‘Financial policies play major role in growth’

Policies relating to public finance can play an important role in accelerating growth, promoting human development and reduce poverty, Member of 14th Finance Commission, M. Govind Rao has said.

Finance policies ensure safety and security of the people, protect property rights and interventions in education, health care and skill development, Mr. Govind Rao said at the tenth Grandhi Kamaraju Endowment Lecture held on the premises of Acharya Nagarjuna University.

Stating that some factors and special interest groups have not allowed these policies to play a positive role in accelerating growth and reducing poverty, he reasoned that the present tax system was marked by low revenue productivity. Widespread evasion of taxes and poor administration has also constrained revenues.

“A strong farm lobby has ensured that the states do not levy the tax on agricultural income and this makes detection of misclassification of non-agricultural income difficult to detect,” Mr. Rao said.

He also noted that the corporate sector has been successfully reducing the effective tax liability by using various tax preferences to reduce the effective tax payments.

The multinational companies by routing the investment through tax havens have been successful in avoiding the tax and there is considerable evidence of using transfer pricing mechanism for the purpose.

The member suggested that a robust institutional arrangement should be in place to monitor fiscal rules both for the centre and states. Vice-Chancellor K. Viyyanna Rao and Director of Centre for Distance Education M.V. Ramkumar Ratnam, Seetha Kamaraju, wife of Grandhi Kamaraju were present.