Tax rates won’t bite too hard this time round

New Delhi--The budget to be declared is far away, Finance Minister P. Chidabaram have started giving some relief to the people by saying that taxes will not be hard in the coming year.

Finance Minister P Chidambaram gave a clear indication today that he would not plug for more taxes to push growth in the economy. Expressing confidence in the strength of the rupee, he said the economy needed to “aggressively” emulate the Chinese growth experience, including its disinvestment programme.

“The government will keep tax rates moderate and reasonable, ensure more financial sector reforms to promote more investment and risk-taking,” he said, inaugurating the Assocham AGM.
The finance ministry begins the Budget exercise next month. Since it will have to balance a big expenditure bill with a fiscal deficit reduction target, apprehensions were building up that it may tweak some rates to garner more revenue.The minister said he is also pushing for continuing the agenda for reforms in the financial sector.

He said a slew of bills, including the one to open up the pension sector and those on banking reforms, are expected to be passed by Parliament in the winter session. “The government is also pressing for public sector reforms, reforms in corporate governance in the private sector, reforms in various accounting standards, reforms about disclosures, and reforms that would lead to transparency,” he said. “For the next three to six months, our agenda is very clear,” he added.

Brushing aside the recent volatility in the stock and forex markets, Mr Chidambaram said, “The rupee is strong despite some nominal depreciation.” As of October 18, the rupee had appreciated against all major international currencies, except the dollar. “If you go by real effective exchange rate, the rupee is still a strong currency,” he added. “I am confident that we will continue to get large inflows of foreign institutional investment.”

He said FDI flows had also posted a 20% increase to touch $1.9bn in the April-August period of the current fiscal. In calendar ’05, it has shown a growth of 14% at $2.57bn. However, he expressed regret that FDI inflow was a fraction of what China received.

The minister also said China was 10 years ahead of India in sectors like manufacturing and infrastructure and was catching up in areas such as banking, accounting and software.

Mr Chidambaram made a pointed reference to the success of the Chinese disinvestment programme, which has raised $270bn by allowing public trading of state-held stocks. He said this was the biggest shake-up of ownership since 1990.“By making all China’s shares tradable, the Chinese government aims to plug a pension shortfall; we too have a pension shortfall,” he said, adding the lessons applied to India as well.

For the financial sector, the minister’s prescription was to encourage the savings rate among people, and not just in physical savings such as gold and property. He said not only the public sector, but the private sector too should float a large portion of their equities in the market.

“Non-traded companies are not adequately assessed, rewarded or punished by the market,” he said, adding just as political parties are judged by the ballot, it is important that the market gets an opportunity to judge the performance of companies by making a large portion of their equities tradable.