Direct tax-GDP ratio should be trebled, says Sinha

Our Economic Bureau

New Delhi, Dec 2: Finance minister Yashwant Sinha has indicated that the government would focus on direct taxes to increase its revenue in the 2002-03 Budget and also subsequent budgets.

Stating that customs collection would remain tardy in the coming years, Mr Sinha said, “our goal in the next few years will be to increase direct taxes from 3.4 per cent in 2000-01 to 10 per cent of the GDP.”

Finance minister Yashwant Sinha with Infosys chairman Narayana Murthy, World Economic Forum’s Colette Mathur and CII president Sanjiv Goenka at the India Economic Summit in New Delhi on Sunday.

Mr Sinha said this while addressing a session on ‘achieving 7 per cent-plus target: A roadmap’ at the 17th India Economic Summit organised by the World Economic Forum and Confederation of Indian Industry here on Sunday.

Pointing out that trade reforms would generate slow or negative growth in customs tariff, he said this would have to be largely made up by direct taxes. The tax-to-GDP ratio was still far below the level required to produce public goods on an acceptable scale, he added.

Mr Sinha also said the country was facing a serious fiscal crisis, adding, “it is particularly harmful to the extent that it is crowding out our capability to spend public resources to produce public goods and improve governance”.

On the trade issues, he said, the country has moved away from protectionism which characterised its stance on trade in the past. However, he added, “we still have some distance to go before our import tariffs are brought down to Asian levels.”

To achieve 7 per cent GDP growth rate, he said, the focus area would be labour reforms, food policy, electricity reforms and privatisation, adding labour market reforms were on the anvil and privatisation, which no one was willing to talk about, was now a reality.

Stating that “reforms process is very much on course”, Mr Sinha said the government had put in place a monitoring mechanism to keep track of implimentation of budget proposals. He also said in areas ranging from the dismantling of the administered price mechanism for the petroleum sector to SSI dereservation to reforms in the debt markets, the Budgetary proposals were already implemented, or were being implemented.

Referring to the financial sector, Mr Sinha said, there was a need to improve regulatory capacity to forestall market misconduct, and swiftly enforce laws. “Our debt market infrastructure lags far behind the technology and market design which came about in the recent years on the equity market,” he said.

Similarly, he said, the banking system was facing the onerous challenge of moving away from the traditional government-dominated system. The government would have to grapple with a large number of under-capitalised banks, he said, adding there was a need to chart a course to safe and sound banking, while minimising the claims on public resources.

On the ongoing global slowdown, Mr Sinha hoped that China and India were likely to be the only major countries with strong growth during the current year.

He, however, regretted that the liberalisation process had relatively little impact on the agricultural sector so far. Stating that there were numerous impediments to price flexibility, movement of goods within the country, and international trade, Mr Sinha said, the aim would be build modern market institutions which could support a market-oriented farm sector.