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GST will improve tax-to-GDP ratio
June, 27th 2016

Chief Economic Adviser Arvind Subramanian has said on Sunday that Goods and Services Tax (GST) will help improve tax-to-GDP ratio in the country, while giving buoyancy to the government's tax collection efforts.

He also termed the proposed tax system — along with strategic disinvestment and twin balance sheets — as the government's major pending agenda. Speaking at an international conference on Social Statistics in India, organised by Asian Development Research Institute (ADRI) as part of their Silver Jubilee celebrations in Patna, Subramanian said: "We need to catch up on tax to GDP front. I sincerely hope that GST would give some buoyancy to it."

Subramanian said while the country has left behind the licence-quota permit raj and opening up for foreign direct investment in greater number of sectors, what has come to afflict the economy is the "Exit problem". He meant that loss-making firms and entities have been finding it difficult to exit from the business and gave the example of the fertiliser sector. Calling this a major area of reforms, he said: "The inefficient firms are not even employment-intensive and so it's easy for them to shut down. There is a need to readjust and recalibrate exit," he added.

Subramanian also touched upon "Brexit" and termed it as a major shock in the world history after the Cold War. He said it was a setback for the international citizen, globalisation and that a great social experiment is now being reversed. As for its economic repercussions on India, he said the country had strong fundamentals to withstand the negative fallout.

He also called for an office of chief economic adviser in every state to generate ideas and policies.

The Chief Economic Adviser said India presented a picture of a highly Balkanised country with respect to power tariffs and tax rates. Showing data for power tariffs for agriculture and tax rates in the states, he said: "we should be one economic India".

Showing excitement about reforms in the garment sector, he said: "It is much more labour-intensive than sectors like auto and steel and has the potential to empower women by creating jobs for them." He also said this is one of the areas where shrinking share by the Chinese can be cornered by Indian firms.

While saying India had very few tax payers and that in as many as seven areas — kerosene, railway, electricity, LPG, gold, aviation and turbine fuel and small savings — "well-off", the top 40% of the population, were subsidised to the extent of Rs 76000 crore, he called for spending more to generate more.

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