India's growth has been "impressive" in the recent years which makes room for tax broadening efforts by the government, according to a top IMF official.
"India has recorded quite an impressive growth performance in recent years. Our view is that the elimination of fuel subsidies and the targeting of social benefits has delivered in terms of allowing the union budget target to be achieved at 3.5 per cent of GDP," Vitor Gasper, Director of the IMF Fiscal Affairs Department told reporters at a news conference here yesterday.
"We have been collaborating with the Indian authorities in terms of looking at fiscal structural measures, including expenditure rationalisation while protecting infrastructure investment, tax broadening efforts," he said.
In this context, the rollout of Goods and Services tax (GST) is an extremely important step that will create a true unified national market in India, he said.
"We see room for tax broadening efforts. We see room for more progressive income taxes in line with trends in income inequality. Perhaps more generally, we do see a case for a medium-term framework and we know that the authorities are actively working on that," Gasper said.
He also said inequality has increased in both India and China.
"As was the case for India, in China you see that inequality has increased. From that viewpoint, you could advocate, you should advocate social spending and taxation reform in order to address that issue in China.
"At the same time, it turns out that increase in social spending and change in taxation does support the transfer of expenditure from investment to consumption. That is part of the overall rebalancing of the Chinese economy," Gasper said.
Gasper said globalisation and technological change have been major drivers of economic growth and cross country convergence.
"More than one billion people have been lifted out of extreme poverty since the early 1980s, and most of them come from China and India," he said.
"At the same time, when you focus on country indicators, you see that inequality has increased in most advanced economies and large emerging economies. Again, I am referring to China and India," Gasper said.
"The clear perception around the world of widespread increases in income inequality illustrates the dominance of national politics shaping these perceptions. Fiscal policies, government expenditures and revenues are powerful means to ensure the sharing of the growth dividend," the IMF official added.