Now, Pri­va­tise PSUs

To counter ef­fect of cor­po­rate tax cuts on in­ter­est rates, pri­vati­sa­tion must be re­vived

The Times of India (New Delhi edition) - - Times Nation -

Fi­nance min­is­ter Nir­mala Sithara­man over the week­end clar­i­fied that a re­duc­tion in cor­po­rate tax rates will not be off­set by pulling back on planned gov­ern­ment ex­pen­di­ture for the year. That makes sense. The con­sen­sus is that the cur­rent slow­down in the rate of eco­nomic growth can be traced to weak ag­gre­gate de­mand. Given this, it will be in­ap­pro­pri­ate to cut back spend­ing at this point in time. Yet, fis­cal roadmaps are there for a rea­son. One of which was ev­i­dent on Fri­day when in­ter­est rates hard­ened on the fear that there will be an in­cre­men­tal surge in gov­ern­ment bor­row­ing.

The tax cuts are not just coun­ter­cycli­cal in na­ture. In­dia’s cor­po­rate tax rates can­not be out of sync with its peers among emerg­ing mar­kets. In keep­ing with this struc­tural re­quire­ment, tax rates had to be re­vised down­wards. These changes, along with others that must be un­der­taken to lib­er­alise mar­kets for fac­tors of pro­duc­tion, should re­vive pri­vate in­vest­ment. How­ever, there is gen­er­ally a lag be­tween an­nounce­ments and their im­pact on the ground. There­fore, we need to see ef­fec­tive im­ple­men­ta­tion of an­other im­por­tant step to smoothen the process and make sure the tax cuts don’t el­e­vate in­ter­est rates.

The pro­jected rel­a­tive fis­cal deficit for the cur­rent fi­nan­cial year is 3.3% of GDP. A large de­vi­a­tion will par­tially undo the po­ten­tial im­pact of tax cuts. As gov­ern­ment spend­ing will not be cut, an ag­gres­sive pri­vati­sa­tion pro­gramme is im­per­a­tive. Pri­vati­sa­tion will gen­er­ate non-tax rev­enue and help gov­ern­ment keep fis­cal deficit in check. Pri­vati­sa­tion should en­vis­age not a piece­meal sale of mi­nor­ity stake but a full trans­fer of con­trol. To help the pri­vati­sa­tion drive, gov­ern­ment must lift re­stric­tions on for­eign own­er­ship and other oner­ous con­di­tions. This will com­ple­ment the cur­rent ef­fort in re­viv­ing in­vest­ment.

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