Chandigarh, Sept. 28: The Prime Minister today cautioned states against signing “headline-grabbing MoUs” offering tax sops and other incentives to industry that “our finances cannot sustain”.
The “jury is still out on whether these policies really promote industrial growth”, Manmohan Singh told a conclave of five northern chief ministers, organised by the Punjab-Haryana-Delhi Chamber of Commerce and Industry.
Industry should work with the states to ensure “there is no race to the bottom in fiscal terms through competitive populism”, Singh said.
The advice comes days after Sonia Gandhi warned all 14 Congress chief ministers against diversion of prime farmland for industry, and key ally CPM demanded a land ceiling for special economic zones.
“In the excitement to have headline-grabbing MoUs, we (states) offer incentives, both fiscal and financial, which our finances cannot sustain,” the Prime Minister told the chief ministers of Congress-ruled Delhi, Haryana, Punjab, Himachal Pradesh and Jammu and Kashmir.
Singh also said the myriad tax systems in the country have been a hindrance to progress.
“The Constitution of India conceived all of India as a unified, common market. Large economies have advantages of scale, scope and ease in conducting transactions. However, over the years, we have managed to fragment the national common market by erecting a large number of financial and physical barriers which choke inter-state commerce,” he said.
“This is done under the mistaken belief that beggar-thy-neighbour policies promote the welfare of one’s own residents. Tax systems act as hindrances to sales to other states. When the whole world is moving towards dismantling barriers and trade facilitation, the states need to adopt policies that strengthen the human and physical recourse capabilities of their region.”
The Prime Minister expressed concern that northern India, with 40 per cent of the country’s population, was falling behind in economic development. He said the region must improve its human development indicators.