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October 23, 1999
Sinha offers a preview of second generation reforms
The government will abolish the approval route for foreign direct investment, launch aggressive tax reforms, cut fiscal deficit, said Finance Minister Yashwant Sinha.
The government has also appointed the second Labour Commission to unveil labour reforms, Sinha added.
Agreeing that foreign direct investment or FDI had remained sluggish over the last few years, Sinha said that foreign investors would need to go to the Reserve Bank of India just for statistical purpose.
''The best way to promote FDI is to get out of decision-making'', Sinha said, inaugurating the presidential summit of the Federation of Indian Chambers of Commerce and Industry in New Delhi.
Interest rate cut decision within RBI's domain
Sinha said the issue of interest rates is totally within the domain of the central bank. The finance minister's comments on interest rates are significant as the busy season (biannual review) of credit policy of the RBI is just a week away and industry has been clamouring for cut in interest rates.
The finance minister pointed out difficulties in achieving the lower interest regime as long as the government continues to borrow at high rates from the market. However, the government would try and improve the financial environment by limiting the size of the borrowing at the budgeted level.
''We will have to change our priorities and limit our borrowings to at least the budgeted level and keep a check on inflation. Otherwise, it will be idle to expect the RBI to cut interest rates.''
Sinha agreed that to make Indian industry globally competitive, a world class financial infrastructure is necessary. ''This is possible only when we move towards lower interest rates,'' he added.
Earlier, FICCI president Sudhir Jalan said Indian industry has to borrow at over 15 per cent against the global lending rates of six to seven per cent. He said the government must discipline its finances so that an environment for lower interest rates is created.
Sinha to discuss fiscal deficit, VAT with CMs, state FMs
Sinha would soon call a conference of chief ministers and state finance ministers to find ways to cut the fiscal deficit of both Centre and states and move towards a single value added tax or VAT as quickly as possible. ''The states would be involved in the second generation reforms'', he added.
Instead of resorting to a rigid artificial cap on expenditure, the Centre would discuss the entire spectrum of government spending with the states based on the zero-based budgeting method.
''The casualness and lethargy in expenditure control should be subjected to scrutiny and we will start implementing these measures from next year.'' The proceeds from divestment in public sector companies would be used in the creation of new wealth or to retire the existing debt burden, Sinha said.
He emphasised the need to convey these measures to the people in a jargon-free language.
Labour Commission to submit interim report on labour reforms
Referring to the demand of the industry for labour reforms, Sinha said the second Labour Commission would look into the entire gamut of labour-related issues. The commission would submit an interim report and seek to convey a positive connotation of labour reforms. ''These will be pro-labour and will protect their interests since in democracy we cannot do things which meet large opposition.''
'Govt's compulsion to increase diesel prices not appreciated'
Regretting that government's compulsion to increase diesel prices has not been appreciated and projected in the right earnest, the finance minister said the mechanism to bring parity of petroleum product prices with international levels was introduced by the previous government.
He dubbed the strike by truck operators as ''anti-people and totally unjustified'' reiterating that hard decisions would have to be taken and populism eschewed in the long-term interests of the country. However, efforts would be made to convince people on these measures.
'India must be an extremely competitive society'
Reverting to his pet theme, Sinha said the ensuing National Competition Policy would remove all impediments in the way of free and fair competition within the domestic industry and at the international level. ''India must become an extremely competitive society''.
With most of the tariffs coming to the Asian level, competition is inescapable for India. ''The sooner we learn about competition, the better it is.'' The policy would not be protection of the domestic industry but promotion of its interests.
India to espouse Third World cause at WTO's Seattle meet
The government is preparing itself in a big way for the forthcoming Seattle meeting of the World Trade Organisation. Sinha said India would not only promote its own cause but would also take up the interests of the developing countries at the November meeting.
'Not all subsidy is unnecessary'
Responding to industry demand to cut subsidies, Sinha said that the subsidy is inevitable for the poorer sections. ''Not all subsidy is unnecessary.'' The government would look into the hidden subsidies to prune expenditure.
He gave the examples of the European Union and Japan which give huge subsidies to agriculture. However, he agreed that the subsidy should be better targetted and system for its disbursement be streamlined.
Sinha said the image of India as a difficult country has remained unchanged for the last two decades and asked industry to join hands with the government to project the achievements of the country. ''We need to go out and remove misunderstandings about India.''
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