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Ex-CEA Arvind Subramanian against cut in personal income tax, extra fiscal boost

According to Subramanian, income tax relief might have only limited impact on consumption, as only 5 per cent of population pays the tax.

By: ENS Economic Bureau | New Delhi | Updated: December 29, 2019 6:24:53 pm
Ex-CEA Arvind Subramanian at the Idea Exchange programme. (Express Photo)

Arguing against a major restructuring of personal income tax at this juncture to give relief to taxpayers, former Chief Economic Adviser Arvind Subramanian said on Tuesday that instead, the forthcoming Union Budget (2020-21) ought to bring back honest accounting of the Centre’s finances and refrain from rolling out any additional fiscal stimulus. Rather than coming out with any surprises or making dramatic announcements, the Budget should set realistic and modest targets, without any undue stress on fiscal consolidation either, he said at the Indian Express Group’s Idea Exchange programme here.

According to Subramanian, income tax relief might have only limited impact on consumption, as only 5 per cent of population pays the tax. Instead, he favoured a greater push to schemes like the PM Kisan, National Rural Employment Guarantee Scheme or a universal basic income, to cater for a larger population that is under stress and stimulate demand to contain the slide in growth.

Following the recent slashing of corporate tax rates, the clamour for a cut in the personal income tax rates has grown shriller. When asked about this, Finance Minister Nirmala Sitharaman recently said if the government opts for reducing income tax, it would purely be on the basis of intrinsic merit of such a step, rather than in relation to the corporate tax cut.

Noting that there is a growing opinion that many economies might have erred on the side of fiscal prudence, Subramanian said it would still not make a case for India to loosen its fiscal policy given the consolidated primary deficit (fiscal deficit less interest payments) of the general government here remained high and interest rates exceeded GDP growth rate. Also, he was sceptical about the government’s ability to spend quickly and meaningfully to bring about a push to economy of the required magnitude and topicality. Economic growth slowed to a 4.5 per cent in Q2FY20, the lowest quarterly growth since Q4FY13.

He said the current slowdown is intense but said there was no longer any “magic bullet” for the short term to fix the economy, suggesting structural remedies would probably do the trick, with focus on agriculture and power-sector reforms. Although GST collections have been trailing the targets month after month, Subramanian thinks the indirect tax structure is being blamed harshly. —FE

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