What Bibek Debroy thinks of jobs, taxes and the economy
- In an interview with Mint, Bibek Debroy, chairman of Prime Minister Narendra Modi’s Economic Advisory Council, talks about job creation, challenges facing Indian economy and what can be done to make I-T regime more attractive.
More jobs need to be created in the economy in line with its growth, especially for the urban young, and the new personal income tax (I-T) regime needs to be further sweetened to encourage its adoption, Bibek Debroy, chairman of Prime Minister Narendra Modi’s Economic Advisory Council, said. In an interview ahead of the National Democratic Alliance government’s pre-election budget on Thursday, Debroy said the only way to make the new personal I-T regime more attractive is to reduce tax rates. The challenges facing the Indian economy include disruptions to the global supply chain, logistics problems and maybe even crude oil prices, Debroy said. Edited excerpts:
On challenges to the economy
An area of concern is geopolitical uncertainty. It is no longer (between) Russia and Ukraine. The concerns include disruption of the global supply chain, logistics problems and maybe even crude prices. Secondly, there are still concerns about employment generation. Economic growth is happening, but a commensurate increase in jobs is not yet happening. We can argue about the numbers, source of data, but the fact of the matter is that not enough jobs are being created, particularly for the urban young. This is a largish question mark. The small question mark is to what extent has consumption revived. I can give you numbers to show it has revived. How robust is that? Similarly, how robust is the revival in private investment? Again, I can give you numbers to show that private investment has been going up. (But) how robust is that? The Union government has been making a lot of capital expenditure (capex), subject to fiscal constraints. State governments not so much. These, I think, are the concerns. None of them are very serious concerns because all said and done, the economy has been doing reasonably well. I can give you figures that private capex is happening; all I said is I cannot yet argue it is broad-based and robust enough. On both consumption and private investments, I can show figures that these are happening.
On job creation
Employment is a more complicated issue. Part of it is related to lack of skills; part of it is a geographical mismatch. Demand for job is in one place and supply of labour being in a different place. Part of it is the fact that one has ‘invested’ in education and because of that expects a higher salary. The market has challenges in meeting that expectation because the correlation between education and skills has broken down. Therefore, particularly among the young, there is a voluntary dropping out of the work force.
Incentivizing the new tax regime
I am not saying this will be done in this budget. The new personal income tax regime can be incentivized by reducing the tax rates. This is essentially the only way. The adoption trend of the new personal tax regime is changing. There are new regimes for both personal and corporate tax. I do not have exact numbers. But my hunch is that many more have switched to the new system on personal income tax; not that many on the corporate side. I won’t say this is a concern, because this doesn’t happen overnight, but you still need to incentivize it. On direct taxes, essentially, the terminal goal is of a regime with reduced or no exemptions. People describe this year’s budget as an ‘interim’ budget or ‘vote on account.’ There is no such distinction in the Constitution.
Budget 2024
Fiscal consolidation is a priority in terms of messaging.
Sixteenth Finance Commission’s terms of reference
This is a clean terms of reference, except for the (reference on) disaster management. It actually reproduces what is there in the Constitution. This is the way I think it should be. Finance Commissions decide on the percentage of divisible pool that will go to the states and, based on a formula, which state gets how much.
Kerala-Centre dispute on Centre fixing state borrowing limit
This should not be in the courts in the first place. This is not so much the borrowing limits, but is indirectly linked to devolution (of the Centre’s tax revenue) and Finance Commissions. If there is no such (borrowing) limit and a state government defaults, the Union government has to honour the repayment. For that reason, you cannot have a situation of having no (borrowing) limits and states defaulting.
Consumption-boosting measures that can be taken by government
It can be in the form of tinkering with indirect taxes, i.e. GST (goods and services tax) rates or personal income tax slab changes.
Expanding GST, tax rate rationalization
Many states will be reluctant in bringing more goods and services into GST. Reducing the number of GST rates (merging two slabs) entails a higher rate coming down and a lower rate going up. Both these issues are complicated.
gireesh.p@livemint.com
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