Widening GST base could fetch up to 1% of GDP in extra revenue, says IMF’s Gita Gopinath

New Delhi: Widening the Goods and Services Tax (GST) base could fetch as much as 1% of GDP in additional revenue for India to meet its development spending requirements, Gita Gopinath, first deputy managing director of the International Monetary Fund (IMF) said on Saturday.

Speaking at the Delhi School of Economics diamond jubilee conference in the capital, Gopinath said given India's current stage of development, the fiscal space can't be increased by reducing spending. 

“Given that India has to make public spending, any fiscal consolidation has to come from the channel of raising revenues,” Gopinath said in response to a question from economist and policymaker NK Singh, who served as chairperson of the Fifteenth Finance Commission.

Gopinath was speaking about how individual nations can mobilise resources to meet their development spending requirements amid high debt levels and interest rates. 

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“One example of how India can raise revenue as a share of GDP has to do with GST,” Gopinath said. “GST has begun to deliver good results. As we see it, there is a way to simplify it further, so there are fewer rates and a broader base. You can end up with an additional 1% of GDP as revenue through this,” she added. 

India can also look at making some savings, for example, by targeting the fertiliser subsidy, Gopinath said. “Having a much broader base for personal income tax will also be helpful.”

What India needs to become a developed country

Gopinath said that “ongoing consistent efforts in a broad scale across sectors” are needed for India to become a developed country. While it is the world's fastest-growing major economy, "the question is how does one keep that up and raise it so that per-capita income reach the levels seen advance economies.”

She added that India also needs a work force that is much more skilled and has much higher levels of education to become a developed country.  “If you look at the years of formal education in India compared to that of its G20 peers, it is on the lower end. Increasing education, the depth of that education and the depth of the skills that students pick up, are going to be absolutely critical if one has to get to upper-middle and high-income status,” Gopinath said in response to a question from Singh.

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The second requirement is investing in public infrastructure, she said. “The government has done a lot on that front – in public infrastructure and digital infrastructure. But there is a big gap between what is needed and where the country is. Clearly, the government has every intention to do that,” Gopinath said.  

She also said that having institutions that support development and ease of doing business, an efficient judiciary, and lower import tariffs would help India. “Being open to trade is important. We are in an environment where trade integration is getting questioned. It is very important for India to open up to trading more. Trade tariffs in India are higher than in its peer economies. If India wants to be an important player in the world stage and an important player in global supply chains, it is going to require reducing those tariffs,” Gopinath said.

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