With economic slowdown hitting PM Narendra Modi government hard, instead of leaving the reform road mid-course due to the criticism of GST and demonetisation, prime minister must launch another round of major reforms due in labour laws, income tax and multi-brand retail FDI.
Prime minister Narendra Modi has done well by making it clear that the decline in the GDP growth rate to 5.7% in the first quarter of FY18 is an area of concern, but the economy was on track and the government will take measures to better GDP growth going ahead.
While it is correct that demonetisation and goods and services tax (GST) have impacted growth adversely, it must also be kept in mind that to change the way the whole economy was functioning predominantly on cash and in a non-transparent manner, not going for these reforms would have meant maintaining the status quo.
Former prime minister Manmohan Singh and senior BJP leader and former finance minister Yashwant Sinha, who have criticised PM Modi and finance minister Arun Jaitley for forcing a decline in growth by implementing GST and demonetisation also have questioned mainly the timing of these steps.
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But, it is also a fact that bold reforms are best to adopt when the economy is in a better position to bear the shocks, instead of waiting for a time when there is no other option left.
So, whether the timing of demonetisation and GST was right or wrong should be judged on the outcomes in the years to come in terms of additional revenue generation, impact on the cash and black economy, and on GDP growth.
For now, the government must focus on what it can do to capitalise on the growth concerns, and PM Modi must utilise this as an opportunity to go for another round of big bang reforms rather than being sceptic about the political fall-out.
Just pointing out that the situation in terms of growth, fiscal deficit, inflation and foreign exchange are far better now than the UPA times is not enough.
Besides the measures to push investments, both public and private, labour law changes to improve the business environment needs to be pushed in Parliament expeditiously.
Demonetisation and GST must be followed with the overhauling of the direct tax structure to reduce the tax burden on both the companies and individual income taxpayers, along with the cleaning up of the tax system by removing exemptions.
There is no point in delaying these measures now as the tax system must also promote the taxpayers to pay taxes honestly by being reasonable – only tough measures to curb tax avoidance and black money may not yield the desired results.
In GST also, FM Jaitley is right in stressing that the government is ready to reduce the tax burden by restructuring the rate structure as early as possible.
Finding ways to allow 100% FDI in multi-brand retail and easing of the land acquisition norms are other areas that PM Modi must look at seriously now.
Instead of leaving the reform road mid-course, it would be better to increase the speed and wait for the people’s verdict in the next Lok Sabha election due in 2019.