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Reformist intent most welcome

According to survey results, people agree that market-determined diesel prices free of administrative control, which the government announced last month, would cut subsidies and help cut taxes on petroleum products. This will help offset the shocks when global crude prices shoot up.

business Updated: Nov 17, 2014 01:12 IST
Gaurav Choudhury
People-agree-that-market-determined-diesel-prices-free-of-administrative-control-would-cut-subsidies
People-agree-that-market-determined-diesel-prices-free-of-administrative-control-would-cut-subsidies

For an economy struggling to claw out of its deepest slump in 25 years, it is a pleasant sight to spot a flurry of reformist intent, if not downright action.

Fuel prices are decontrolled; disinvestment is on track with the promise of more floating stock in our stock exchanges; a new coal allocation policy is being firmed up; land purchase rules are in the process of being simplified and the Centre is in the last stage of discussions with states for a unified goods and services tax (GST).

At least for now, the government seems to have got a firm grip on taming inflation. Retail inflation is at a three-year low and wholesale inflation is at a five year low.

The string of latest data is expected to strengthen the outlook for Indian economy — third largest in Asia— recovering from a two-year spell of sub-5% growth.

As our survey results show, people do agree that market-determined diesel prices free of administrative control, which the government announced last month, would cut subsidies and help cut taxes on petroleum products. This will help offset the shocks when global crude prices shoot up.

The survey was commissioned before the government decided to decontrol diesel prices last month. Nearly one in three respondents (32%) said that cutting taxes on petroleum products can help tame inflation.

More than half of the respondents (57%) believed that rising fuel prices and falling income had been the root cause of the persistent inflation.

One in five (21%) think that policy paralysis and adversarial tax laws are the reasons hindering India’s economic growth. If indeed an opportunity is presenting itself, the new Narendra Modi-led government is exploiting it prudently.



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Until now, India had changed its fuel prices with an eye more on the polls than on the crude price trends. The latest fall in crude prices offered an opportunity to set the clock right.

Having freed diesel prices from state-control, one of the most difficult reforms in India’s complex political economy, the government should now show the same degree of urgency into other crucial areas.

For instance, reforms in land purchase rules require the government’s priority attention. Highly restrictive conditions, as specified in the land acquisition legislation that the UPA government enacted last year, is proving to be a major barrier for industry to buy land. Many large proposals are stymied by ambiguous titles of ownership, environmental issues, poor compensation and social concerns.

In a recent interview to HT, finance minister Arun Jaitley indicated that plans to introduce GST, India’s biggest tax reform initiative, have entered the final leg with the Centre holding final round of negotiations with states to iron out thorny issues.

If adopted, GST can dramatically alter tax administration by giving a one-shot solution by subsuming a string of central and local levies such as excise, value added tax and octroi into a single unified tax and stitching together a common national market.

The government should not also lose an opportunity in the Parliament’s coming Winter Session to push through the proposal to ease foreign direct investment (FDI) limit in the domestic insurance sector to 49% from 26%.

There are many key reforms, such as overhauling the public distribution system, introducing a modern contemporary income tax code, that need immediate political push.

The government should now follow it up with action on these to regain India’s position as an engine of global growth. Economic reforms are, in many ways, like a dose of antibiotics. Half-measures tend to linger. It is time to run the full course for the economy to regain full fitness.