Higher cap for FDI in telecom soon, says FM

The Budget would give a thrust to "tax reforms" to make the structure "simple and stable".

Finance Minister P Chidambaram today said further opening up of the telecom sector and Indian private banks to foreign direct investment (FDI) would be done in the next few days.

Chidambaram also indicated that he might present a radically different Budget in February that would give a thrust to massive tax reforms to make the structure simple and stable and to raise the tax-to-GDP ratio.

In an interview to PTI, he outlined his reforms agenda and said all the promises made for opening up the aviation, telecom and insurance sectors would be fulfilled in the current fiscal year.

"Aviation has already been liberalised and the second one, telecom, is pretty close as Communications Minister Dayanidhi Maran said a couple of days ago. We are resolving the problems and, to use telecom language, it is the last mile (to be cleared)."

Chidambaram had announced in his previous Budget a proposal to increase the FDI ceiling from 49 per cent to 74 per cent in the telecom sector.

As regards opening up of the insurance sector, Chidambaram said he hoped to introduce legislation (to raise the FDI cap from 26 per cent to 49 per cent) in the Budget session of Parliament.

On banking sector reforms, he said a roadmap for allowing foreign banks to acquire up to 74 per cent equity in Indian private banks would be unveiled in the next few days.

"When the roadmap is ready in the next three or four days, it will be unveiled," he said, adding the regulatory conditions would be made clear in the roadmap.

Chidambaram also spoke of the urgent need for attracting huge investments in agriculture and infrastructure, running into hundreds of billions of dollars, hastening banking reforms by coming out with a roadmap and also the government's monitoring of inflation and the management of money supply.

Asked about the thrust of the Budget exercise, which has already begun, and whether it will be radically different from the earlier Budgets, Chidambaram said: "It is for you to judge whether it is radically different. We are trying to have a growth-oriented and inclusive Budget, which will not leave any section out. You must be different in a substantive way. Keep the tax structure simple but it should also be revenue generating."

Chidambaram said reforms of the tax structure were aimed at raising the tax-GDP ratio from the present 9 per cent to beyond 11 per cent. The main objective is to have a tax regime that will remain stable over the next four years.

"We must ensure ways and means to encourage savings. Savings, which are at present 22-23 per cent of the GDP, need to be improved by 2-3 per cent. We have savers, but they will have to be turned into investors," he said.

On infrastructure investments, the minister said, "We need sound and alternative methods to raise resources from banks, insurance companies and pension funds."

In this connection, Chidambaram said the government was committed to putting in place a pension fund by January 1, for which an Ordinance was in the works.

On criticism over various steps taken to widen the tax net, Chidambaram said it was to ensure that nobody, who had the potential to pay taxes, escaped the net.

Chidambaram said the real expansion in tax collection would come from the corporate sector and certainly not from the salaried class, whose payments could not form the bulk of the tax.

The main issue was whether the government was able to collect the taxes that taxpayers should actually be paying, he said, adding that the purpose of the annual information returns (AIRs) and the tax information network (TIN) was meant to capture real expenditure by individuals to compute their income.

At the moment, Chidambaram said, the government had decided to keep filing of AIRs for only seven items and justified the inclusion of purchases of more than Rs 2 lakh through credit cards annually for AIR reporting.

"I don't think there is anything wrong in it," he said.

When the nation's per capita income was just Rs 30,000, any disclosure of over Rs 2 lakh was justified, he added.

Referring to inflation, Chidambaram said it continued to be an area of concern. "We have used one or the other measures to moderate inflation from time to time," he said, adding that the real issue was global crude oil prices.

Another wrinkle was money supply induced inflation. Management of the money supply was not astute (by the previous NDA government) perhaps because of the mistaken belief that controlling it would affect the India Shining campaign, he said.

This year, money supply growth had been below 14 per cent, he added.

Chidambaram said the government was monitoring the situation to ensure that money supply-induced inflation did not occur, particularly when foreign exchange reserves were surging.

Yet another area of concern was implementation. "Implementation takes very long," he said. "We have to create a situation where both private and public sectors are able to get their loans disbursed."

Chidambaram said the level of investment needed was huge, particularly in agriculture and infrastructure, which required hundreds of billions of dollars.

He said it augured well for the economy that there had been 26 per cent growth in investment proposals, which had shot up to over Rs 1,793,970 crore this year. This, he said, was a welcome development.

The bulk of the investment had to come from within the country, he said adding one important factor for this was to step up savings by at least 2 to 3 per cent.

The proposal, in the mid-year review, to open up the retail sector to FDI, could not be construed as a government decision, the finance minister said.

"You shouldn't take that as the government's decision," Chidambaram said adding: "The economic division of the finance ministry enjoys a large degree of autonomy."

"It is like economic survey. I cannot fetter the independent thinking by the ministry and propose freely policy option," he said adding it was for the ministry to take one option and reject another.

But traditionally, the ministry of finance has enjoyed a large degree of autonomy in writing the economic survey and so also the mid-year review, he said.