August 17th 2024.
During a recent event in New Delhi, IMF deputy managing director Gita Gopinath shared her insights on India's economic growth and the need for further reforms to sustain it. She emphasized the importance of creating enough job opportunities and reducing import tariffs to strengthen India's position in the global supply chains.
Gopinath praised the government's efforts in implementing structural reforms over the years, but also stressed the need for ongoing, consistent efforts in various areas to achieve the goal of becoming a developed country. She acknowledged that in today's world, there is a growing skepticism towards trade integration, but reaffirmed the significance of India remaining open for global trade.
However, Gopinath pointed out that India's tariff rates are higher than those of its peer economies, and reducing them is crucial for the country to play a significant role in the global market. She also highlighted the need for a broadening of the personal income tax base to generate more revenue and suggested that India can learn from other developing countries in this regard.
When asked about taxation in India, Gopinath noted that most of the tax revenue collected is from indirect taxes rather than direct taxes, such as income tax. She advised that increasing income tax revenue can be beneficial and commended the Modi government's decision to cut corporate tax rates. However, she emphasized that the focus should be on eliminating loopholes and minimizing leakage of tax exemptions.
In terms of creating a fair tax system, Gopinath stressed the importance of progressivity and ensuring sufficient revenue from capital gains and capital income tax. She also suggested the use of advanced technology to implement property tax, which she believes can be beneficial in generating more revenue.
In conclusion, Gopinath acknowledged India's impressive economic growth rate of 7%, making it the fastest-growing major economy in the world. However, she posed the question of how India can sustain this momentum and elevate it further to achieve the goal of becoming an advanced economy with higher per capita incomes.
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