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Business News/ Politics / Policy/  Arun Jaitley hints at more reforms ahead
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Arun Jaitley hints at more reforms ahead

Rationalization of LPG subsidy may be in the works; investor-friendly tax regime, acquisition of land remain big challenges

Finance minister Arun Jaitley at the HT Leadership Summit in New Delhi. Photo: Pradeep Gaur/MintPremium
Finance minister Arun Jaitley at the HT Leadership Summit in New Delhi. Photo: Pradeep Gaur/Mint

New Delhi: Finance minister Arun Jaitley on Friday signalled that more reforms are under way, including subsidy cuts and likely moves towards privatization of some state-run companies, and expressed the hope that decisions taken by the new government will put India on the path of economic recovery and attract foreign investors.

Putting in place an investor-friendly taxation regime and streamlining the procedure for land acquisition are two big challenges facing the government, Jaitley said at the Hindustan Times Leadership Summit.

Since taking charge on 26 May, the Narendra Modi government has deregulated diesel prices and unveiled a new pricing formula for domestically produced gas, and moved to open up sectors like defence production, insurance and railways wider to foreign investment.

It has moved to a process of auctioning natural resources like coal and initiated labour reforms to make it easier to do business in India—steps it hopes will revive growth, which fell to less than 5% for two consecutive years, to around 5.8% in the current fiscal year and to around 6-6.5% in the next fiscal year.

Who will be entitled to the liquefied petroleum gas (LPG), or cooking gas, subsidy is the next big decision the government needs to take, said Jaitley. “The next important decision India will have to take is whether people like me...(are) entitled to get our LPG subsidized," he said.

“I think the sooner we are able to take these decisions as to who is entitled to these subsidies, and of course some people would be, the better it would be for our system. These decisions are all on our agenda," Jaitley added.

At present, Indian households are entitled to 12 subsidized cooking gas cylinders in a year.

Jaitley added that the expenditure management commission set up by the government under former Reserve Bank of India governor Bimal Jalan will soon submit its initial recommendations on how to rationalize subsidies. India’s subsidy bill is budgeted at 2.6 trillion, or 2.03% of gross domestic product, in the current fiscal year.

The finance minister also spoke in favour of privatization. “Principally, I have always been for privatization in sectors where government can get out. (But for this) Not only the mindset of polity has to change, but also all other agencies will have to change," he said.

To give its reform agenda a major leg-up, the government is planning to push the Insurance Laws (Amendment) Bill, the Constitution Amendment Bill for the goods and services tax and the coal Bill in the winter session starting Monday.

Jaitley added that the support of opposition parties and state governments will be crucial to get some of the important reforms implemented.

“The Parliament session is in a week. It cannot be ‘how can I block reforms’...I can see some groups (opposition parties) working towards that now," he said.

Jaitley said the government is reaching out to opposition parties to make changes in the land acquisition Act.

Taking a swipe at the previous government’s version of the land acquisition Act, he said, “New definition of reforms is to undo a lot of what the predecessor has done."

In what could be a respite for taxpayers, the finance minister also indicated that the government will take steps to ensure that unsustainable demands are not raised against taxpayers.

“Unsustainable demand won’t get you taxes. Unsustainable demands in the books can show you in good glory, but eventually those taxes will be blocked in some judicial court proceedings...they would have only earned us a bad name as an investment destination and not earn revenues," he said.

The Indian tax department is embroiled in disputes with many corporate taxpayers due to decisions taken by it under the previous government. Some companies have challenged in the courts retrospective amendments to tax laws for taxing capital gains introduced in 2012. Some like Shell India and Vodafone India also took the tax department to the courts for its aggressive stance on transfer pricing; the department had concluded that issuance of shares by a subsidiary to its overseas parent comes under the transfer pricing ambit. The Bombay high court ruled in favour of both these companies.

Jaitley said that with a decisive political leadership, the government may be able to push through some difficult and complicated steps while batting for a better environment for the bureaucracy and the government to function.

“One does not have to wait for years to decide on coal blocks or what to do with spectrum or natural resources, or with diesel pricing or with gas pricing," he said.

N.R. Bhanumurthy, a professor at think tank National Institute of Public Finance and Policy, said the government can initially only reduce the number of subsidized cylinders because it will not be able to distinguish between rich and poor consumers.

“At this moment, the government may find it difficult to differentiate between beneficiaries. It can go back to the initial policy of the United Progressive Alliance government, of giving out only nine subsidized LPG cylinders rather than 12," he said.

Bhanumurthy added that in the long run, Aadhaar-based subsidy transfers will help the government in making sure the subsidies reach only the poor for whom they are meant.

The government, which has already started pilots for direct transfer of cooking gas subsidy into bank accounts of beneficiaries, plans to roll out the scheme nationwide on 1 January 2015.

Bhanumurthy also pointed out that it may take some more time to free kerosene and gas prices, other components of India’s fuel subsidy bill.

At the conference, Jaitley said India needs to spend more on education, health and building its rural infrastructure to become an economic superpower. “I believe that we are a country of tremendous potential that has not been harnessed before. It is challenging, but it can be done," he said.

Prodding state governments to follow development-oriented policies rather than populist measures, Jaitley said, “If you indulge in populism and launch various schemes, it won’t win you votes. States that turned around have elected their governments one after the other."

PTI contributed to this story.

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Published: 21 Nov 2014, 04:14 PM IST
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