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Sinha promises budget boost to reforms

Finance Minister Yashwant Sinha. Reuters/Kamal KishoreUnion Finance Minister Yashwant Sinha said on Wednesday that his budget for the next financial year would focus on agriculture and tax reforms to boost sagging economic growth.

Sinha said he would also carry forward economic reforms in key areas like power and step up government spending in crucial infrastructure sectors where private investment was not forthcoming.

"I will try and make it (the 2002/03 budget) tax payer friendly. I will try and give impetus to growth," Sinha told Reuters in an interview. India's financial year runs from April to March.

Sinha will present his fifth budget in February against the backdrop of a gloomy domestic and global economic outlook after the September 11 attacks on two American cities and its impact on world economy.

The Indian economy, one of the fastest growing in the world in the past decade, is headed for a third straight year of slower growth and the country's central bank estimates gross domestic product growth at around five per cent.

Fifth time lucky?

Sinha unveiled a series of administrative reforms, simplified tax structure and announced radical changes in labour laws in his 2001-02 Budget.

But his budget dreams turned sour as the government shied away from tough reforms for fear of losing mass support following accusations of an arms scandal, a stock market rigging scam and losses incurred by the country's largest mutual fund manager.

Sinha said he would simplify the tax structure, widen the tax net and outline measures to eliminate evasion in the budget. There was a "good case" for the services sector, which accounts for almost half of GDP, to contribute more to tax revenues, he said.

"Clearly the emphasis in taxation-both direct and indirect would be to continue to curb evasion and avoidance to clean up the act as far as exemptions are concerned," Sinha said.

India, with a population of one billion, has only 25 million people paying personal income tax.

soft rates to continue

The finance minister said the government's soft interest policy will continue as it was necessary in the present situation.

"In view of the low rate of inflation within the country and what is happening all round the world, soft interest rate is not only desirable but is necessary," Sinha said.

He said the government has been trying, in tandem with the central bank, to take the country towards a "softer interest rate regime" but the biggest impediment had been the fiscal deficit.

India's chronic fiscal deficit widened to 5.2 per cent of gross domestic product in 2000-01 (April-March) due to lower than-expected tax revenues.

Analysts say the government is likely to miss its fiscal deficit target of 4.7 per cent of GDP this financial year also as tax revenues have been hit because of the economic slowdown.

"I will only make a general statement that the softer interest rate policy will continue," Sinha said.

"It is more necessary to continue that policy in the present situation than was the case before," he said when asked if he would cut rates on small savings schemes.

Sinha has come under fire from opposition parties and sections of his own Bharatiya Janata Party for reducing rates on small savings schemes by 100-150 basis points in February since pensioners and the middle classes rely on heavily on these schemes.

Reuters

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