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Finance minister Nirmala Sitharaman said on Friday that consistent policies including on taxation, reduced compliance burden for businesses down to the local body level and centre-state synergy were key to India’s growth and were on top of the agenda.

Speaking at the Hindustan Times Leadership Summit 2021, Sitharaman gave an overview of how the government is steering the economic recovery including by frontloading various fiscal transfers to state governments and by offering the needed support to micro small and medium enterprises (MSMEs).

Sitharaman said that consistency in taxation as part of overall policy stability, ease of doing business and the Central and state governments acting in sync would be the key growth enablers going forward. The minister said that already, most of the high frequency economic indicators are pointing to different sectors crossing the pre-pandemic levels in output.

Sitharaman’s emphasis on consistency in policies including on taxation assumes significance as the union budget preparation for FY23 is currently on.

“Together with domestic polices which will have to be consistent, whether it is taxation or the ways in which we do business, and greater synergy between the Centre and states—I am saying it last but it is going to be on top of the agenda I would think—the federal mechanism really feeling the story as one. We have to brace for good, strong, well riveted growth for which both the Centre and states have to work together," the minister said in response to a question on India’s long term growth potential.

In October, the International Monetary Fund (IMF) had pared down India’s potential growth forecast—rate of growth that can be sustained in the medium term without excess inflation-- by 25 basis points to 6% due to the impact of the pandemic which hit investments and labour market badly, Mint reported on 19 October.

The minister said that India could do more than just 6% or 7% but that will have to be enabled through several steps that the government has to keep taking.

On the shorter term, out of more than 40 high frequency indicators, 22 of them are very clear indicators of what is happening in the economy and in 19 out of those 22, we have achieved pre-pandemic level or have crossed the pre-pandemic level, the minister said. “It means we are now much better than the pre-pandemic level in 19 of those 22 high frequency indicators," Sitharaman said.

The minister also cited S&P’s retaining of its India growth forecast for this fiscal at 9.5% to emphasise on the robustness of the economic recovery. “S&P for instance only a few days ago said it has retained the figure of 9.5% for India this year--meaning fastest growing economy this year. And we improve our numbers to the next year. These are not quick fix numbers. They do their homework and look at the economy in a comprehensive manner," Sitharaman said, attributing the growth to the tenacity and perseverance shown by the people.

The minister cited reduction of compliance burden up to the level of panchayats as a needed growth enabler. “The three-layered system being what it is, no good if Government of India tries to clean up or some states try to make it easier, it has to be consistently down to the level of panchayats. The local bodies are actually the recipients of investments in a way and if the decision making there is complicated, time consuming, burdensome, it cannot help," the minister said.

The minister also explained that the corporate tax reduction announced in 2019 had helped businesses during the pandemic. “You are able to see that industry wanting to expand their capacities, wanting to invest in newer areas. That decision prior to the pandemic, nobody knew of the pandemic at that time, has actually come into play very well for our benefit," Sitharaman said.

“Both direct taxes and indirect taxes should have a level of predictability. Frequent changes, complications or ‘ifs and buts’ added to them can put off businesses. Their business planning can go for a toss. So, I would think, for the economy to have the benefit of better planned enterprises, we need to have these two (reduction in compliance burden and consistency in policies) absolutely top of the agenda," Sitharaman told business leaders.

The minister also explained that the GST rate revision on textiles was meant to correct a tax anomaly and not to raise revenue collections. The government is currently working on meeting the 1.75 trillion disinvestment target for this year and it entails tying up the bureaucratic lose ends, Sitharaman explained.

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