Personal income taxes need to be reformed and there is a need to bring in more reforms to push economic growth, eminent economist Surjit Bhalla told NDTV. "There's absolutely no question that the Indian economy has slowed down... We are absolutely in the middle of a slowdown. No doubt about it," said Mr Bhalla, executive director-designate at the International Monetary Fund (IMF), in an exclusive interview to NDTV. The comments from the top economist come at a time when the country's economy is struggling against the slowest pace of growth in more than six years amid thousands of job losses across sectors.
"The April-June GDP data looks bad and another aspect which hasn't been highlighted as much is that nominal growth is I think the sixth lowest since 1996," Mr Bhalla said. India's GDP or gross domestic product grew 5 per cent in the first quarter of fiscal year 2019-20.
Nominal GDP growth rate (without adjusting for inflation) stood at 8 per cent in the quarter ended June 30, according to official data released in August.
"While fiscal policy has been expansionary, monetary policy has been contractionary," said Mr Bhalla, advocating that the policy environment is not suitable for corporates to invest. "Despite the 135-basis-point cut (repo rate), inflation has declined by 150 basis points," he explained.
Mr Bhalla was referring to the current easing phase of monetary policy by the central bank, in which it has lowered the repo rate - the key interest rate at which the RBI lends short-term funds to commercial banks - by 135 basis points (1.35 percentage point).
The government has in the past few months announced a slew of measures to push corporate investments and boost growth. The range of steps taken include a cut in corporate taxes, a mega consolidation plan for state-run banks and withdrawal of higher taxes on foreign investors.
Mr Bhalla describes the corporate tax cut as the "biggest corporate tax cut by any nation in history".
The economist believes that there is a set of measures that can further revive the economy. "In terms of fiscal policy, long-term capital gains tax needs to go... double dividend tax, which started in 1997, needs to go and personal taxes need to be reformed," he said.
Mr Bhalla, also believes economic growth will bottom out to 5 per cent or lower levels in the second quarter (July-September) of the current fiscal year and pick up afterwards. Official data for the second quarter will be released at the end of November.
In the final two quarters of 2019-20 - the period from October to March, data suggests that GDP growth would be around 6.5-7 per cent, due to the policy measures introduced by the government.
The current slowdown started in September 2018, Mr Bhalla said. "The present slowdown has nothing to do with demonetisation."
The government recently appointed Mr Bhalla as the executive director for India on the board of the multilateral agency - IMF - for a period of three years, after the key post had fallen vacant following the death of Dr Subir Gokarn in July.
Mr Bhalla resigned as part-time member of Prime Minister Narendra Modi's Economic Advisory Council (EAC) in December last year. The EAC-PM or Economic Advisory Council to the Prime Minister is an independent body constituted to give advice on economic and related issues to the Government of India, specifically to the Prime Minister.