Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2022-23 in Parliament on February 1.
Former RBI governor D Subbarao on Thursday said the upcoming budget should focus on job creation and bridging the widening inequality in the economy. Tax cut.
Dr. Subbarao also said that experience shows that export promotion behind protectionist walls is rarely competitive, hence the case for reducing tariffs.
“Accelerating growth is the aim of every budget as it should be. But this budget should focus on bridging the widening inequality in the economy. PTI in an interview.
Noting that the COVID-19 pandemic has created a huge crisis for the low-income group working in the informal economy, Dr. Subbarao said that the higher income groups are not only able to protect their income, but in fact able to grow their own. savings and money.
Citing the latest World Inequality Report, which stated that India is among the most unequal countries in the world, he said, “Such widening inequality is not only morally wrong and politically corrosive, but it also affects our long-term It will also affect the growth prospects.” Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2022-23 in Parliament on February 1.
“We need job-intensive growth. If there is a theme to this budget, it has to be employment.
The former RBI governor said jobs have been lost due to the growth slowdown and a shift in activity from the labor-intensive informal sector to the capital-intensive formal sector.
“Growth is necessary for job creation, but not sufficient,” he said, adding that there is a need to focus on improving ease of doing business through governance reforms so that investment is a promising avenue for both domestic and foreign investors. become an option.
Subbarao said that raising the level of exports is good not only for balance of payments reasons but also from jobs point of view as export production is labour-intensive. “Experience shows that export production is rarely competitive behind protectionist walls. So there is a case for reducing tariffs,” he said.
When asked whether there is any scope for reduction in taxes in the upcoming budget as it will give some relief to the poor, Dr. Subbarao said that according to media reports, this year’s tax collection will be better than the budgeted target, which he said , would be largely offset by lower privatization income and higher spending on food and fertilizer subsidies.
“Therefore, the net positive impact on the fiscal deficit is likely to be modest,” he said.
Also, Dr. Subbarao noted that the tax buoyancy witnessed in the country this year will end next year as the informal sector revives.
“Moreover, given the continuing need to increase spending on education, health and infrastructure, I do not think there is much exemption for tax cuts,” he argued.
Asked whether the government should continue with stimulus measures to spur growth, Dr Subbarao said in the last budget, the finance minister has sought to reduce the fiscal deficit to 4.5 per cent of GDP by 2025/26. Committed to the path of consolidation. “I believe it is important to operate within that space. Any deviation from the path of fiscal consolidation will erode credibility, dent investor sentiment and hurt our growth prospects,” he said. Asked how much inflation is a concern, Dr. Subbarao said inflation has remained above the RBI target for more than two years now.
Going forward, he said inflation will be under pressure due to adverse base effect, rising commodity prices and output price rise by firms.
Dr. Subbarao said, “Controlling inflation can go a long way in addressing the woes of the poor.”
On the risk of inflation, he said he thinks it is too dangerous.
“Yes, inflation has remained consistent for the last two years but note that it is still within the target band of RBI. RBI should be able to normalize the policy to bring it to the midpoint of the target band,” said Dr Subbarao.
Stagflation is defined as a condition in which consistently high inflation is accompanied by low growth.
Retail inflation in India rose to 5.59 per cent in December 2021, while wholesale price-based inflation declined to 13.56 per cent last month.
On economic growth, he said that if Omicron remains light, mobility restrictions are likely to be targeted and decentralized.
“In the base case scenario, we should achieve 9.2% growth for the full year. If indeed these assumptions about Omicron are not correct, there will be a downside risk to the 9.2% growth estimate,” Dr. Subbarao said.