Gita Gopinath, the first deputy managing director of the International Monetary Fund (IMF), indicated that widening the Goods and Services Tax (GST) base in India could potentially increase the country’s revenue by up to 1% of its Gross Domestic Product (GDP). Speaking at the Delhi School of Economics’ diamond jubilee conference, Gopinath highlighted that enhancing the GST framework could help meet India’s growing development expenditure needs.
Addressing a question from economist and former chairperson of the Fifteenth Finance Commission, NK Singh, Gopinath explained that India’s current development phase requires a different approach to fiscal management. “Given that India has to make public spending, any fiscal consolidation has to come from the channel of raising revenues,” Gopinath stated. She emphasized that reducing spending alone would not provide sufficient fiscal space at this stage of development.
Gopinath elaborated on strategies for nations to mobilize resources amid high debt and interest rates. “One example of how India can raise revenue as a share of GDP has to do with GST,” she said. “GST has begun to deliver good results. As we see it, there is a way to simplify it further, so there are fewer rates and a broader base. You can end up with an additional 1% of GDP as revenue through this,” she added.
In addition to GST reform, Gopinath suggested that India could make financial savings by targeting specific subsidies, such as the fertilizer subsidy. “Having a much broader base for personal income tax will also be helpful,” she noted.
Regarding India’s aspirations to become a developed country, Gopinath outlined several key requirements. She pointed out that consistent and broad-scale efforts across various sectors are necessary for India to achieve developed status. Despite being the world’s fastest-growing major economy, she highlighted the need for sustained economic advancement to elevate per-capita income to levels comparable to advanced economies. “The question is how does one keep that up and raise it so that per-capita income reaches the levels seen in advanced economies,” Gopinath said.
Improving workforce skills and education was another critical factor Gopinath identified. “If you look at the years of formal education in India compared to that of its G20 peers, it is on the lower end. Increasing education, the depth of that education, and the depth of the skills that students pick up are going to be absolutely critical if one has to get to upper-middle and high-income status,” she remarked.
Investment in public infrastructure was also emphasized as a crucial component for development. Gopinath acknowledged the Indian government’s efforts in advancing public and digital infrastructure but noted a significant gap between current provisions and actual needs. “The government has done a lot on that front – in public infrastructure and digital infrastructure. But there is a big gap between what is needed and where the country is. Clearly, the government has every intention to do that,” she said.
Additionally, Gopinath discussed the importance of supportive institutions, ease of doing business, an efficient judiciary, and reduced import tariffs. “Being open to trade is important. We are in an environment where trade integration is getting questioned. It is very important for India to open up to trading more,” she stated. She pointed out that India’s trade tariffs are currently higher than those in many peer economies, which could hinder the country’s role in global trade and supply chains. “Trade tariffs in India are higher than in its peer economies. If India wants to be an important player in the world stage and an important player in global supply chains, it is going to require reducing those tariffs,” Gopinath concluded.
