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12% GST: one rate that fits all is best stimulus

Growth issues:Jaimini Bhagwati, former diplomat; Ajit Ranade, group executive president & chief economist, Aditya Birla Group; and Ashima Goyal, economist; in conversation with R. Srinivasan, Editor,Business Line.Sampath Kumar G P

Growth issues:Jaimini Bhagwati, former diplomat; Ajit Ranade, group executive president & chief economist, Aditya Birla Group; and Ashima Goyal, economist; in conversation with R. Srinivasan, Editor,Business Line.Sampath Kumar G P  

Economists suggest adopting a progressive tax regime and widening the direct tax base

Widening the direct tax base should be a key priority for the government and the biggest fiscal stimulus that could be provided would be to simplify the GST to a single tax rate of 12%, according to economists speaking at a session of The Huddle titled ‘Rebooting the Economy: What needs to be done and how we go about it’.

“The first thing we need to is to converge on a single lower rate,” said Ajit Ranade, Group Executive President & Chief Economist, Aditya Birla Group. “Secondly, we need to expand the net. A large part of the GDP is still not in the GST tax net. Areas like electricity, petroleum... are still not under the GST,” he added. “A higher GST rate is a virtual admission of failure that we were unable to go for a progressive tax regime that includes higher direct taxes,” he asserted.

Slowdown blues

“The [economic] slowdown is terrible for the unemployed,” said Jaimini Bhagwati, a former diplomat, World Bank Treasury Specialist and author. “For those who are underemployed, the need is to create more jobs. The Government has been unfair in not allowing the numbers [on GDP growth] to come out as they should. We are growing at 5% or even lower when we should have been growing at 8%. The problem is both structural and cyclical, not one or the other.”

Dr. Bhagwati said that the main concern is that India is largely a tax non-compliant society. The Central Board of Direct Taxes had recently said that only 5.78 crore individuals filed returns disclosing income for the financial year 2018-19.

“It is high time that the Government tracks the consumption pattern of things like scooter sales, how many are sending children abroad, how many people are buying a house and clamp down on those who are not paying taxes,” Dr. Bhagwati suggested. “In most other countries direct taxes are invariably more than indirect tax collection,” he observed.

“India’s direct tax-to-GDP ratio is among the lowest in the world,” said Dr. Ranade, participating in the panel discussion moderated by Raghavan Srinivasan, Editor, Business Line, on Saturday. “GST is a virtual admission of failure that we were unable to go for a progressive tax regime that includes higher direct taxes: About 70 % should come from direct tax. Indirect tax is regressive,” he added.

Responding to an audience question on equitable growth, Ashima Goyal, economist and author said, “There is a rise in rural unemployment because of the stress in agriculture. We need to deal with that issue on priority. For example, we could set up training agencies and provide opportunities in other areas.”

Dr. Bhagwati said there is a link between the poorest in the country and those working in the agriculture sector. “Over a period of the next 10 years, we need to get farmers off the land and get them jobs. India has roughly 50% of the population in agriculture while in developed countries it’s not more than 2-4%,” he remarked, adding that more funds should be given to village panchayats and local administrations, and in a transparent manner.

To a question on reviving investment in infrastructure sectors, Dr. Bhagwati said that the PPP model does not work because the risk is shifted to the public and the returns are taken by the private partner. “Government has to do the heavy lifting on infrastructure,” he added.

Dr. Ranade said that the lock-in period of 30-40 years in infrastructure projects should be done away with. “There should be something called ‘take out financing’ where a private investor comes in for say 7 years and he should be able to hand over the project to the next investor. We need development of the corporate bond market,” he said.

Asked why women’s participation in the economy was not addressed, Dr. Goyal observed that India had one of the lowest levels of women’s participation in the economy. “If women are empowered to transition from informal to formal [work] then that will boost GDP growth,” she said.

The government has been unfair in not allowing the numbers [on GDP growth] to come out as they should

Jaimini BhagwatiFormer diplomat

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