With the economy on a continuous slide, the Prime Minister’s Economic Advisory Council Chairman Bibek Debroy said it is high time the government focused on expenditure and recommended a GST Council-like mechanism for the Centre and states to strategise on public expenditure for maximum impact.
“The key question today is whether we are on a 7% GDP growth rate trend, or a 6% trend,” Debroy told The Indian Express in an interview last week. The Prime Minister’s Office and the Finance Minister have been meeting various stakeholders over the last week to discuss the slowdown which is adversely impacting various sectors now.
Pointing to the phenomenal success of the GST Council as a decision-making body, he said, “This (GST Council) was about indirect taxes. Time has now come for a similar body on public expenditure to do exactly what the GST Council did for taxes. This body should decide on what should be public expenditure.”
“There are questions within the PM EAC on whether the slowdown is ‘cyclical’ or ‘structural’ in nature,” Debroy said, but advised against widening the fiscal deficit. “If I just look at it from an academic point of view, I’d probably say, yes, to expanding the fisc. But looking at the past, the moment you open the tap, there is no controlling it.”
Elaborating on government expenditure, Debroy said there are limits to public expenditure because there are fiscal consolidation issues. But focused and strategic expenditure by the Centre and states together could yield efficiency gains, he said.
Some aspects the government can address on the tax side include streamlining and harmonisation of GST rates, and reduction in direct tax rates, the PM EAC Chairman said. “A lot can be done on GST. As an economist, I would argue, there should be a single GST rate. In practice, it is impossible. No country in the world has a single GST rate. From a pragmatic point of view, we must have three GST rates. For illustrative purposes, say 6%, 12% and 18%. Everyone wants the 24% to come down to 18%, but no one wants the items under 0% to come under 6%,” Debroy said.
On the direct tax side, he said the rates can be reduced significantly. “But this can be done only when both corporate and income tax exemptions are removed,” Debroy said. He also advised against sectoral tax sops. “We should not have any sector-specific interventions. These will create distortions. Fiscal concessions to specific sectors will complicate the tax story even further,” he said.