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Economic Survey sees 7% GDP; moots tax reforms

Projecting 7% growth in 2005-06, the survey outlined tax, expenditure and labour laws reforms as a priority.
PTI | By Press Trust of India
UPDATED ON MAR 03, 2005 12:39 PM IST

Projecting a seven per cent growth in 2005-06, Government's pre-budget Economic Survey on Friday outlined reforms in tax and expenditure and labour laws as a priority in the Budget and favoured opening up of more sectors, including retail, to FDI to push up investment.

Identifying agriculture, infrastructure and employment as areas for big-ticket public investment, the 2004-05 survey stressed the need for maintaining low interest and inflation rates and integrating the whole country towards a common market.

The survey, tabled in Parliament, was hard hitting on the fiscal situation of both the Centre and states and proposed major tax and expenditure reforms, cutting down wasteful subsidies to reduce fiscal and revenue deficits.

It said customs duties should be aligned to ASEAN levels to enhance competitiveness and fuel export growth and tax exemptions be phased out along with bringing in more services into the tax net to make up for the lowering of both direct and indirect tax rates.

"Both the Centre and states need to improve their tax administrations to have an impersonal and hassle-free regime, with low compliance cost for honest tax payers and a high risk for the evaders," it said suggesting a phased rationalisation of central sales tax to remove tax on inter-state sales.

To transform Indian manufacturing into globally competitive units, the survey said there was a strong case to revisit the issue of FDI caps in sectors like coal, mining, insurance, real estate and retail trade.

Yet, vigourous efforts are needed to accelerate growth to achieve Common Minimum Programme mandate of ensuring that the economy grows at least seven-eight per cent per year in a sustained manner over a decade.

On inflation, the survey said there is a downward trend, particularly for agro-based products during January-March every year due to seasonality of prices. The current year is no exception to this general trend.

On FDI, it said opening up retail sector would not only organise a significant part of the largely unorganised retailing, but can also invite established global retail brands into the Indian market, creating greater outlets for sourcing and marketing Indian products.

"Organised retail formats will also help in upgrading the quality of products, establishing efficient supply chains from farm to market and generating greater employment," it said.

The survey said growth projection of 6.9 per cent this year has surpassed all projections made at the beginning and early part of the year. The current account of the balance of payments has turned into a deficit showing an excess of investment over savings.

Asserting there are five issues that needed to be addressed to step up investment, it said apart from pushing up agriculture development, simplifying procedures, relaxing entry-exit barriers and removing infrastructure bottlenecks be given top priority.

For business start-ups, a large number of clearances have to be taken at the Central and state levels, it said adding such a system introduces delays and creates avenues for corruption.

Emphasising that small scale reservation has not succeeded in giving the expected results and constrains investment in some critical sectors, the survey said there was little justification for continuance of such reservations since all such items were now freely importable.

Easing the entry-exit barriers will be critical in determining the success of the textiles sector to reap the enormous potential benefits of the post-quota regime.

Asserting that infrastructural inadequacy constrained economic growth, the survey said there was a need to find an appropriate policy framework enabling public-private participation in the infrastructure sector.

It identified telecom, roads, ports and civil aviation as thrust areas in infrastructure development and said efforts should be continued to enhance energy security by augmenting infrastructure of trans-border gas pipelines given the volatility in global crude oil prices in the recent years. 

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