Mitron..., yes, you guessed it! - Won't shy away from difficult decisions: PM

TT, Mumbai, Dec. 24: Prime Minister Narendra Modi has started to up the ante on what he considers as reforms ahead of the budget.

"Let me make one thing very clear: this government will continue to follow sound and prudent economic policies to ensure that we have a bright future in the long run. We'll not take decisions for short-term political point-scoring. We'll not shy away from taking difficult decisions if those decisions are in the interest of the country," Modi said today while inaugurating the Sebi-run National Institute of Securities Markets.

At another event in Mumbai, the Prime Minister said: "Time has come for ruin of dishonest people. This is a cleanliness campaign. After 50 days, the troubles of honest people will start to reduce and the problems of dishonest people will begin to increase."

"Sambhal jaiye, laut aaiye, kanoon ko sweekar kijiye, niyam paliye (beware, come back, accept the law, obey the rules)," Modi said, apparently aiming his message at tax dodgers.

The Prime Minister didn't spell out what he meant when he spoke of taking "difficult decisions" but it could spook industry and markets that are still grappling with the anticipated fallout of the demonetisation drive, which turned 86 per cent of currency stock into worthless paper.

The markets will be especially wary of Modi's comment that "those who profit from the financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low".

One area where he could focus is on ending the regime of zero tax rates on certain types of financial income. Long-term capital gains on purchases of shares and securities attract zero tax if held for more than 12 months.

While describing demonetisation as a "difficult decision", the Prime Minister said: "Demonetisation has (brought about) short-term pains but it will bring in long-term gains."

There are some pointers to which way Modi could go. In the Economic Survey last year, the government had spelt out three focus areas: first, to promote competition in the business arena by aggressively pushing an entrepreneurial culture with an end to the legacy of pervasive exemptions and a large buffet spread of corporate subsidies that have trammelled tax collections.

The second would be to shovel investments into the creation of human capital in areas like education and health to fully exploit India's demographic dividend. Finally, refocus investment in agriculture from which 42 per cent of Indian households still derive the bulk of their income.

Recent reports have suggested the government intends to reduce corporate and individual taxes - with the demonetisation drive providing the headroom for such a move since money has flowed into the financial system and big data analysis will help bring more people into the tax net.

A couple of days ago, Niti Aayog chief executive Amitabh Kant had claimed that only 1 per cent of India's population pay taxes. The challenge will be to raise this number so that the tax to GDP ratio can be nudged up from the current level of 16.6 per cent, far lower than the emerging markets average of 21 per cent.