‘Structural reform can create temporary upheaval, but there are larger gains’
— it’s the size of the cake which has to be shared. Unless the cake enlarges, the only other option is to enlarge the fiscal deficit.
Are you beginning to see a formalisation of the Indian economy?
I think in micro, small and medium enterprises (MSMES) across sectors, it is happening.
Did demonetisation and GST accelerate this?
Demonetisation had three impacts – it helped us reduce the quantum of cash; it increased the tax base and ended the anonymity of cash transactions; and it encouraged digitisation. GST is more of a voluntary compliance.
Yes, but if a Tier 3 or 4 vendor from the informal sector will be pushed by his customer to get into the GST regime so that the customer can avail Input Tax Credit…
Input Tax Credit is the best anti-evasion measure you have. Now with other anti-evasion measures that will slowly come into place, I think GST will start formalising the sector faster.
Structural reforms, such as demonetisation and GST, cause temporary disruptions. Doesn’t that erode your political capital?
A structural reform disturbs the status quo. It can create a temporary upheaval. But there are larger gains… Will demonetisation set back India’s GDP by 2%? Answer is no. At worst 7.1% will become 6.7%, and then move up to 7.5%.