Expect tax hike, divestment: Parekh

Expect tax hike, divestment: Parekh
The Financial Express, April 14, 2009, Page 1

fe Bureau, New Delhi

HDFC chairman Deepak Parekh has said the next administration in New Delhi would have to raise tax rates, disinvest in at least one blue-chip public sector organisation and look to consolidate the large number of state-owned banks into larger entities.

In an exclusive interview with FE, Parekh said these steps would be essential for the government to plug the large fiscal deficit of 5.5% of GDP, according to a projection in the interim Budget for 2009-10. He said these steps would create the necessary fiscal space for the government to spend on growth. “I think it is a danger signal if the growth signals are low. A larger fiscal deficit is (however) acceptable with high growth,” said Parekh.

According to him, the Indian economy was poised to recover soon and so a growth rate of 6% was quite achievable in this fiscal. The IMF in its World Economic Outlook update in January said the Indian economy could grow at as low as 5.1% this year. Parekh said a rise in tax rates—whether direct or indirect taxes—to generate revenue was something that “just could not be helped”.

“Then there has to be disinvestment of public sector undertakings. Take LIC, for instance. If the government sells 24% stake in LIC, it will get enough money to last a year and will not have to do anything more. But all said, government will have to raise taxes, and privatise and consolidate the large number of small public sector banks—these are some of the low-hanging fruits,” Parekh said.

Parekh has for quite some time been the government’s troubleshooter on several sensitive financial issues, including the current mess at Satyam. He has also chaired the government committee to develop infrastructure finance in the country.

Parekh said the list of must-dos for the new government should include speeding up the pace of executing infrastructure projects. “I think we have enough programmes, but their implementation is tardy. The performance of NHAI in the last two three years has not been good. “