Search the Internet          Tips  Sites: Finance, Investment

Service taxes, subsidy cuts on the way: FM

BS Bureau in New Delhi

Finance Minister Jaswant Singh has said his biggest priority is to improve the tax-to-GDP ratio without making the tax system "expropriatory", and to reduce government expenditure by curtailing interest payments and subsidies.

In his first substantive interview since assuming office four months ago, Singh told Business Standard he would beef up the tax administration to make it modern, transparent and more responsive. He said the system would be made impersonal, to reduce the interface between the tax- payer and the assessing officer.

He favoured even outsourcing a part of the tax administration work to computer software firms, so as to use electronic data for better tax collection. This includes functions at present being carried out by his revenue department.

The finance minister said he would strive for covering more services under the tax net, align the individual income-tax rates with those for companies and make an attempt to avoid the cascading effects of the taxation system. He added that he had to expand the base of the tax system and go beyond manufacturing, which accounted for only a quarter of GDP.

He admitted that cutting subsidies was a political minefield. But he said the government had to find some way to tackle this issue. The scope for cutting government expenditure was otherwise very limited, he said.

When asked if reduction in subsidies was possible, he said, "I have to reduce the purely political element and convince others about the benefits of such measures for the economy." They must be better directed and food security is one area where, I believe, India should not be lectured by others, he added.

On tax issues, Singh said he would accelerate tariff reduction, especially since exports were doing well and imports were under control, so that the current account deficit was minimal. As for the recommendations of the Kelkar task force, he said he had not yet read the task force reports and was waiting for his officials to go through them and revert to him.

Singh said his focus would be on cutting down the revenue deficit, since the deficit on the capital account was really investment in the system. With regard to investing in physical infrastructure, he said money would not be a constraint for programmes that were achieving their physical targets.

Singh defended the government's decision on setting an 8 per cent growth target for the tenth plan period and said the short-term indicators showed the Indian economy had the potential of facing adverse external situations and still achieve a growth of over 5.5 per cent. "I don't see how it is overreaching. China has demonstrated that growth. Yes, if we aspire to that growth, why should you see we are overreaching?" he said.

He indicated that there were certain areas like steel and housing where the economy had seen some revival, and he hoped to encourage this process.

He said the debate over divestment would be resolved soon. He admitted that the budget target of mobilising Rs 12,000 crore (Rs 120 billion) from divestment would not be met. But this would not remain an issue as far as the eighth plan assumption of raising about Rs 78,000 crore (Rs 780 billion) from divestment was concerned.

The momentum of divestment must not be lost, he said. "If you examine what has happened in other countries at this point, then I would say what is happening in India is not dissimilar to what happened by way of public debate elsewhere," he said, adding that "we do not really need to be discouraged. The programme has thrown up some questions. We need to address those questions, find the answers in moving forward".

Explaining his silence during the recent debate over divestment, Singh said, "I did not speak deliberately, because I didn't want to become a participant in the public debate. I can't afford it. Actually, a finance minister should speak very little, and only when absolutely necessary."

He, however, admitted that his major concern was the sluggishness in global revival, the uncertainty about the hydrocarbons sector, the availability of quality infrastructure and the need for fiscal consolidation.

Singh said it would be wrong to describe the measures taken by his government to help the Unit Trust of India recover from its current crisis as a "bail-out". "I have tried to fence in the liabilities of the government," he said.

The purpose was to ring fence the liability and fence them in permanently.

"Now when I am fencing in, then I have taken on the responsibility for that for which the Union government has given its word," the finance minister said.

He also defended similar moves he proposed to take in respect of the Industrial Development Bank of India and IFCI, since he felt the government had a moral responsibility towards at least some part of the liabilities of these institutions.

However, he stressed that he would not reward profligacy, nor would he assume responsibility in areas where the government was not responsible.

"You design your tax policies in a way that if you invest in units, you will benefit. Invest in an IFCI bond and you will benefit. And then if you say I have nothing to do with it, that is immoral," the finance minister said.

He said in his view the decision on determining the salaries of company chief executives should be left to shareholders and the government should not come in the way.

The finance minister denied that corporate rivalries influenced his government. This would be so in an economy where the government had ceased to dispense patronage to the corporate sector, he said.

Powered by

ALSO READ:
Monetary & Credit Policy 2002-2003
More Money Headlines