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FM hints at moderate taxes, reforms

PC says economic reforms could also be expedited while slashing wasteful expenditure, reports KA Badarinath.

india Updated: Nov 08, 2006 03:16 IST

Finance Minister P Chidambaram hinted on Tuesday that the government could moderate taxes further and speed up economic reforms while slashing wasteful expenditure to help sustain eight per cent annual economic growth.

Inaugurating the annual economic editors conference a day ahead of the start of the budget-making exercise, the minister also underlined that lower tax rates must result in honesty among taxpayers.

"There is scope for further moderation. But this will depend on greater tax compliance," Chidambaram said.

Chidambaram said the tax-GDP ratio has gone up to 11.2 per cent during this financial year as against 8.3 per cent in 1998-99, and he expected a further moderation in tax rates coupled with new administrative measures to boost tax returns and revenues.



He signalled that he was not comfortable with a draft drug policy proposal to levy a health cess akin to the current education cess but offered no comment on the issue, expected to be considered by the cabinet soon.



Chidambaram, emphasising that economic growth and fiscal consolidation must go hand in hand, said economic reforms were far from over.



"We have miles to go before we rest. What is needed is not less but more reforms to achieve balanced growth with equity," he said.



He ruled out the possibility of pausing again in meeting targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act in order to fund large social sector commitments.



Chidambaram said he saw no reason for banks to raise interest rates in the immediate future while they balanced their portfolios to make deposit growth match high expansion in credit.



The minister identified agriculture, energy and infrastructure as areas that required immediate attention, and called for a hard look at tax incentives. "So long as we are not able to eliminate wasteful expenditure, we have to adopt a cautious attitude towards tax concessions and revenue sacrifices," Chidambaram said.



"I have reported to the Cabinet and requested all my colleagues that once the budget is made, unless there is very compelling necessity, new programmes and new projects should not be floated in the middle of year, requiring additional sum of money," he added.



Pointing to infrastructure bottlenecks, he said as much as Rs 14,50,000 crore were required during the 11th Five-Year Plan to build adequate infrastructure, and a large chunk of those funds must come from domestic savings.


Email badarinath@hindustantimes.com