.

The finance minister also did not rule out an increase in defence expenditure this year. "No country will hold back the defence expenditure. In fact, I've provided adequately for defence this year," Sinha said.

He recalled that during the limited conflict in Kargil, the market sentiment was high. "There is no reason for panic," Sinha said.

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