Prominent economist and former IMF Executive Director Surjit Bhalla has expressed concerns over India’s current taxation policies, highlighting the heavy burden on its citizens and its potential impact on economic growth. Speaking in an interview with NDTV, Bhalla emphasized the disproportionately high tax-to-GDP ratio and questioned the government’s approach to taxation.
Key Highlights of Bhalla’s Remarks:
- India’s High Tax-to-GDP Ratio:
- India’s tax-to-GDP ratio stands at 19%, significantly higher than the 14.5% average seen in East Asian economies like China and Vietnam.
- Bhalla pointed out that countries like the US and Korea, which are significantly wealthier, have similar tax-to-GDP ratios, making India’s position unusual for its income level.
- Bhalla urged the government to reevaluate its tax policies, suggesting that lower tax burdens could spur growth and consumption.
- Foreign Direct Investment (FDI) Decline:
- Bhalla raised concerns over the decline in FDI-to-GDP ratios, which have dropped from 2.5% in 2014 to 0.8% in 2023—the lowest since the mid-1990s.
- While he acknowledged India’s progress in infrastructure development, he argued that over-reliance on infrastructure could divert attention from other growth determinants.
- Call for Middle-Class Tax Relief:
- Bhalla’s remarks come amidst growing demands for tax relief. Leaders from business organizations and financial experts, including Sanjiv Puri and Mohandas Pai, have called for simplified tax slabs and reduced rates to boost consumption and increase disposable income.
- Proposed reforms include no tax for incomes up to ₹5 lakh, 10% for ₹5–10 lakh, and 20% for ₹10–20 lakh, alongside a restructured 30% rate for incomes above ₹50 lakh.
A Push for Reform in Union Budget 2025
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget on February 1, calls for tax reforms are gaining momentum. Economists, industry leaders, and citizens are advocating for policies that:
- Lower the tax burden on the middle class.
- Simplify tax structures.
- Promote consumption and economic growth.
Finance experts like Akshat Shrivastava also suggested that reducing taxes and broadening the tax base could alleviate dissatisfaction among taxpayers and drive higher economic buoyancy.
Bhalla’s critique serves as a timely reminder of the balance needed between revenue generation and citizen welfare in taxation policies. All eyes are now on the upcoming Budget, where the government may address these pressing issues.
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