GST Rate Cut Not A Good Idea To Address India Slowdown, Says Sanjeev Sanyal

Lowering goods and services tax rates to address the current slowdown in the Indian economy isn’t a good idea, according to Principal Economic Adviser Sanjeev Sanyal.

GST should be lowered with the larger intent to stabilise the indirect tax regime, Sanyal said. India should have a very simple GST regime, he said, adding that he’s a little uncomfortable with making any changes in the system as it adds “more to the noise”.

“If you want to cut GST for a larger reason, (then) you should be doing it,” Sanyal said at a panel discussion organised by All India Management Association in Delhi on Tuesday.

The principal economic adviser’s comments came against the backdrop of the auto sector seeking a GST rate cut to tide over the worst slowdown afflicting the industry in over two decades. The slump is reflective of a broader slowdown in the Indian economy, whose growth slowed to a six-year-low in April-June 2019.

Sanyal said the government has many tools to tackle the current slowdown, which is essentially demand-driven. “…In a demand-driven slowdown, we can do whole sorts of long-term things. There are two levers—monetary side and fiscal side.” There’s more space on the monetary side than fiscal side because the government has to maintain its fiscal targets. On the monetary side, real interest rates in the economy need to be reduced, he said.

“...So, the government borrows at 6.5 percent but there are large parts of the economy that are borrowing at 11.5 percent and 12.5 percent,” he said. “In a country where you have 3 percent inflation, this 900-basis-point real interest rates are clearly not tenable.”

He also said Finance Minister Nirmala Sitharaman is expected to announce more measures to address the slowing economy.

Sitharaman announced a set of measures last week aimed at providing relief to the housing sector and boosting exports to revive economic growth. The measures included setting up of a special fund that will provide last-mile funding to affordable and middle-income housing projects stalled due to a liquidity crunch.