Major Reforms Thrust After A Lull, Says Chidambaram

A major thrust has been given to reforms after a lull and the savings and tax measures were aimed at avoiding a repeat of 1993-94 when there was a big slipup on fiscal deficit, P Chidam-baram told reporters in an informal chat yesterday.

He did not want the gains on the fiscal deficit front achieved over the past two years to be wiped out and the choices he had put before the Prime Minister were to allow fiscal deterioration or take quick, advance corrective action so that the improvement in the fiscal deficit management over 1995-97 was not thrown away.

 

Describing the savings and fresh taxes as really a side story on raising a modest Rs 1,500 crore, the finance minister went over the long list of reform measures that had been taken: natural gas prices have been effectively deregulated, government monopoly on providing internet connections has been ended, rehabilitation and modernisation of power projects has been speeded up, negotiations have been allowed for show case power projects to be chaperoned by individual governments and tax concessions for infrastructure projects in power, oil exploration and roads cleared.

Chidambaram conceded that raising customs duty amounted to some unavoidable dislocation in trade liberalisation but it was not a setback, only a minor blip. Some belt tightening was called for and in any case the new taxes would raise customs revenue by a mere one per cent. He hastened to add that his commitment to bringing down Indian tariffs to Asian levels by 2000 remains.

As to whether the fiscal deficit target of 4.5 per cent of GDP remained, he noted that the target was there and despite some initial slippage in indirect taxes, the overall tax revenue target at the end of the year could still remain on course. He was particularly insistent that the direct tax collection target would be met, thus proving wrong those who were against the tax cuts. The Laffer curve is working, he gleefully asserted.

The finance minister also did not want to revise the overall growth target for the current year and discounted the fear that the 3 per cent special customs duty would add substantially to industrial costs and affect offtake further. He took positive note that imports in September were doing nicely, just like in July, August being an aggregation. So the message was that industrial recovery could be on the way.

Chibambaram dismissed any suggestion that the across-the-board rise in customs duty would both raise domestic prices and further cripple the demand for goods, which were already facing price resistance, thus leading to a situation of stagflation. In any case the government had little choice as not imposing new taxes would have meant going in for further borrowing which would have the additional negative crowding out effect on private investment.

He also discounted the fears that the decision to go in for further disinvest in public sector companies was ill timed, as the turmoil in Asian markets and high US interest rates would not produce must investor interest. The government would not rush into any decision and actual disinvestment would only depend on the prices emerging when the road shows were held in January-February.