FM hints at moderation in tax rates

Ahead of the Budget exercise beginning Wednesday, Finance Minister P Chidambaram today hinted at further moderation in tax rates, deepening of reforms, and a cut in wasteful expenditure.

Inaugurating a two-day Economic Editors' Conference here, he said a large proportion of people paid taxes now because of moderate and stable tax rates, adding, "There is scope for further moderation... However, this will depend on greater tax compliance."

Broadening the base of reforms had enabled India to become a major economic power, the minister said, even as he expressed the need for further deepening of reforms on institutional and governance fronts.

He said sustaining 8 per cent growth and achieving 9 per cent in the 11th Plan would require a mix of right policies, new initiatives, and better governance. While inflation continued to be a cause for concern, the more important challenge lay in agriculture, energy, and infrastructure.

"The foremost challenge is to sustain the momentum of growth and maintain a rate of 8 per cent or more "" and move towards the 11th Plan target of 9 per cent "" in the medium term. This requires a mix of right policies, new initiatives and, above all, better governance. It also requires finding the resources to finance such growth without compromising on financial stability and fiscal prudence," he said.

The minister stated that a cautious attitude was needed towards tax concessions.

"So long as we are not able to eliminate wasteful expenditure, we have to adopt a cautious attitude towards tax concessions and revenue sacrifices. The magnet for new investment should be better infrastructure and not tax concessions alone."

Referring to inflation, Chidambaram said there were some concerns on the price front. He pointed out that inflation was largely commodity specific in nature and largely due to reduced domestic availability and high international prices.

"Inflation in respect of the 30 commodities remained at 8.7 per cent in the week ending June 10 and June 17, 2006. While inflation for these commodities continues to remain a cause for concern, reduced domestic availability relative to demand and firm international prices are constraining efforts," he said.

The management and distribution of essential commodities through the public system would have a restraining effect on prices of commodities distributed by private trade.

Referring to infrastructure, he said an investment of Rs 14,50,000 crore or about $320 billion would be required during the 11th Plan (2007-12).

"Although there are institutions like the IDFC and now IIFCL to cater to the long-term debt needs of infrastructure projects, the demand is too large to be covered by such institutions alone. There is a need to deepen the debt market in India, so that the risks are diversified and more capital is mopped up from the market," he said.