The Associated Chambers of Commerce & Industry (Assocham) has called for a nominal tax of 10 per cent on agricultural income as the first step towards widening the direct tax base. Agricultural income is currently outside the tax net.
The fiscal adjustment process of the nineties has been pre-occupied with quantitative dimensions of containing fiscal deficit and public debt, which is not sufficient to ensure stable fiscal situation and sustainable growth. There is also a need for qualitative fiscal correction which will augment the asset base of the public sector, generate adequate returns on capital employed and provide complementarity to private investment, the industry chamber has said in its paper on Fiscal prudence & consolidation: retrospect & prospect.
Stressing the need for greater administrative efficiency in tax assessment and collection, Assocham has said the fiscal stabilisation programme will have to be attuned to the objectives of higher growth and enhanced productivity.
According to the chamber, a harmonious rationalisation of the excise and import duty structure will make Indian industry competitive, encourage investment and reduce distortions. It has also called for divestment and restructuring of public sector undertakings to improve operational efficiency and generate larger surplus.
On the expenditure front, Assocham favours greater attention on prioritisation, expenditure control mechanisms to prevent leakage and curbs on administrative expenses.
The chamber has called for phasing out of subsidies to release greater resources for public investment programmes and strengthening of state finances with appropriate revenue-sharing and transfer arrangements that will impose fiscal discipline on the states.
Fiscal reforms undertaken since the onset of the 1990s encompassed general lowering of tax rates along with narrowing of the range.
They have helped reduce distortions and disincentives. However, the government has been less successful in its efforts to broaden the direct tax base, the chamber has pointed out.
The rationalisation of the excise structure is far from complete, says Assocham, adding that certain anomalies have also crept into the tariff structure for specific sectors. There is a need to ensure harmonisation and parity in the excise and customs structure so that domestic producers are not unduly disadvantaged, it has said.
Expenditure reforms, says Assocham, have lagged behind tax reforms with the composition continuing to be tilted towards unproductive expenditure. Asset creation programmes have been squeezed of resources, while social development schemes suffer from leakage and administration overheads.
The system of inter-government fiscal transfers has also contributed to fiscal indiscipline, while weak revenue performance of state governments, along with the growing wage bill and uneconomic state enterprises, have increased the indebtedness. of states to the Centre, says Assocham.
While the on-going stabilisation programme has progressively reduced fiscal deficit of the Union government with accompanying cuts in the monetised and primary deficit and some moderation in the revenue deficit, says Assocham, several areas of concern remain. These are:
* There is not much progress in bringing down interest payments on public debt and subsidies that together absorb over 60 per cent of the Centres revenues;
* Persistence of a large revenue deficit, both at the Centre and state levels, reflects adversely on the quality of fiscal adjustment and calls for accelerated public investment to promote growth; and
* Fiscal management is called for at all levels of government, including state and local governments. While the revenue gap of states has been deteriorating since mid-1980s, fiscal deficit as a percentage of gross domestic product is significant, around 3 per cent.
