Former Niti Aayog vice president Arvind Panagariya on Wednesday argued for a two-rate goods and services tax (GST) structure with a small list of exemptions.
Panagariya also said that India’s economy has grown quite rapidly over the past 17 years and will grow by 7-8% over the next two decades.
“We should come up with two rates (structure) of GST… Also, we need to prune the GST exemption list,” Panagariya said at an event hosted by Columbia Global Centers here.
The GST Council’s decision to impose a 5% tax on pre-packaged and labeled food products such as cereals, pulses and flour weighing less than 25 kg has sparked political controversy.
For a product measured in liters such as curd and ‘lassi, the limit is 25 litres.
A national Goods and Services Tax (GST), which included 17 local levies such as excise duty, service tax and VAT and 13 charges, was implemented at midnight on July 1, 2017.
Under the GST, a four-rate structure that exempts or imposes a low tax rate of 5% on essential items and a maximum rate of 28% on luxury goods and cars is levied. The other tax brackets are 12 percent and 18 percent. In the pre-GST era, the total of VAT, excise, CST and their cascading effect amounted to 31% as tax payable, on average, for a consumer.
Regarding India’s macroeconomic situation, Panagariya said, “We have grown quite rapidly over the past 17 years… We are going to grow by 7-8% over the next two decades.
While noting that India’s economy grew by 7.4% between 2014-15 and 2019-20, the first five years of Modi’s government, the eminent economist blamed reckless lending by banks under the previous UPA government in 2008 -12, which led to an increase in NPAs and a drop in economic growth to 4% in 2019-2020
The World Bank has cut India’s economic growth forecast for the current fiscal year to 7.5% as rising inflation, supply chain disruptions and geopolitical tensions slow the recovery .
India’s economy grew by 8.7% in the last financial year (2021-22) compared to a contraction of 6.6% the previous year.
On some pundits and politicians comparing the current situation in Sri Lanka with India, Panagariya said, “It is nonsense to compare the current economic situation in Sri Lanka with India. India is a very stable economy.”
Panagariya, currently an economics professor at Columbia University, also stressed the need for good job creation.
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