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Tax reforms to energise industrial growth: Survey

The Economic Survey asked the Govt to "unburden" industry from high level of taxes to help it become globally competitive.

india Updated: Feb 27, 2006 13:25 IST
Press Trust of India
Press Trust of India

Cautioning against complacency in the face of sustained industrial growth, the Economic Survey asked the government to "unburden" industry from high level of taxes to help it become globally competitive.

"...The reform of tax system still remains an unfinished task. To be competitive globally, the Indian industry needs to be unburdened from the high levels of taxes and distortive exemptions that provide perverse incentives," the Survey presented in the Parliament said.

Complimenting the government for opening up the economy, the Survey said a massive investment of Rs 7,39,737 crore has been committed by the industry in last three years in areas that have been de-licenced.

Making a strong case for toning up the tax system, it said higher revenues have accrued even with unchanged or lower rates.

Pointing to the decline in industrial growth in the first nine months of this fiscal to 7.8 per cent from 8.6 per cent last year due to the lacklustre performance of the mining and electricity sector, the Survey said inadequate investments in sectors like gas and coal was the main contributor.

In other sectors, the investments were buoyant. "In the sectors in which licensing has been done away with, more than 15,000 industrial Entrepreneur Memorandum were filed during the last three years with proposed investment of Rs 7,39,737 crore and additional employment generation of 2.96 million," it said.

It said during the period, 351 industrial licences and letter of intent were issued with proposed investment of Rs 9,650 crore.

The rally in Gross Domestic Capital Formation (GDCF) that had commenced in 2002-03 continues.

The GDCF, which had declined to 23 per cent of GDP in 2001-02, has increased to 30.1 per cent in 2004-05.

The credit growth to the industry grew 17.4 per cent in 2004-05, as compared to 5.1 per cent in the previous year. Till October of this fiscal, the credit to industry accelerated further by 45.7 per cent.

Foreign Direct Investment also showed a marked increase of 33.8 per cent in 2005 as against growth of 25 per cent in 2004. During the current fiscal till November, FDI to the tune of Rs 5,947 crore have been approved. The increased activity on FDI front led to increase in India's share in global FDI to 0.8 per cent in 2004 from 0.5 per cent in 2002.

Delhi and parts of Uttar Pradesh and Haryana had a share of 25.96 per cent in FDI inflows, followed by Maharashtra at 21 per cent. Karnataka accouted for 7.63 per cent, Tamil Nadu 6.05 per cent and Gujarat 3.32 per cent.

Deceleration in the growth of mining and electricity sector in the current year may put added pressure on manufacturing sector, which has been the main driver of industrial growth, the Survey said.

While capital and consumer goods have put up an improved performance this year, the growth in basic goods was the same as last year and production of intermediate goods decelerated, the Survey said.

The survey was, however, bullish about the future. It said with the improvement in the investment scenario and liberalisation of norms, the overall productive capacity of the industrial sector is likely to increase substantially.

"With likely pick up in the production of oil, the mining sector is expected to improve its performance. Recent softening in the price of oil in the international market, if sustained, would have a positive impact on the industrial sector," it said.

The electricity sector, however, remanied a cause of concern as private investment in the sector has remained stagnant, the Survey added.

The document sees hardening of interest rates as dampening factor for the sustained growth in investment in the industrial sector.

It said the growth in manufacturing was largely input driven and the growth in productivity was hardly noticeable.

"Sustained efforts to remove bottlenecks hindering productivity and efficiency would boost the manufacturing sector substantially," the survey added.

First Published: Feb 27, 2006 13:25 IST