India needs to grow at 8 per cent for decades so as to create the required amount of employment for the country’s working-age population, the Minister of State for Finance, Jayant Sinha, said.
“Our economic approach is fundamentally different from the previous government. We have the same philosophy as the Vajpayee government. What we are trying to do is build India’s production capacity so we can sustain high growth over long periods of time. This is a supply side view,” Mr. Sinha said while speaking at a session on removing India’s economic hurdles at the PHD Chamber’s 110th annual general meeting.
“This building of production capacity involves developing hard assets, such as roads, ports, rails connectivity, and others as well as soft assets like skills and an innovation ecosystem,” Mr. Sinha said.
There were several key concepts that underpinned the government’s philosophy on economic principles, he said.
“First and foremost, this is a pro-poor government. This is not a political necessity, but a moral responsibility. Because of this, we are also a pro-market government. How else will we create employment and generate taxes that can be used for social development,” Mr. Sinha said. A pro-market policy does not necessarily imply being pro-business. It simply means ensuring efficient market functioning, he said..
The second guiding principal, Mr. Sinha said, was one of empowerment and not entitlement and the third was one that Mr. Modi has often repeated: minimum government, maximum governance.
“Co-operative federalism is also an important aspect of this government’s philosophy. Our States are larger than more European countries. We want them to have the finances and opportunities to prosper,” Mr. Sinha said.
The Minister also outlined six ‘game-changers’ that were already in place. The first, an initiative Mr. Sinha called revolutionary, was putting in place universal social security through the JAM trinity (Jan Dhan Yojana, Aadhaar, and Mobile). “In 100 days the government has ensured that 100 per cent of families have bank accounts and 90 per cent of MGNREGA payments are being done directly into the accounts. This is historic, revolutionary.”
The second was the various schemes and initiatives, such as the Krishi Sinchayee Yojana and providing agri-credit and crop insurance, the government has undertaken for the upliftment of farmers.
The third was in its endeavour to create employment through its Skill India mission, Mr. Sinha said. He also said that the government would soon be launching a major initiative around startups, a Startups Yojana of sorts.
“Public investment is pouring into transportation, including railways. There was virtually no capital investment in railways in the last 10 years. Now Rs.8.5 lakh crore will be investment in railways during this government’s term. Public investment in general is up 40 per cent over its levels last year,” Mr. Sinha said. Since the Modi government came to power it has given licenses to 23 new deposit-taking institutions already. “The Indradhanush revamp plan is doing more for banks than anything since nationalisation.”
Finally, the government has to do with overhaluing the fiscal architecture of the country, Mr. Sinha said. “This involves empowering the States in terms of the devolution of taxes. We have taken the devolution share from 32 per cent to 42 per cent, a change of 10 per cent. The earlier largest change was in the order of 2.5 per cent,” he said, adding that GST and the cutting of corporate tax and removal of exemptions were also very important steps being taken.
There were significant challenges facing the government as well, he said. The first, he said, had to do with the paucity of manpower in the government, an example being that there are only 4,000 IAS officers in the entire country, which works out to only 1.5 officers per district. Secondly there were several projects that span various ministries and departments in the government and coordination between them is often a big problem.
“While the government can think of targets and achievables and regular progress appraisals when it is in mission mode, like the Jan Dhan Yojana, this isn’t the case usually. Such a mindset needs to become routine in government,” Mr. Sinha said.
What is the Goods and Services Tax?
As the name suggests, it is a tax levied when a consumer buys a good or service. It is meant to be a single, comprehensive tax that will subsume all the other smaller indirect taxes on consumption like service tax, etc. This is how it is done in most developed countries.
What is preventing GST from being a reality?
A major change like GST requires a constitutional amendment, which requires a bill to passed in both houses of Parliament. The GST constitutional amendment bill was passed in the Lok Sabha in May this year.
It has been held up in the Rajya Sabha due to objections being raised by the Opposition regarding the Bill as well as issues with no direct connection to GST.
The Bill was also placed before a Rajya Sabha select committee, which made its recommendations regarding changes to the Bill. The Cabinet cleared these changes in July.
What are the Opposition’s objections?
The Congress wants a provision capping the GST rate at 18 per cent to be added to the Bill itself.
It also wants to scrap the proposed 1 per cent additional levy (over and above the GST) for manufacturing states.
This levy was demanded by manufacturing states who argued that they needed to be compensated for the investment they had made in improving their manufacturing capabilities. The Centre had agreed to this demand to encourage the states to support the GST Bill.
The third demand by the Congress was to change the composition of the GST council—the body that decides the various nitty-gritty’s like rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states, etc. The proposed composition is for the Council to be two-thirds comprised from states and one-third from the Centre.
The Congress wants the Centre’s share to be reduced to one-fourth.
This demand, however, was rejected by even the Rajya Sabha Standing Committee.