The Hindu : Front Page : Manmohan promises major tax reforms

Online edition of India's National Newspaper
Wednesday, Nov 10, 2004

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Front Page

Manmohan promises major tax reforms

By Siddharth Varadarajan

THE HAGUE, NOV. 9. Declaring that the focus of his Government's next budget would be on tax reforms, the Prime Minister, Manmohan Singh, told a gathering of top European CEOs that "India, in its totality, accepts liberalisation and the logic of greater competition from abroad."

At an interactive session at the India-European Union business round table in Noordwijk on Monday, he said his Government would adhere to its commitment to reduce tariff rates to the low levels prevailing in the ASEAN region. "India's destiny lies in embracing globalisation," he said. "Several parties across the political spectrum have been in government at the Centre and State level and there has been continuity in policy... there is a broad-based consensus on the direction of economic policy. Liberalisation with a human face has come to stay."

The Prime Minister's references to tax reforms in 2005 and ASEAN-level tariffs, senior officials say, is a strong indication that import duties are likely to be slashed in the next Budget.

Among the European CEOs present were Jeroen van der Veer from Royal Dutch Shell, Jacques Dunogue of Alcatel Europe and Christian Salbaing of Hutchison 3G. The Indian business delegation included Sunil Munjal of CII, Y.C. Deveshwar from ITC and Deepak Puri of Moser Baer.

`Land of opportunity'

The Prime Minister said that now more than ever, India was a land of opportunity for European businesses. "It is sad that despite the long history of involvement of European firms with India, the economic relationship has not lived up to its potential." He acknowledged that India had "not taken full advantage" of the global trading system and capital markets. India, which had grown at six per cent per annum for the past 15 years needed to attract $150 billion of investment if its GDP growth rate was to increase to seven or eight per cent.

Dr. Singh said he recognised that investors both at home and abroad viewed as constraints the lack of infrastructure as well as the excess of bureaucracy and corruption. As for investor apprehensions about the Indian tax system, he assured the CEOs that tax reform would be the top priority in next year's budget.

Protectionism

India was not a mercantilist economy believing in exports alone. "The more we can export, the more we will import," he said. "We do not want to accumulate reserves for the sake of accumulating reserves." In this context, Dr. Singh noted with concern the fact that at a time when India was accepting the logic of globalisation, the argument for protectionism was re-emerging in the West.

Expressing the hope that this trend would be reversed, he flagged two specific issues in relation to Indian exports to the E.U. The first was the tendency for European countries to impose non-tariff barriers on Indian products, and the second, the excessive use of anti-dumping measures against Indian exports. He also criticised the continuing restrictions on the movement of natural persons.

On its part, his Government would do all it took to integrate India into the evolving global economy, Dr. Singh promised. "We accept the obligations of the multilateral trading system," he said, reminding the assembled gathering of European CEOs that successive Indian Finance Ministers over the past 10 years had repeated the assurance that India was committed to reducing the national tariff rates to ASEAN levels. "My Government will adhere to this commitment."

Mr. van der Veer of Royal Dutch Shell suggested that in order to create a "level playing field" for multinational companies in the Indian oil sector, the Government should set up an independent petroleum regulator. The Prime Minister said his Government was already in the process of setting up "an independent and credible" petroleum regulatory authority. "I recognise that whoever comes to invest in India is entitled to expect a level playing field," he said, adding that India would adhere to all the commitments already made at the World Trade Organisation, including trade-related intellectual property rights (TRIPS). The pending legislation in this regard would soon be brought to Parliament.

Deviating from his prepared talking points, Dr. Singh told the gathering of corporate leaders that his Government was alive to the concerns of international and Indian business.

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