GST major cause of slowdown, corporate tax cut won't help, measures needed to stimulate demand: Bibek Debroy
Bibek Debroy, Chairman of the Prime Minister's Economic Advisory Council, has said in an interview to Karan Thapar that the government will miss the fiscal deficit target of 3.3 per cent set in the Union Budget.
Debroy said it's hard to say by how much it would be missed, but he made it clear that there was no doubt that the fiscal deficit target would be missed. Since the rate of growth of the economy was declining, and was less than what was envisaged when the Budget was announced, it automatically follows that the fiscal deficit will rise and the 3.3 per cent target will be breached, Debroy explained.
Debroy also said that it was likely that income tax rates would be cut and we could see a fairly substantial reduction. While he didn't say if this would happen in the next Budget, he did say that the logic of the corporate tax cut, announced last month, suggested that it could.
Debroy said that he believed the overall growth in this financial year would be "around 6 per cent". As he put it, it could be a fraction higher or a fraction lower than 6 per cent.
He said that the widespread slowing down of the international economy was dragging down India's potential growth which otherwise would be higher. When he was asked if this meant he did not agree with Niti Aayog Vice Chairman Rajiv Kumar's claim that growth in the second half of this year would be higher than 7.5 per cent, Debroy refused to answer, saying that this question should be put to Kumar.
Debroy also said that he believed the manner in which the Goods and Services Tax (GST) has been implemented was a major factor in the slowing down of the economy.
He said it was impossible to statistically say what percentage of growth has been affected by GST, but he made it clear that in his mind there was no doubt that GST was a major cause of the slowdown.
Debroy also said that this was the right time to abolish the 0 and 28 per cent rates and to reform the rate structure to three slabs, "for example, 6 per cent, 12 per cent and 18 per cent". He also said all exemptions should be ended.
On asked whether this might be risky in the present environment when GST collections are at a 19-month low, Debroy said that, in fact, this was the right time to do it.
Debroy also said that the recently announced corporate rate tax cut would not have a direct or very substantial impact spurring investment and there was need for the government to announce other measures to stimulate demand.
He added that he expected to see several such measures announced by the government between now and the Budget in February, but refused to discuss what they ought to be.