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India must carry out further reforms to maintain its growth trajectory and ensure sufficient job creation, said IMF Deputy Managing Director Gita Gopinath on Saturday.
Speaking at an event in New Delhi, Gopinath emphasised the need for India to reduce import tariffs if it is to become a key player in global supply chains.
“The government has made structural reforms over the years,” Gopinath noted.
She also highlighted that while trade integration is being questioned globally, it is crucial for India to remain open to global trade.
“Tariff rates in India are higher than in other peer economies. To play an important role in global supply chains, India will need to lower these tariffs,” she said.
Gopinath emphasised that achieving developed country status requires consistent efforts across various sectors and does not happen automatically.
“India has performed well with a 7% growth rate, making it the fastest-growing major economy in the world. The challenge is to maintain and increase this momentum to raise per capita incomes and progress toward advanced economy status,” she added.
On taxation, Gopinath observed that, like other developing countries, India’s tax revenue is primarily from indirect taxes rather than direct taxes, such as income tax.
“We have advised other developing countries to broaden the personal income tax base to increase revenue,” she said.
Referring to the corporate tax rate cut by the Modi government, Gopinath stated that while it was beneficial, the focus should be on eliminating loopholes and reducing tax exemptions.
“It is crucial to ensure progressivity in the tax system and to collect sufficient revenue from capital gains and capital income taxes,” she said.
Gopinath suggested that advances in technology could improve the implementation of property taxes, an area needing attention.
Addressing concerns about high spending needs, Gopinath noted that India’s development stage requires increasing fiscal space through revenue growth rather than reducing overall spending.
“India’s expenditures will rise, so fiscal consolidation should occur by raising revenues relative to GDP,” she said.
Gopinath pointed out that GST is starting to yield positive results and that further simplification and base broadening could raise additional revenue, equivalent to one percentage point of GDP.
“A broader personal income tax base would also be beneficial,” she noted.
Gopinath stressed the importance of implementing the labour reforms passed by Parliament in 2019, which she said offer a balance between labour market flexibility and worker protection.
She also called for increased investment in healthcare, ensuring equal opportunities for all to achieve higher income status.
On IMF reforms, Gopinath noted that the world in 2024 is vastly different from 1944 when the IMF was established, and the challenges countries face have evolved.
“We are working on realigning quotas to better reflect the current global landscape,” she said.