Vijay Kelkar, who headed the committee on tax reforms, on Tuesday warned that higher economic growth and foreign direct investment flow could not be achieved without hard fiscal reforms.
"If we want to compete in a global economy, fiscal reforms has to take place. We have no choice. Growth can be much higher than expected with reforms," Kelkar, the finance minister's advisor, said.
In the first ever debate on implementing the Fiscal Responsibility and Budget Management Act, he said that fiscal reforms would also lead to growth in investment including FDI.
"FDI is deterred in India because of the taxes," Kelkar said, referring to China that attracted large investments after fiscal reforms.
Tax reforms would also enable the manufacturing sector to expand, he said disfavouring exemptions provided to companies for setting up units in backward regions.
Citing global experience, Kelkar said fiscal reforms have led to increase in tax-to-GDP ratio in 51 countries including the US and China, in the last 15 years.
In India also, the tax-to-GDP ratio would go up by 0.5 per cent after reforms, he added.
The Kelkar committee had suggested sweeping reforms including hiking income tax exemption limit to Rs 100,000, cut in corporate tax rate to 30 per cent, 3-tier customs duty structure and a single goods & service tax of 20 per cent.
It had also prescribed removal of tax exemptions and simplification of procedures to revamp tax system, as part of efforts to wipe out revenue deficit and lower fiscal deficit to less than 3.0 per cent of GDP by 2009.
