Tags:
Journalism of Courage
Finance Minister P. Chidambaram8217;s reiteration of his commitment to the Fiscal Responsibility and Budget Management FRBM rule that mandates the Centre to cut its deficit is heartening. Especially because it is followed by his statement the day before that in the next two to three years India would see the Goods and Services Tax GST, a tax on goods and services based on the VAT principle. And more so because it follows Manmohan Singh8217;s recent statement that the next budget will see major tax reforms. The Indian economy is witnessing high growth despite a poor monsoon. Indian exports have done well. As the Kelkar Task Force report indicated, further growth of Indian manufacturing will depend on giving industry a level playing field with the rest of the world in the form of a world class tax regime.
As the deadline for the removal of textile quotas on January 1, 2005 draws nearer, tax reform assumes even greater importance. India8217;s textile sector 8212; which has immense potential to provide jobs, incomes and exports 8212; has to compete with countries which have good tax systems in place. China had a GST in place as early as in 1994, and other South Asian nations like Sri Lanka, Bangladesh and Pakistan have already implemented the VAT. The tax sops to textiles that Chidambaram attempted in Budget 2004 are not sufficient to free the textile sector from the clutches of an archaic tax regime. While the preparedness of the Indian textile industry for the removal of quotas is much discussed, its competence vis-a-vis the Chinese is often commented on. What must be remembered is that the government has a role to play. It must chip in by not forcing Indian industry to export taxes.
