February 27, 2002, Chandigarh, India
Strong dosage of economic reforms must
New Delhi, February 26
The survey talks about the scope for a further reduction in interest rates, including those on contractual savings, to match the low levels of inflation, further tightening of the tax collection system, including doing away with exemptions on direct and indirect taxes, extending the services tax to new areas, abolishing rent control at state levels and dereservation of items meant for the small-scale sector.
On the direct tax front, it noted that income tax and corporate tax rates had been brought down to internationally comparable levels. However, the Income Tax Act continues to be beset with tax concessions which manifest in the form of full or partial exemptions, deductions and tax holidays.
It is imperative to expand the tax base by plugging the loopholes. In this regard, it suggests elimination of tax incentives as they represent a revenue cost to the government and introduction of complexity and discretion in the tax system.
The government’s report card for 2001-02 has estimated a real GDP growth rate of 5.4 per cent compared to 4 per cent last year. It is, however, lower than the Plan target of 6.5 per cent.
The overall growth of 5.4 per cent was supported by a growth rate of 5.7 per cent in agriculture and allied sectors, 3.3 per cent in industry and 6.5 per cent in services.
The acceleration of the overall GDP growth rate is basically due to a significant improvement in value addition in the agriculture and allied sectors from a negative growth rate of -0.2 per cent in 2000-2001 to 5.7 per cent in the current year. The overall agricultural output is estimated to increase by nearly 7 per cent during the year. Foodgrains production is expected to rise to 209 million tonnes compared to 196 million tonnes in 2000-01.
The fiscal deficit for 2000-01, which had been estimated at 5.1 per cent earlier, is now placed at 5.5 per cent — exceeding the 5.1 per cent target. The revenue deficit, budgeted at 3.2 per cent for 2001-02, was now estimated at 3.4 per cent of the GDP.
The collection of revenue, however, reflected significant shortfalls in indirect taxes due to slowdown industrial production and deceleration of both oil and non-oil imports. Direct tax collections are likely to be below target for the current year. There is also a shortfall in revenue from disinvestments. Despite various economy measures taken by the government for reducing non-plan and non-capital expenditure, the gross fiscal deficit of the Central Government is likely to exceed the budgeted target.
On the infrastructure front, six core and infrastructure industries-electricity, crude oil, petroleum refinery products, coal, steel and cement — having a weight of 26 per cent in the overall index of industrial production achieved an average growth rate of only 2 per cent during the first three quarters of the current year compared with 6.8 per cent during the previous year. The only silver lining was in the performance of consumer durables which grew at a double digit rate of 12.5 per cent.
The government’s expenditure on education, health, family welfare, nutrition, sanitation, rural development, housing, social welfare etc. increased from Rs 9608 crore in 1992-93 to Rs 40,205 crore in 2001-02.
Laying the route map for the coming years, the survey suggested that the government go ahead with labour reforms and reduce food subsidy in view of the reduction in poverty levels.
The survey has called for more innovative ways of providing food subsidies to the poor, without affecting the whole food economy. Marketing systems must be found out and simpler systems like food-stamps or their variants can be considered, it said.
Accelerated implementation of fertiliser price reform is underlined in the survey to reduce fertiliser subsidy to sustainable levels and also make the subsidy better targeted and more transparent.
The survey has called for equal attention to be paid to containing both revenue and fiscal deficit. Public borrowing for public investment is indeed justified and should be undertaken, it said.
The shift of farm production from cereals to other agricultural products is also being sustained by the availability of relatively high minimum support prices for wheat and rice.
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