Though GST numbers look good, at some point, the 53rd meeting of GST Council will have to look at harmonising and streamlining rates and bringing in more products into GST. Since average GST rates are unlikely to increase, higher revenue will be through enforcement and administrative efficiency.
For the budget, direct tax reform is more pertinent, entailing incentivising a switch to a fewer exemption system (for both personal and corporate income tax). Fewer exemptions will increase revenue, without increasing rates, and will lead to reduced compliance costs and litigation. This is a big-ticket reform idea, as is non-tax revenue.
Privatisation/disinvestments have been lagging, though the primary reason for this is efficiency, with no urgency for that to plug the revenue gap. Much the same (in the sense of lagging) can be said about expenditure—primarily food, fertiliser and petroleum subsidies. Such subsidy reform has to factor in possible recommendations of the 16th Finance Commission, expected by November 2025.
In other words, the Viksit Bharat template requires a receipts-expenditure exercise by the Union government, as it does by state governments. Fundamentally, we are asking the question—what should the government spend on and what level of government should be doing that spending? The first is, partly, the revenue versus capital expenditure trade-off, and the second is not just about Union-state fiscal devolution, but about devolution within states too. This brings one to a few broader issues that transcend the narrow budget-making exercise.
India has to plan for more urbanisation (few of which will be greenfield) and resources for urban local bodies. An industrial policy has to incorporate not only elements like production linked incentives, but also tariffs and trade agreements, present and future. Statistical systems need revamping. There are too many time lags and outdated methods. Census 2021 is also pending. Unemployment among the young, particularly in urban areas, and the trend of reduced employment elasticity underline the problems with skills/education delivery. There is a work-in-progress aspect to formalisation, both for labour and enterprises. There is much that is pending in G2G administrative reforms, with the focus on ease of living and ease of doing business having been on G2C and G2B. There was continuity between Modi 1.0 and Modi 2.0. In a similar vein, there will be continuity between Modi 2.0 and Modi 3.0. No reforms will be a break from the past. Instead, there will be tweaking and improvements on what is already being done.
In Modi 2.0, there was the exogenous shock of Covid-19. Despite global uncertainty, there are no immediate signs of any exogenous shock now. Hence, Modi 3.0 will be driven by aspirations like $7 trillion GDP in 2027 and $30 trillion in 2047. That will drive the economic reform idea, spliced with other reforms that are political (delimitation, for one).
(You can now subscribe to our Economic Times WhatsApp channel)
