The government has not yet exhausted all its options for stimulus measures as it is closely monitoring the economic situation and is working on more stimulus measures to revive the economy reeling from the impact of the Covid-19 pandemic, Finance Secretary Ajay Bhushan Pandey said. Production-linked incentives coupled with the earlier reduction in corporate tax rate cut will help bring in more investments in the country, Pandey said in an interview with The Indian Express.
“No one is saying that this is the end of the stimulus or that we have exhausted all our options. If any sector requires help at any point of time, we will intervene. We are in consultations with various business groups, CII, Ficci and various MSME groups and we have been getting various suggestions. We will come out with measures. As we have done in the last seven months, we will intervene at the right time and we will ensure that we will do everything possible and in the best interests of everyone,” Pandey said.
He, however, ruled out any tinkering of the tax rates as a demand-boosting measure in the ongoing economic crisis.
“The tinkering of the taxation structure is something which we need to be very very careful about, because we took a very bold step and reduced the corporate tax rate and we are among the lowest taxed countries in the world. If any tax exemptions have to be given, how will the government give it? It will again lead to distortions in the tax structure. Now that we have come down to a reasonable level of taxation, what it then requires is that we should continue with that and should not go on tinkering with that. Because stability of the taxation system is also very very important. If you change it every month or every two months, on one ground or the other, it doesn’t augur well for the country’s economy or financial system,” he said.
Pandey, who also holds the charge as Revenue Secretary, said labour laws, production-linked incentives (PLI) and farm law amendments are the areas which can be considered as path-breaking reforms. PLI — which the government proposes to expand to more sectors beyond the already announced sectors of pharmaceuticals, medical devices and mobile phones — will be beneficial as it’s linked to incremental growth rather than providing incentives to everyone, he said.
“PLI is not an usual industrial incentive scheme. Its architecture is quite unlike other traditional incentive schemes, where you gave incentives to everyone by democratising and thinly spreading over the large number of beneficiaries. As a result, it used to have a very marginal impact as compared to the actual money being spent. Now, in this PLI architecture, incentive depends upon the incremental growth, so if you are not growing, you will not get it. Those who are able to grow more will get higher incentive. That, coupled with our lowest corporate tax rate will help businesses make investments in our country,” he said.
When asked about the earlier concerns expressed by the Reserve Bank of India about businesses using corporate tax rate cut only for paring debt or building cash balances, Pandey said the lower tax rate will help in providing a positive signal for long-term investment decisions, a decision which isn’t temporary.
“With corporate tax cut and other recent major reforms, Aatmanirbhar Package and PLI, we have given positive signals to potential investors. The fact that India is no more a high tax country and it has all other enabling reforms and environment will attract investments,” he said.
On the issue of compensation payments to states under the Goods and Services Tax (GST) regime, Pandey said dialogue is happening at various levels with the dissenting states. “The central government had said that it will provide a special window through which it will facilitate the loans.”
“States were in the need of money, especially those which had given their choices. So, it was thought we could have an arrangement of a special window through central borrowing and then pass it on to the states back-to-back like it happens in all externally aided projects. The central government has tried to be as accommodative as possible because states and Centre have to work together. Borrowing has been made very simple. States are not being burdened, interest rate is low. We are having dialogues at various levels with (dissenting) state so that they could join the scheme of borrowing,” he added.
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