PM warns states against tax subsidies

Prime Minister Manmohan Singh today cautioned states against offering unsustainable tax sops and incentives for industrial projects, saying the "jury is still out on whether these policies really promote industrial growth".

The industry should work with state governments to ensure "there is no race to the bottom in fiscal terms through competitive populism," he said at the northern states' Chief Ministers Conclave organised by industry chamber PHDCCI here.

The advice came within days of Congress President Sonia Gandhi cautioning against diversion of prime agricultural land for industrial purposes at the cost of farmers, triggering a debate over allocation of land by states for SEZs.

"In the excitement to have headline-grabbing MoUs, we (states) offer incentives both fiscal and financial that our finances cannot sustain," Singh said.

Among those who attended the conference were the chief ministers of Delhi, Haryana, Himachal Pradesh, Punjab and Jammu & Kashmir.

On the theme of the conference, removal of barriers to inter-state trade, Singh said the biggest barrier to trade was the tax system, particularly the multiplicity of taxes, where much more needed to be done despite the successful introduction of VAT.

Others included border checks and taxes on vehicles, he said, adding that trade in agricultural produce faced additional hindrances.