Do you think the current growth momentum, at around 7%, can be sustained till 2030 without a significant boost to demand and consumption?
What happens to India in the aggregate is a function of what is happening at the level of states. The Indian government is really a sigma of state GSDP [gross state domestic product] apart from things like defence, railways and national highways. A lot of states today are performing far below potential, there is a lot of slack.
The growth drivers have to be consumption and private investments. One of the problems of saying anything about the Indian economy is that there are time lags in data. But my reading is investments and consumption are showing signs of recovery. I am reasonably confident that in the next five years, we will have a growth rate of 7%.
Do you not think it is time for India to lower income taxes and remove exemptions to boost consumption?
Whenever I try to reduce taxes to boost consumption, I am doing two different things: firstly, I am creating discretion because I am not reducing it across the board, so there are distortions; and secondly, all resources have opportunity costs-this means whenever I am cutting taxes, I cannot spend that money on something else.
Broadly speaking, there are multiplier effects from cutting taxes, increasing revenue expenditure and capital expenditure. The multiplier effects, theoretically as well as empirically, are greater for capital expenditure, lower for revenue expenditure and lowest for cutting taxes. One reason why I think we have done relatively well post-Covid and lockdown compared to some countries in the West is because we have not cut taxes.
This story is from the May 2024 edition of Outlook Business.
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This story is from the May 2024 edition of Outlook Business.
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