IMF Deputy Managing Director Gita Gopinath said on Saturday that India needs to undertake further reforms to stay on track with growth and ensure sufficient job creation.
Speaking at an event in New Delhi, Gopinath stressed the need to lower import tariffs for India to become a major player in global supply chains.
“The government has been carrying out structural reforms for many years,” Gopinath said.
She also stressed that while trade integration is being questioned globally, it is important for India to remain open to global trade.
“India’s customs duties are higher than other comparable economies. To play a key role in the global supply chain, India needs to reduce these tariffs,” she said.
Gopinath stressed that achieving developed country status requires consistent efforts across multiple sectors and is not an automatic achievement.
“India is thriving with a growth rate of 7 per cent, making it the fastest growing major economy in the world. The challenge is to sustain and even increase this momentum to raise per capita income and progress towards becoming a developed economy,” she added.
On taxation, Gopinath noted that like other developing countries, India’s tax revenue comes mainly from indirect taxes rather than direct taxes such as income tax.
“We have been advising other developing countries to broaden their personal income tax base to raise more revenue,” she said.
Referring to the Modi government’s cut in corporate tax rates, Gopinath said that while it was beneficial, the focus should be on eliminating loopholes and reducing tax exemptions.
“It is crucial to ensure that the tax system is progressive and that sufficient revenue is collected from capital gains tax and capital income tax,” she said.
Gopinath suggested that technological advances could improve property tax enforcement, an area to watch.
Addressing concerns over the need for high spending, Gopinath noted that at India’s development stage, fiscal space needs to be expanded through increased revenue generation rather than through cuts in overall spending.
“India’s expenditure will increase and fiscal consolidation should come from increasing revenue as a percentage of GDP,” she said.
Gopinath noted that the GST has started yielding positive results and further simplification and widening of the tax base could generate additional revenue equivalent to one percent of GDP.
“Broadening the personal income tax base would also be beneficial,” she noted.
Gopinath stressed the importance of implementing the labour reforms passed by Parliament in 2019, which he said would strike a balance between labour market flexibility and worker protection.
She also called for increased investment in health care and ensuring equal opportunities for everyone to achieve higher income levels.
Regarding IMF reform, Gopinath noted that the world in 2024 will be very different from when the IMF was established in 1944, and the challenges facing countries have also changed.
“We are working to realign the allocations to better reflect the current global situation,” she said.
