Even while Indicating that a roadmap to usher in the Direct Tax Code (DTC) is in place, Parthasarathi Shome, advisor to Finance Minister P Chidambaram, on Monday made it clear that there could be no running away from the credit rating given to India by global credit rating agencies.
“The finance minister wants to place the ‘DTC Bill’ in Parliament by the end of this Budget session in May,” Shome said during an interaction at the Madras School of Economics while delivering the R Venkataraman Memorial Lecture on the topic ‘India: Fiscal Trends, Tax Reform and Trade Liberalisation’.
Stating that DTC is a major attempt to simplify the Income Tax (I-T) rules, Shome said pointed out ten major areas, including incomes of non-profit organizations, which require corrections and changes. The DTC will address all these issues “to achieve neutrality between similarly placed taxpayers”, Shome said, adding, “the world is waiting for it (DTC)”.
Asserting that there is no option but to move towards fiscal consolidation – the Union Budget aims to do just that, after what he termed a two-year flip-flop. “Whether we like it or not, international credit rating agencies (like Moody’s) based their ratings on how we control our fiscal deficit,” he said.
A poor credit rating for India would make it less possible for borrowing by private the sector. Already, India’s ratings have improved because of the fiscal consolidation measures announced by Chidambaram in the Budget. Shome contended, batting for strong curbs on non-development expenditure. “From 2008-09 onward, we have expanded expenditure and there is no real analysis to show that we needed that kind of loosening up,” Shome remarked, in reference to the incentive packages and concessions rolled out post the 2008 global financial crisis.
Shome said that at present only China, followed by some oil exporting countries, Germany, Russia and South Korea have a surplus on their respective current accounts. However, further analysis of the current account components reveal that India has a strong comparative advantage on the services account, as does the US, Shome said. Hence, there is a case for opening up India’s services sector, including the financial and retail sectors, that could make India more dynamic and competitive.
“We have such advantages in services that we should open up,” he added. Another reform, he said, related to the rollout of the GST, which will benefit both the Centre and the states through removal of distortions and the cascading effect of multiple taxes. There will be both a central GST and state GST working parallelly, “giving complete input tax credit at every level” that will help manufacturers and producers take the right economic decisions.