Removal Of Corporate Social Spending Can Help Revive Growth: Bibek Debroy

Bibek Debroy said that steps such as a three-rate GST structure and removal of corporate social responsibility spending could help revive the economy.

Removal Of Corporate Social Spending Can Help Revive Growth: Bibek Debroy

Comments come at a time economic growth in the country has shrunk to a nearly five-year low.

Highlights

  • Economic growth shrank to nearly five-year low of 5.8% in March quarter
  • Auto sector is struggling against low demand, lakhs of estimated job cuts
  • Public expenditure can be made more efficient, says Bibek Debroy

Removal of Corporate Social Responsibility spending and a three-rate Goods and Services Tax (GST) structure can help revive the economy and achieve 8 per cent growth, Bibek Debroy, the Chairman of the Economic Advisory Council to the Prime Minister, has said. In an article published in the Economic Times on Monday, Mr Debroy wrote: "If all exemptions are eliminated, compliance costs decline, and tax rates can drop significantly for both corporate tax and personal income tax. Without taking a revenue hit, surcharges and corporate social responsibility (CSR) can both be removed."

The comments come at a time economic growth in the country has shrunken to a nearly five-year low, the auto sector is struggling against low consumer demand and lakhs of estimated job cuts, and corporate earnings have been most disappointing in at least three years.

Many analysts expect data due later this month to show that economic growth in the quarter ended June 30 faltered even further.

In the article, titled "four options to revive the Indian economy", Mr Debroy said tough indirect tax rates are decided by the GST Council, the government does have a voice. "We need three rates - something like 6 per cent, 12 per cent and 18 per cent," he said.

On direct taxes, Mr Debroy said: "Exemptions and special treatment are antithetical to streamlining and simplification, and do not facilitate procedural easing."

"Essentially, exemption reduction is a red herring. For both personal income tax and corporate tax, they must be eliminated," Mr Debroy wrote.

The government is aiming to prepare a new Direct Tax Code to replace the existing Income Tax Act, 1961. The task force entrusted with the preparation of the tax code is due to submit its report to the Finance Ministry on Wednesday, August 16.

Acknowledging the need to limit public expenditure given the government's fiscal consolidation commitments, Mr Debroy said existing levels of public expenditure can be made more efficient by pruning the number of centrally sponsored schemes to not more than 10-15, as against 28 at present.

In a move that surprised many economists, the government in its Union Budget revised the fiscal deficit target to 3.3 per cent last month, from a downwardly revised 3.4 per cent in February. A tighter fiscal consolidation path means the government will have to earn more and spend less.

The 15th Finance Commission - whose recommendations will determine revenue sharing for the next five years - is slated to submit its report towards the end of the year. The recommendations will come into effect from April 1, 2020.

The existing package of central sector and centrally sponsored schemes ends on March 31, 2020.

Many economists have expressed concern over the government's ambitious target at a time the economy is facing a slowdown.

In its analysis of the full Budget 2019-20, credit ratings major Moody's has said that weak growth prospects for India will complicate the government's fiscal consolidation efforts, weighing on the sovereign credit quality.

Mr Debroy also advocated for privatisation of central public sector enterprises.

The Reserve Bank of India's six-member Monetary Policy Committee (MPC) earlier this month delivered its fourth cut in the repo rate to bring the key interest rate at a nine-year low of 5.4 per cent, underscoring its worries about the slowing growth.

Asia's third largest economy grew at a significantly slower-than-expected 5.8 per cent annual pace in the January-March quarter.

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