The country should implement labour codes, undertake land reforms, improve ease of doing business and the regulatory environment, and broaden the tax base, she said, identifying key thrust areas for moving ahead on the vision of becoming a developed nation by 2047.
“If you look at India’s projections in terms of population growth, India will have to create anywhere between 60 million and 148 million additional jobs cumulatively between now and 2030…we are already in 2024 so in a short period of time we have to create a lot of jobs,” she said at the Diamond Jubilee Conference of Delhi School of Economics.
India on an average grew 6.6% a year in the decade starting 2010, but the employment growth rate was below 2%, which was below its G20 peers, she pointed out at a fireside chat with 15th Finance Commission chairman N K Singh.
India needs to pursue policies that don’t penalise hiring more workers, and invest in skilling the workers along with increasing private investment to increase its labour-intensity of GDP growth,” she said.
For India to develop as many jobs as it requires over the next six years, she said, it needs factor market reform: land, labour, and at the same time, increased agricultural productivity.“Anything that can be done by the Centre in terms of regulation, but also in terms of the Centre being able to incentivise the states to implement those labour codes, would be helpful to make sure that it’s attractive for firms to hire workers,” she said.Private investment, she said, needs to increase to create jobs as it is not commensurate with 7% growth in GDP.
Import Tariffs & taxation
Gopinath said India needs to reduce its import tariffs if it wants to be an important player in global supply chains. “Tariff rates in India are higher than in its other peer economies. If it wants to be an important player on the world stage and an important part of global supply chains, it is going to require reducing those tariffs,” she said.
Noting that the world is in an environment where trade integration has been questioned, Gopinath said it is important for India to remain open for global trade.
“India has grown well in terms of its overall growth rate, and at 7% it is the fastest growing major economy in the world…The question is, how does one keep up the momentum and raise it further so that you can increase per-capita incomes in India to get to being an advanced economy,” she said.
On taxation, she said India has parallels with other developing countries, where most of the tax revenue that is collected is indirect taxes and not direct taxes, not in form of income taxes.
“We have been advising other developing countries too, that it is helpful to broaden the personal income tax base and so that you can have more income coming from there,” she said.
Referring to the cut in corporate tax rate, she said although it was helpful, what matters is ensuring that there are no loopholes and not too many leakages that happen in terms of tax exemptions.
“It is very important to have sufficient progressivity in your tax system…making sure that you are getting enough from your capital gains tax is going to be critical,” Gopinath said.
“An additional 1.5% of GDP can be raised from further rationalisation and simplification of GST rates,” she said, adding that India, given its stage of development, is not going to experience a reduction in spending and that the creation of fiscal space should come through raising revenue to GDP.
Gopinath highlighted the need to get more from property tax revenue and that savings can be done by targeting fritter subsidies. She also called for development of social safety nets, like unemployment insurance, so that workers can train themselves.