Tax rates will be stable, says Kalam

Case-by-case approach to privatisation; Foreign investment to be encouraged.

President APJ Abdul Kalam said the government would go in for stable tax rates along with a cess on all central taxes to fund education, approach privatisation on merit and undertake amendments to labour laws for rapid growth in the manufacturing sector.

In addition, foreign investment, through the portfolio and the direct investment routes, would be encouraged, the president said in his address to the joint session of Parliament.

Drawing largely from the United Progressive Alliance's common minimum programme, the president in his speech also said the government was sensitive to the need for job reservation in the private sector and added that it would initiate a dialogue with industry and political parties "on how best the private sector can fulfil the aspirations of Scheduled Castes and Scheduled Tribes."

In a possible pointer to the forthcoming Budget, Kalam said the government would undertake major reform initiatives to significantly expand the tax base, increase compliance and make the tax administration more citizen-friendly.

"Tax rates will be stable and conducive to growth, compliance and investment," he said, adding that the value-added tax would be introduced shortly after due consultation with industry.

Kalam reiterated the government's commitment to eliminate the Centre's revenue deficit by 2009, to release more resources for investment in social and physical infrastructure.

Outlining the government's plans to deepen the financial market, Kalam said foreign institutional investors would be encouraged and a strengthened Securities and Exchange Board of India would protect the small investor.

The president, however, was silent on some contentious issues flagged in the common minimum programme like the proposed scheme to recover black money and checking the misuse of double taxation avoidance treaties.

While he said labour law amendments would be undertaken in consultation with trade unions, he was silent on automatic hire-and-fire, which has been rejected outrightly in the common minimum programme.

While Kalam said the government's objective would be to ensure the availability of reliable power through increased public investment and private participation in generation and distribution, he did not touch upon the review of the Electricity Act, 2003, as set out in the common minimum programme on demands by the Left parties.

"Power sector reforms will be continued in such a way that all sections of society get quality power at an affordable price," he said.

The president was also silent on the issue of the sale of government stakes in 'navratna' companies, though the common minimum programme had rejected the idea.

Kalam dwelt on a merit approach to privatisation, roping in the private sector to turn around viable public sector units and the closure or sell-off of chronically loss-making PSUs after taking care of the workers' interests.

Nationalised banks and PSUs will also be encouraged to tap the markets to raise funds which could be an alternative to reduction of government holding through strategic sale.

Kalam said the new government would strive to achieve a sustained economic growth of 7-8 per cent and balance the needs of rapid growth, stability and social equity. The president identified employment generation and assured livelihood as priorities for the government.

While outlining the policy stance of the newly elected government, Kalam began his speech with a word of caution saying, "The precise content and phasing of the policies under the common minimum programme will depend on the availability of resources and the pace of improvement of the absorptive capacity of various sectors."

The government will propose a cess on all central taxes to finance universal basic education. The government has promised to increase its spending on education to at least 6 per cent of the GDP. It also plans to spend 2-3% of the GDP on health.

The government will also pursue a policy to harmonise tariffs, simplify rules and reduce transaction costs to help India achieve a greater share in global trade. The president said Indian companies would be encouraged to invest abroad in the hydrocarbons sector.

He said steps would be initiated to improve the debt burden of states and a Backward States Grant Fund would be considered to create productive assets in the poorer states.

Kalam outlined the government's focus on agriculture and rural sector and said public investment in the farm sector would be stepped up significantly with a focus on increasing farmers' income. He said the emphasis would be on improving rural infrastructure.

The president also said subsidies would be targeted at the poor and the needy sections of the society and the public distribution system revamped with a focus on the backward regions.

The government also proposes to involve women and ex-servicemen cooperatives to help in improving the PDS. He said the government will take effective steps and strong measures to control the price hike of essential commodities.

President's points

• A cess on all central taxes to fund education.
• Privatisation on merit.
• Amendments to labour laws for rapid growth.
• Foreign investment to be encouraged.
• Need for job reservation in the private sector.
• Sebi to be strengthened.