GST, Insolvency and Bankruptcy Code reforms to push growth after ‘clouds recede’, says Chief Economic Advisor

The pandemic and the ongoing geopolitical conflict may have “temporarily overshadowed” the government’s recent structural reforms like the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), but they will spur India’s growth potential higher once these “clouds recede”, Chief Economic Advisor V. Anantha Nageswaran asserted on Wednesday.  

“We are right now in a situation where there are a considerable amount of challenges that we face for the Indian economy, both from global macro-monetary policy and geo-political developments,” Mr. Nageswaran said.

“Adroit and flexible policymaking” would be crucial to manage this year’s challenges of maintaining a sustainably high growth rate, moderate inflation, keep the fiscal deficit under balance, and ensure that “the external value of the Indian Rupee remains stable”, the CEA noted, adding that the Finance Ministry is well prepared for the balancing act this entails.  

“Naturally, there is no pre-programmed roadmap or a menu of options that would help us achieve these challenges… there will be adjustments as we go along in the course of the financial year as developments happen,” he averred.

Imploring people to “look beyond the current concerns over inflation, prices of oil, food, fertilizers, and central bank interest rates”, Mr. Nageswaran said India has emerged out of the previous decade with its financial system repaired and improved, and balance sheet strength in the corporate as well as the banking and financial sector.

“While we are definitely focusing on the near-term concerns and challenges. We need to understand that the medium-term fundamentals of the Indian economy remain solid and Indian economy is much better placed than many others in this world to face the challenges that we are currently encountering,” he noted at an event hosted by the Department of Economic Affairs (DEA) to mark the Azadi Ka Amrit Mahotsav celebrations of the Finance and Corporate Affairs Ministries this week.

“Some of the structural reforms that the government under the Prime Minister Shri Narendra Modi, ably assisted by the Honourable Union Finance minister in the last several years, such as the Goods and Services Tax, Insolvency and Bankruptcy Code, etc. might have been temporarily overshadowed by external developments such as the pandemic and now the geopolitical conflict,” the CEA remarked.

“However, once these clouds recede, they will begin to manifest their benefits and advantages in advancing India’s potential growth in decades to come. That is why India is now forecasted by the IMF to cross US dollar 5 trillion by 26-27. And if the dollar GDP of the country doubles every seven years, we will be at $20 trillion GDP by 2040 with a per capita income of close to $15,000,” he projected.  

Finance Minister Nirmala Sitharaman, referring to the CEA’s comments about the prospects of the Indian economy growing to $20 trillion by 2040, said that this is the result of coherent projects and the Centre and States working together and the existence of a department that only focuses on the economy, the DEA.  

Comparing 2013-14 to the crisis of 1991, Ms. Sitharaman said that the economy had to be pulled out of severe challenges on both occasions by removing the deadwood.

“But even after pulling the economy out, removing all the undergrowth, you still had challenges. And in a way, the three major steps taken, not at all aware of the COVID pandemic that was coming, whether it was reducing the corporate tax, digitising the economy and formalising it, and also bringing the IBC and GST, where all States came on board… the heavy lifting that happened prepared us for a situation that no one could imagine,” she noted.

Referring to externally aided projects and the impact they make for people on the ground, the Minister said: “We are at a stage that Japan once was, take a lot of aid and build your economy, but equally give a lot of aid to build others’ economies. That’s where India is today.”

India, she noted, is contributing to help develop Africa and island countries facing climate change challenges and this shows how responsibly the government wants to use every rupee collected as tax.