Millennium Post

Stage set for Big Bang reforms?

Stage set for Big Bang reforms?
The survey forecasts that the economy will grow by 8.1-8.5 per cent in 2015-16, as compared to 7.4 per cent in the current fiscal, and by 8-10 per cent in years thereafter, under a new calculation method.

“India has reached a sweet spot and... there is scope for Big Bang reforms now,” it said, adding a political mandate for reforms and a benign external environment have created a historic moment of opportunity to propel India onto a double- digit growth trajectory.

Finance Minister Arun Jaitley, who laid a copy of the Survey in the Lok Sabha, must in his budget Saturday “continue the process of fiscal consolidation, embedding actions in a medium-term framework”, it said.”Decisive shifts in policies controlled by the Centre combined with a persistent, encompassing, and creative incrementalism in other areas could cumulate to Big Bang reforms,” the Survey said.

The Budget should aim at creating a competitive, predictable, clean and exemption-light tax policy regime that will lower the cost of capital, incentivise savings and facilitate tax payer compliance. Outlining the reforms needed to boost investment and growth, it listed improvements to tax administration, easing the cost of doing business, labour and land law reforms, rationalising subsidies, creating a competitive, predictable, and clean tax policy environment and accelerating disinvestment.

Chief Economic Adviser Arvind Subramanian, the author of the Survey, said: “We are going to have moderated inflation, and shall overshoot the RBI’s growth forecast”.

The survey has recommended that borrowing should be only for capital formation and not to fund current expenditures.

There is a need to maintain a firm control on expenditure to achieve the targets and effect improvement in the quality of public expenditure, it said. Subsequently, with current expenditure on a downward path and the quality of spending improving through a switch away from public consumption to investment, India's growth, introduction of the GST, and the associated revenue buoyancy can comfortably ensure the attainment of medium-term targets, it added. This buoyancy is assured by history because over the course of the growth surge over the last decade, the overall tax-GDP ratio increased by about 2-2.5 percentage points even without radical tax reform, it said.

The survey said the medium-term fiscal strategy is based on fundamental principles of fiscal policy, as well as on the need to maintain fiscal credibility.
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