Singh Says India Needs Tax, Fuel-Price Reform to Boost Economy

Prime Minister Manmohan Singh said India must reform its tax code and phase out fuel subsidies to stabilize the South Asian nation’s finances.

“I am concerned about fiscal stability in future because our fiscal deficit has worsened in the past three years,” he said in a New Year’s statement to the nation. “We have run out of fiscal space and must once again begin the process of fiscal consolidation.”

The country must modernize its indirect tax system by introducing a goods and services tax that would be more efficient and also boost revenues, he said. The prime minister also said the nation must phase out its fuel subsidies and implement a “more rational pricing policy, aligning India’s energy prices with global prices.”

India’s state-run refineries sell diesel, kerosene and cooking gas below cost to help curb inflation, although the government set gasoline prices free of all controls in June. The finance ministry said on Dec. 9 that it may fail to meet its budget-deficit target of 4.6 percent of gross domestic product in the year ending March 31, as the government struggles to sell stakes in state-run companies and a slowing economy affects tax collections.

“Some subsidies, such as food subsidies are justifiable on social grounds,” Singh said. “But there are other subsidies that are not and these must be contained.”

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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