GDP growth projections in Budget not credible, says P Chidambaram

Former finance minister P Chidambaram on Monday raised doubts over high GDP growth projections for 2022-23 in Union Budget, saying these number are not credible.

Participating in the debate on the Appropriation Bill and Finance Bill, Chidambaram said, "I am cautioning the government that you (will) not get 8 per cent, 9 per cent or 9.5 per cent GDP growth. The world is going through a churning. IMF has lowered growth rate (projections) for all countries by 0.5 per cent to 2 per cent, I think we must settle for lower growth rate. We must achieve that lower growth rate."

He also suggested that lower growth rate can be achieved only if the government encourages private savings, household savings and fine ways to channelise that into private investment.

"It is a difficult year ahead and requires sound tax policies, financial management and economic management."

He raised doubt on the GDP growth projections of the government.

"I seriously doubt the (GDP growth) estimates that India's real GDP will be at 9 per cent or 8 per cent. In February, the WPI (inflation) was 13.1 per cent and CPI was 6.1 per cent. If food, manufacturing, fuel & light all close to 6 per cent, then how do you say that inflation next year will be about 2 to 3 per cent. These numbers are no longer credible," he stated.

He urged Finance Minister Nirmala Sitharaman that she must reassess these growth projections and tell the House about the more realistic nominal and real GDP growth numbers.

"The nominal GDP growth will be 11.2 per cent in 2022-23 (as per Budget)...have you (finance minister) reviewed it on February 1. Now there is Ukraine war, supply lines are choked...shortage of chips, credit..world trade will be affected. IMF has estimated that GDP of every country will be down by 0.5 per cent to 2 per cent.

"Given all these developments in the last 8 weeks, are you (finance minister) still confident that your nominal GDP will indeed grow by 11.2 per cent (in 2022-23).

"I don't wish ill. I wish growth at 11.2 per cent. But I have serious reservations that whether in the changed circumstances in the year beginning April 1, it will actually grow at 11.2 per cent," he stated.

The government is persistent that the real GDP growth will be 9.5 per cent or 9 per cent or 8 per cent, Chidambaram said.

"I think any of these numbers are no longer credible. If nominal GDP grows at 11.2 per cent, take smallest of the number, 8 per cent and apply deflation (equal to inflation) then it (inflation) will be 3.2 per cent."

He further explained,"Does anybody believes that in the changed circumstances, inflation in India will only be 3.2 per cent in 2022-23. If it (real GDP) is 9 per cent, implied inflation is only 2.2 per cent. If it is 9.5 per cent then it (inflation) is 1.7 per cent. That will be heaven."

About the direct tax, he said, since 2019-20, for the first time direct tax revenue as a proportion of GDP has exceeded the indirect tax revenue.

In 2013-14, 5.6 per cent GDP was direct tax and 4.4 per cent was indirect tax. In 2016-17, the indirect tax as proportion of GDP crossed the direct tax proportion of GDP. "I had cautioned that it is a bad trend and (asked) to reverse this."

He opined that the indirect tax as a proportion of GDP should not cross the direct tax as proportion of GDP and actually direct tax must increase.

He noted that in 2021-22, both (indirect tax and direct tax proportion)were equal at 5.4 per cent each.

"Next year, Finance Minister expects that direct tax as proportion of GDP will increase to 5.5 per cent and indirect tax as a proportion of GDP will come down to 5.2, which means that we are reversing the bad trend in last five or six years," he stated.

Indirect and direct taxes together touched 11.2 per cent ( of GDP) in 2017-18 and this year it will be 10.8 per cent and next year it will come down to 10.7 per cent, Chidambaram said.

If total taxes as proportion of GDP fall by as much as 0.4 per cent or 0.5 per cent then there is something seriously wrong with tax policies and tax administration, he opined.

"Taxes as proportion of GDP are low in India. we should increase taxes as proportion of GDP. I would utter the word of caution again that if your tax as proportion of GDP does not grow, that means people are accumulating income and wealth and not paying enough taxes whereas large masses who are paying bulk of indirect taxes are bearing the burden," he stated.

He was of the view that the rich must pay more taxes.

He also urged the government to replace the existing Income Tax Act by Direct Taxes Code.

"This is a legacy issue. This is going on year after year. But this must stop. This government claims that it will dump all old legacies. This is one legacy which the government must dump immediately. I think that the entire Income Tax Act must be replaced by Direct Taxes Code (DTC)."

None benefits from this Income Tax Act except chartered accountants and lawyers, he stated.

About the charities he stated that a day will come when institutions receiving charity will say that lets get out of clutches of I-T Act and pay income tax.

"Most Trusts, charitable institutions are crippled by these provisions in the I-T Act and by repeated amendments year after year. Please clean up these provisions. If you believe that charities and Trusts have a place in this country then let them function with a reasonable degree of independence and light regulation," he added.