Economic Undertakings

War in Ukraine makes year ahead difficult, revises growth estimates: Chidambaram

Former finance minister P Chidambaram told the Rajya Sabha on Monday that the war in Ukraine has changed the economic scenario and suggested the government should revise its growth estimates as it will be a “difficult year ahead”. He also advocated for the rapid replacement of the income tax law with the long-overdue direct tax code and advised the government to stimulate private investment which would be the “real engine of growth”. “.

Participating in the debate on the finance bill and the appropriations bill in the Rajya Sabha, Chidambaram said the government will have to revise its estimates of real and nominal GDP growth following the Ukraine crisis due to which the world is going through a crisis. He also claimed there were gaps in the proposed capital spending figures announced in the budget.

“Because of the war in Ukraine, global supply chains have been stifled, shipping rates have increased astronomically, there is a shortage of chips, a shortage of containers and credit…. World trade will be affected. The IMF estimated that each country’s GDP would decline by 0.5% to 2%,” Chidambaram said. He asked the government if it was still confident about its nominal GDP growth figure of 11.2%.

“I wish the government no harm…. But I have serious reservations about whether, under the new circumstances of the 2022-23 fiscal year, it will actually increase to that level,” he said. Chidambaram suggested that the government should revise its estimate of real GDP by 9.5% or 8% (as expected by the chief economic adviser).

On the appropriations bill, Chidambaram quoted the budget figure at a glance to state that the proportion of direct tax is always lower than indirect tax and the tax-to-GDP ratio in India is lower , which shows that many people do not pay taxes or pay less.

“In 2017-2018, indirect taxes increased and the total was 11.2% (of GDP). In 2021-22, direct and indirect taxes became equal at 5.4%… The total for this year is 10.8% and 10.7% next year. There is a drop of 0.4% or 0.5%, which means that there is something serious in our tax policy and our tax administration,” he said.

The Congress leader further said that the government should “stimulate, trigger, stimulate” private investment and see its capital spending only as a complement to the former to improve the economy.

“Capital expenditure cannot drive growth. The real engine of private investment growth will come from household savings, and when private savings are channeled into private investment,” he said, adding that it appears that private investors have lost confidence in the government as they invest abroad.

Regarding the current income tax law, Chidambaram acknowledged that it was a legacy problem, but urged the government to update the direct tax code drafted by him and Pranab Mukherjee and replace computer law. The BJD, AIADMK, YSRCP and some other non-NDA parties, however, supported the finance bill with some suggestions and caveats.

Amar Patnaik (BJD) said the Gini coefficient, which is a measure of economic inequality in society, has increased. Too much inequality will lead to civil unrest and a kind of Arab Spring, he said. Patnaik also suggested that a method must be devised to increase our tax to GDP ratio.

Several regional parties raised the issue of the outstanding GST compensation and demanded that it be maintained for another five years after June. Members talked about cryptocurrency, calling for caution and the need to curb it. Sushil Modi (BJP) said it had no intrinsic value and was a kind of gambling game.

Opposition members have expressed concern over rising inflation, particularly rising fuel and edible oil prices. They also alleged that the government was resorting to the privatization of public sector companies and said this would lead to job losses.