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With growth on track, reforms get big push

By BS Reporter
Last updated on: July 26, 2010 10:04 IST
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GrowthWith economic growth back on track, the Centre as well as the states on Sunday agreed to push the agenda for further economic reforms and remove the hurdles to growth.

As part of the reforms, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Sunday a broad convergence among states has emerged on the rollout of Goods and Services Tax from April 2011.

Ahluwalia told reporters after the 55th meeting of the National Development Council that the issue was discussed on Sunday and most states appeared to be on board.

A major concern, however, was compensation for loss of revenue once the new regime kicks in.

"Everything has come down to the issue of loss in taxation by the states and whether they will be covered by the Centre. From our discussions, the finance minister (Pranab Mukherjee) has given ample indications that he is willing to go to any extent (for the rollout)," Planning Commission member Abhijit Sen said at a press conference after the meeting.

"I would urge the chief ministers to give full support to the effort to implement GST from April 1, 2011," Prime Minister Manmohan Singh said in his inaugural address at the NDC meeting.

GST would replace excise and service tax at the central level and VAT at the state level.

Earlier this week, which unveiling the rates under the proposed central GST regime, Mukherjee had said the Centre will provide full compensation to the states for undertaking a reduction in central sales tax in 2009-10.

For the current financial year, the compensation formula would be based on the recommendations of the empowered committee of state finance ministers.

He had also assured the states that the Centre would 'step up the amount of compensation recommended by 13th Finance Commission should the need arise, based on a mutually agreed formula'.

The Finance Commission had asked the Centre to set aside Rs 50,000 crore (Rs 500 billion) to compensate states for the possible revenue loss incurred on account of the implementation of GST.

Though GST was not among the five key agenda items proposed by Prime Minister Singh, it was something that many chief ministers touched upon.

Among the five items on the agenda, Singh laid special emphasis on agriculture.

"Even though many states have taken a lot of initiatives, there is a lot more that can be done. We need better technology, infrastructure and a better public distribution system," he said in his concluding remarks.

In the morning, Singh had regretted that states were not paying due attention to the farm sector, which is crucial to curbing inflation.

"This must be corrected if we want to achieve a broad-based improvement in living standards in rural areas.

"Better agriculture performance is crucial for food security and would help in tackling the problem of inflation. The present high rate of inflation is mainly due to food price inflation," he said.

Agriculture has emerged as a major roadblock to faster economic growth and well being of the masses.

Besides, with lower area under cultivation, the government is trying to push up productivity and ensure that food inflation remains under check.

Also, the proposed Food Security Act is putting pressure on the government to ensure that adequate stocks are available to meet the demand.

Against a target of 4 per cent farm sector growth during the 11th Five Year Plan, the achievement is expected to be 3-3.5 per cent.

On suggestions from the states, Singh announced that an Action Taken Report, based on the recommendations made at Sunday's NDC meeting, will be prepared.

He also announced the establishment of an NDC sub-committee headed by Union Urban Development Minister S Jaipal Reddy to look into the complex challenges of urbanisation.

The panel has been asked to submit a report in the next 12 months. Apart from urbanisation and agriculture, power, tribal development and water management were the three other agenda items pushed at the NDC meeting on the mid-term appraisal of the 11th Five year Plan.

Tribal development, which includes an Integrated Action Plan being readied by the Planning Commission, to address developmental issues in Naxal-infested areas was the other major discussion point, with almost all chief ministers making a pitch for increasing the coverage beyond the proposed 35 districts.

Ahluwalia, however, ruled out the possibility, at least for the time being.

The plan involves an estimated spending of Rs 13,700 crore (Rs 137 billion) in improving the implementation of centrally-sponsored schemes.

The mid-term appraisal had lowered the economic growth projection during the current plan period from 9 per cent to 8.1 per cent.

In his inaugural address in the morning, Prime Minister Singh said that even at this pace, it would still be the highest-ever achieved in any Plan.

The NDC meeting was called to approve the mid-term appraisal which listed power and infrastructure as areas of concern for 9 to 10 per cent economic growth.

Prime Minister Singh said that normal rains expected this year will help cool food prices and in turn ease inflation to 6 per cent by December from 10.55 per cent in June.

He iterated that the 12th Plan should target 10 per cent annual growth in gross domestic product and asked the Centre and states to move to a tighter fiscal regime and more internal resource generation.

"The financing of plan expenditure has depended too much on debt. This must change. We have to reduce our fiscal deficit," he said.

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BS Reporter in New Delhi
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