Former Reserve Bank of India (RBI) Governor D. Subba Rao on Monday sought to caution how freebies unless targeted can become a burden for future generations.
“Our budgets are deficit which means the freebies are being financed by borrowings... should be cautious, critical about what freebies are being given [as] if they do not contribute to growth and revenue the burden of repayment will fall on our children. So do you want to sin against the children?” he said at the Independence Day celebrations organised by the Federation of Telangana Chambers of Commerce and Industry (FTCCI).
Mr. Rao, responding to queries after delivering an address on India @75 - Marching Towards $5 Trillion Economy, said this pointing to how the Prime Minister has triggered a debate on the important issue.
While freebies are important to provide some safety net for vulnerable sections, it should not become a way of political administration that every government or every political party competes on promising something or the other to win elections. Once they form government, they then compete to give freebies to stay in power. “That I think will take us in wrong direction,” he said.
“As much as there should be some expenditure on freebies, we should be extremely selective on what freebies, when and how much, he said, adding political parties should agree on a code of conduct.
To a query on the Goods and Services Tax (GST), Mr. Rao said it is a challenge for the government to generate tax revenue to meet obligations and at the same time keep rates low enough for making business and industry viable. Noting that it is good for government if tax revenues are buoyant as tax-GDP ratio is low in the country, he said in the long run, however, more revenue should come from direct taxes and less from indirect taxes since the latter are regressive as the rate is same for rich and poor. In contrast, direct taxes can be calibrated to be progressive, he said.
In his address, Mr.Rao said it may take longer for India to become a $5 trillion economy on account of the pandemic’s impact. The country can achieve the goal in 2028-29 if the GDP growth is 9% consistently for next five years. The focus while achieving this should be on lifting millions of people out of poverty. Increasing investment, improving productivity as well as education and health outcomes; creating jobs; raising farm productivity; maintaining macroeconomic stability; managing global mega trends and improving governance are key challenges to be addressed, he said.
FTCCI president Anil Agarwal and Chair IDC committee Srinivas Garimella spoke.
