Rakesh Mohan Calls For Better Tax Compliance To Step Up Development

Bangalore, May 22: | Updated: May 23 2003, 05:30am hrs
Reserve Bank of India deputy governor Rakesh Mohan has called for better tax compliance, especially by the rich, to accelerate the development process in the country. Making a keynote address on Infrastructure development in India: Emerging Challenges in the World Banks annual bank conference on development economics here Mr Mohan said the tax compliance has come down and not gone up in recent years and the tax-GDP ratio is just below two per cent. The present ratio is not adequate to address the development needs of the country. We need to raise the tax-GDP ratio to about two to four per cent in the next 5 to 10 years, he said. Mr Mohan also pointed out that overall savings and investments have stagnated and we see the reflection of this in investments in infrastructure.

The expected infrastructure investments have not taken place both in the private and public sector, he pointed out. The public sector investments were lower by 30 per cent of the projected figure while that of private sector was lower by 10 per cent and both have slowed down.

Mr Mohan said the private sector has responded to the changes but it would have responded more if the conditions were corrected. Making a strong case for an effective payment security mechansim to attract infrastructure investments in both private and public sector, Mr Mohan said people should also develop the habit of paying user fee for infrastructure services they enjoy. Mr Mohan pointed out that nearly 40 per cent of the poor people in the country were not in a position to enjoy the benefits of infrastructure services such as telecom or power and the government could take a closer look at subsidising these services. Obviously it is not the poor people who are using these services and enjoying the benefits of subsidies, he said. In this connection Mr Mohan criticised the recent decision to roll-back the telecom tariff hike and cautioned the government that without adequate tariffs telecom firms may face the danger of bankruptcy.

We have seen huge bankruptcy in the telecom sector internationally. Many big firms like Worldcom have gone bankrupt, he pointed out. Mr Mohan also said that the government must refrain from undercutting the regulator.

However, Mr Mohan has said telecom along with roads and ports are the success stories of infrastructre development in the decade of reforms.

The success in the road sector is a clear example of levying user charges in the infrastructure sector, he said citing the decision to have a cess on petrol and diesel for the highway development programme. Mr Mohan cited power sector, railways and urban infrastructure as the areas of failure in acheiving the goals.

The power sector, he said, was a clear case of failure and the problems in the sector could not be taken up without addressing the issue of large scale theft and dacoity going in the name of transmission and distribution (T&D) losses.