Opinion | Sitharaman on what the economy needs

After Prime Minister Narendra Modi assured his government’s backing for bankers to fearlessly extend loans for genuine business needs, finance minister Nirmala Sitharaman has sought to reassure the country of all possible efforts to get the economy going. Speaking at the Hindustan Times Leadership Summit on Saturday, Sitharaman addressed a wide range of issues, ranging from prospects of an economic stimulus and the scope for fiscal expansion to how taxation should be simplified and its burden eased. With economic growth having slipped to an over six-year low, the importance of what the Centre has in mind cannot be overstated. The finance minister signalled a multi-pronged approach involving higher public expenditure, enhanced direct cash transfers, and smoother credit disbursals, noting that as much as ₹5 trillion had been lent by banks via various schemes in October and November alone. “This is money reaching people directly for consumption in the hinterland,” she said. Such measures typically take time to show results, although Sitharaman appeared hopeful of an impact on this quarter itself. She also hinted at the possibility of a cut in personal income taxes, which could help stimulate demand by leaving more money in taxpayers’ hands, saying that this was “one among the many things we are thinking of”.

As for the government’s outlook on the fiscal deficit, the audience was all ears. It has been clear for some time that while sell-offs of state assets could make up to an extent for higher public spending, the glide path set earlier for deficit reduction looks unrealistic. Whether that path should be given up temporarily, Sitharaman said, was under debate. “Technically, nothing stops me from doing it,” she said, adding that she wasn’t opposed to it “in principle”. Such candour on her part suggests a government ready to take a pragmatic look at all options. Indeed, policymakers need to model and assess various scenarios that further fiscal loosening could result in, with all risks entailed taken into account. If the Centre opts to loosen its reins on the fisc, it must tighten them as soon as a growth recovery sets in, lest we suffer a repeat of the inflationary episode a decade ago.

The finance minister was also frank about flaws in the goods and services tax (GST). “Unstructured” rate cuts had distorted the tax regime, she said, reiterating the Centre’s commitment to meeting its GST compensation obligations towards states. Sitharaman’s most salient message, perhaps, was the promise of a friendlier tax administration. She stated that efforts were being made to rid Indian taxation of its “ifs and buts”, a reference to exemptions and other complexities, and that the country was moving towards a “harassment-free taxation structure”. These comments appear to be aimed squarely at easing concerns over allegedly undue action by the tax authorities. After all, even perceptions of harshness could end up spooking businesses and stifling commerce. Our complex laws need simplification if compliance is to be improved. The GST, for instance, is already a tangle of sorts. We need fewer and clearer rate slabs. Also, smooth processes and quick refunds. In general, all taxation should go by the canon of simplicity. What exactly needs to be paid should be easy to grasp. It will not be easy to achieve all this right away, given the Centre’s stretched finances. But Sitharaman has stirred up expectations. Her next budget will be keenly watched.