GST not to fuel inflation: Arvind Subramanian

Chief Economic Advisor says the country is poised to reach double-digit growth rate in next three years

Allaying fears that the roll out of the Goods & Service Tax (GST) will not fuel inflationary pressure, Chief Economic Advisor Arvind Subramanian said the key objective of the tax reform was to shield the poorest sections from inflation.

"As part of the report that we wrote, we examined the issue (impact of GST on inflation) in detail. The first attempt is to come out with a revenue neutral rate (RNR) and by definition, the rate does not increase inflation. Secondly, if you look at the CPI (consumer price inflation) basket, 60 to 70 per cent of the goods are either lowly taxed or not taxed at all and this will continue in the future", he said.

On proposal to cap GST at 18 per cent, Subramanian said that decision will be taken by the GST Council.

"Our analysis is that if you get a reasonably low rate, the impact (on inflation) will be negligible", he said after meeting chief minister Naveen Patnaik.

Earlier, speaking at the Economy Survey Outreach talk at Xavier Institute of Management- Bhubaneswar, Subramanian struck a note of optimism on growth projections of the country.

The country is poised to reach double digit growth rate in next three years, he said. "India has the potential to grow at the rate of eight to ten per cent. If we continue to do all the things that the government is doing and world economy picks up little, we can achieve double digit growth rate over the next two to three years", he asserted.

Subramanian's statement comes a day after data showed that India's gross domestic product (GDP) grew below expectations in the first quarter of the current fiscal, lowest in last five-quarters. The GDP grew 7.1 per cent in the first three months of 2016-17, down from 7.9 per cent in the fourth quarter of the previous financial year. The growth was pulled down by agriculture, mining and quarrying as well as the construction sector.

Comparing India's economic performance with China, he said, ""Given the level of democracy, we are under performing for the last 50 -60 years and now we have the opportunity to become normal again and become a fast growing economy", he said comparing the India's performance with China.

Over the next few years China has to slow down in terms of economic growth and has to open politically as no country can remain outlier forever. China's growth rate is likely to come down to about four -five per cent in next 10 to 15 years , said the Chief Economic Advisor.

He pointed out that in the last two years, a series of reforms have been taken. These includes passing of Aadhar bill, bankruptcy law and GST Bill.

Responding to question in an open house session at the event, Subramanian said, the next Economic Survey is likely to capture the pros and cons of having a Universal Basic Income clubbing all kind of subsidy payouts.

"The idea is already gaining resonance all over the world. We are going to address it in the next survey. What are the pros and cons of having a Universal Basic Income. We have to see what are the cost of doing it and the political consequences", said Subramanian.

Recently, Swiss voters had overwhelmingly rejected a proposal to introduce a guaranteed basic income for all. The proposal had called for adults to be paid an unconditional monthly income, whether they worked or not.

On the mounting NPAs ( non performing assets) at banks, he said, in terms of scale of problem, India's problem is manageable.

As share of private debt to GDP the number in India is 55 to 60 per cent compared to 260 per cent in China, he added.