Third, the need to ensure that the tax structure remains stable. On personal income tax, the exemption threshold can be somewhat adjusted and inflation indexed over time. Income tax rates have stood the test of time and remain modest by international comparisons. Consistency in rates have improved compliance and made individual tax planning easier. The revenue buoyancy, however, offers scope to do away with surcharges and abstain from clever tinkering. On corporate taxes, given the need for progressivity, while basic rates may remain untouched, many irrational aberrations of the last two years deserve elimination. On indirect taxes, given the rapid appreciation of the rupee, care must be exercised in further lowering of tariff rates in the near term. On excise, we must move towards implementing the GST and abstain from ad hoc exemptions or create new rates. It is not rational to calibrate rates to address cyclical concerns. The proportionality of the revenue realised from the petroleum sector, which remain unacceptably high, need rationalisation over a period. However, calibrating rates to shield the consumer from the burden arising from high crude prices is not the way forward.

Fourth, the prime minister, while addressing the National Development Council, had raised serious concerns on subsidy misuse, growing regional inequalities and rising income divides. Credit and fiscal policies have a role to play to redress these concerns. Development-deficit states have a comparative factor advantage in one area or the other.

Vocational training and skill inculcation in demographically dense states can help. Besides encouraging agro-processing, value-added activity will have multiplier gains. Central public utilities, subject to commercial viability, can also be encouraged to invest in the more backward states. The issue of subsidy misuse is a broader but compelling issue. Targeting of subsidies to the intended beneficiaries needs ‘out of the box’ thinking and ideas like food stamps, kerosene stamps, and employment stamps, based on verified household data, need wider replication.

... contd.