Planning Commission member Arjun Sengupta yesterday said that full convertibility on the account and scrapping of the Foreign Exchange Regulation Act (Fera) were necessary to achieve a higher growth rate during the ninth plan period.
He said introduction of MAT (minimum alternate tax) was a mistake. It has eroded the profitability of the corporate sector and dried up corporate savings.
Sengupta said the government will have to initiate steps like stepping up of savings, privatisation of investment and pension fund and the opening up foreign sector to achieve a growth rate of seven per cent during the ninth plan period.
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He said a high growth rate was necessary for ensuring poverty alleviation and social justice. Sengupta was delivering the key-note address at an international conference on Architec-ting the Global Village organised jointly by the Administrative Staff College of India and the Academy of Marketing Science , USA.
He said foreign direct investment should not be considered a threat to the domestic industry. Indian companies have been successfully competing with multinationals like Hindustan Lever and Philips in the past several years.
He felt the opposition to foreign direct investment stemmed largely from an apprehension about patents, brand names and monopolistic tendencies flowing into the country to the disadvantage of settled Indian entrepreneurs. To allay these fears, the ideal situation would be one in which a foreign investor joins hands with an Indian entrepreneur to promote a joint venture.
Sengupta maintained that the process of liberalisation, credited to the year 1991, was set off in early eighties when India, for the first time, went to the International Monetary Fund for a massive line of credit.
That was a time when there was no foreign exchange crisis. India had told the IMF that it required the line of credit to correct certain imbalances and bring about major policy changes. It was the least conditional credit line extended by the IMF and India was able to close the loan in three years.
The Planning Commission member was critical of those who attributed the current capital market slackness and the fall in industrial production to the Deve Gowda government and spelled out three areas where the earlier government had faltered leading to this situation.
The first was the failure of the government to see the importance of tackling poverty. The second was the failure to promote infrastructure and third inability to keep fiscal discipline. The new government was looking into these areas and initiating corrective measures.
Administrative Staff College of India chairman M Narsimham identified exports and foreign investments as the two critical areas in Indias effort to globalise its economy. An outdated legal framework still stood in the way, he added.
He was critical of the continued application of Fera which made the exporter a suspect and reflected a policy of suspicion towards foreign investment. It has no place in the new paradigm of development which has to put in place a liberalised, export-oriented and foreign investment-seeking economy.