Indian Prime Minister's economic advisor has 3 ideas to keep the economy running fast, on its own

  • Cut income tax rate, is the advice of Bibek Debroy, the Chairman of Prime Minister’s Economic Advisory Council.
  • The Union government currently has 28 central schemes and the Debroy believes that some of these expenses can also come under state purview.
  • Debroy believes that sectoral sops will create more distortions and complicate the system of taxation even further.
  • The country currently has five slabs of Goods and Services Tax (GST) and Debroy believes that it should be streamlined to three.

Ironically, the Indian government is facing the same conundrum as any middle class family in the country would---low income and increasing expenses.


The country is short of ₹6.5 lakh crore, as per estimates in May, mostly due to decrease in tax income. And like a middle class person, the country also saddled itself with expenses which are eating into it.


The Union government has come up with many populist schemes at the central level on health, cleanliness and much more.


Bibek Debroy, the chairman of Prime Minister’s Economic Advisory Council has a three-point programme to change the sorry state of affairs, especially when the economy itself is slowing down.


The economist who has made significant contribution to the game theory, believes that there are limits to public expenditure due to the current situation.


Cut direct tax rate


Added to that, Debroy has a few things that would aid in the long run.

“The direct tax rate can be reduced significantly. The only way to reform direct taxes is to eliminate exemptions for both personal and corporate taxes,” Debroy said.

Indian government had promised to bring down the corporate tax rate to 25% from 30% provided all exemptions are done away with. However, as it stands today, firms with an annual revenue of up to ₹400 crore are eligible pay tax at the rate of 25%.


On personal income tax, individuals have been given some respite up to an annual income of ₹5 lakhs. However, the government imposed a super rich tax for those with annual income of ₹2.5 crore to 25% from 15%, and those who earn more than that, will be taxed at 37%.


However, what Debroy is asking for is a broad-based cut in income tax which may leave more money in the hands of consumers to spend. This may be a timely recommendation given the sharp slowdown in Indian consumption-- from air tickets to car sales, from daily products to discretionary ones, all sectors are facing acute stress from lack of demand.





Reduce GST slabs


The country currently has five slabs of Goods and Services Tax (GST) -- zero, 5%, 12%, 18% and 28%-- and there is a surcharge on some foreign portfolio investments expanding the number of slabs.


Debroy believes that it should be streamlined to three. Though he said that he prefers a single slab, it would be impractical.


“Everyone wants the 24 per cent to come down to 18 per cent, but no one wants the items under 0 per cent to come under 6 per cent,” he told Indian Express.


Let states spend


“So, if we think health is important and we want the Union government to spend on health, by the same token, the state government should pay for defence. After all, I have got limitation in terms of resources available for public expenditure, I need to prioritise. That prioritisation cannot be done by the Union government alone, but also by states,” Debroy told Indian Express in an interview.


The Union government currently has 28 central schemes and the Debroy believes that some of these expenses can also come under state purview.


Say no to sectoral sops


A large number of sectors, especially the auto sector, is seeking government incentives to get back on track. Auto sales have been falling for the last nine months, which each month worse than others, leading to job losses and production cuts and even dealership shutdowns.


And, the automakers have one hope---sops from the government. But theoretically it could be a bad idea, says Debroy. He believes that sectoral sops will create more distortions and complicate the system of taxation even further.




SEE ALSO

Hero MotoCorp, Tata, Mahindra and Maruti Suzuki are all cutting production as there’s no demand


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