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Plan panel proposes competitive tax to boost growth
June, 20th 2006


20th June, 2006

Plan panel proposes competitive tax to boost growth

Planning Commission has suggested having a "non-distortionary and internationally competitive" tax and duty system to propel industrial growth during the 11th Five-Year Plan period, beginning next year, to double digit.

The Commission has set a growth target of 10 per cent in the industrial sector and 12 per cent in the manufacturing sector during the 11th Plan period.

"Taxes and duties should be made non-distortionary and internationally competitive. Internally, the tax system must promote and be consistent with a unified national market, so that Indian industry can reap the benefit of economies of scale and scope," it said.

Among the measures suggested by the Commission in the draft approach paper to the 11th Plan were to ensure that gradual reduction of tariffs on non-agricultural products should continue and negative protection, which arises because of inverted duty structures, must be minimised and ideally eliminated.

While initiatives to provide infrastructure in general are important, they should be supplemented by efforts to promote infrastructure development in local areas such as Special Economic Zones in that they do not come with export tax benefits, it said.

The plan panel asked the state governments to take steps to create investor friendly climate by doing away with delays in land registration, ensuring water and utility connections, create s single window for environmental and other clearances for establishment of industrial units.

Since technological upgradation is the key to industrial growth, the growing interest of foreign direct investors in the economy provides a valuable method of injecting resources into the economy, upgrading technological standards and building international partnerships, which could have many possible effects, the Commission observed in the approach paper.

The plan panel emphasised on greater flexibility in some of the labour laws to give the industry flexibility necessary to compete in the international markets.

"Labour intensive mass manufacturing based on relatively lower skill levels provided an opportunity to expand employment in the industrial sector. China has done exceptionally well in this area and has opened up the world market in which we could expand effectively.

"There is the need to consider appropriate amendments in Section-V of the Industrial Disputes Act, 1947 to facilitate exit and contract labour (Abolition and Regulation) Act," the plan panel said.

It emphasised on the need to amend the Companies Act 1956 to facilitate rehabilitation and liquidation procedures of industrial units, where necessary.

"While promoting industrial growth, protection of consumers, especially marginalised and illiterate, be accorded high priority in the 11th Plan," it observed and pointed out that competition was the best guarantee of consumer protection and should be strongly encouraged.

The Commission advocated continuation of progressive de-reservation of small scale industries at an accelerated speed to enable such industries to modernise.

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