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Barkha Dutt
Barkha Dutt

THIS WEEK, MEET BIBEK DEBROY

Don’t link health insurance idea with election

Bibek Debroy, Economist

  • Economist and member of NITI Aayog, Bibek Debroy is chairman of the prime minister’s Economic Advisory Council. He was professor at the Centre for Policy Research and has written books on economy, epics and limericks.

Bibek Debroy, economist and chairman of Economic Advisory Council to the prime minister, has the view that we are headed towards a more stable system of taxation. About the declaration of health insurance in the budget, he says “Something as massive as this has not been experimented with in any country.” Edited excerpts:

As you look at the budget and the discourse around it, what for you has been the stand-out feature?

The budget is only one of the large number of instruments that are available to the government. What struck me is the continuity with what the government has been doing since 2014. What also struck me, given the reforms that are happening in the direct and indirect taxes, the perennial obsession that we historically had with the budget—what is this tax or that tax—is on its way out.

Really? Because a lot of people in the middle class, when you say the word ‘tax’ today, are thinking of Long Term Capital Gains (LTGC); they are thinking of the 1 per cent additional cess.

I am not saying that we have completed that period of transition. It’s not the case that we have a GST that covers every good and service under the sun. But, we are headed there. We are headed towards a system where there will be no annual changes. There will be a certain stability to tax policies. So, yes, we will not wait for the budget every year to see what it does to taxes.

The salaried professionals will now pay additional 1 per cent cess and then there is the LTCG. Do you have empathy for them?

The non-salaried people are avoiding taxes because of the exemptions. Those exemptions are not available to the salaried class. So, the middle class should begin to argue for an end to the exemptions. Because it is the exemptions which lead to the so-called favourable treatment to those who are non-salaried.

40-bibek-debroy Bibek Debroy | Sanjay Ahlawat

Do you agree with the proposal of a 25 per cent tax rate for the MSMEs? There are clever chartered accountants who could encourage companies to structure themselves in such a way that you create lots of these small to medium Rs 250-crore turnover companies. So, that’s also a smart way of tax avoidance.

Yes. But, look, we are comparing an ideal system, which is the terminal goal, with the process of getting there. What I have just described is the terminal goal of no exemptions for everyone.

So, you hope the time will come, when 25 per cent is the kind of standardised non-exemptions rate for individual salaried-class as well?

I hope the time will come. By the way, if I add up all the Union and the state taxes it is about 17 per cent of GDP. And, all the exemptions together account to more than 5 per cent of GDP. So, 22 per cent is what tax-to GDP ratio would be if all the exemptions are removed.

The headline was that there is going to be a 1.5 [times] increase in the minimum support price (MSP) to farmers for the kharif crops. What everyone wants to know is—is this 50 per cent increase calculated on comprehensive cost or not? If not, then they say the rest existed even during the UPA years.

What the government has said is that the details will be worked out. And, until the details are worked out, there is not much point in having the debate.

So, we don’t know right now how the cost is being calculated.

Correct. What we do know is there are three broad methods of calculating cost, one more inclusive than the other. And these three are...

A2, FL and C2

Yes. Now which of those is going to be used, we still do not know. So, it is perfectly valid to say that the budget speech does not yet define the cost. But, I think it would be unfair to prematurely criticise it because we don’t know which of the methods is going to be used.

The other headline out of the budget was the health care proposal, from ObamaCare to ModiCare, that’s how it is being described. But, once again, there is a sense that the details are either missing or awaited. One economist pegs the cost at Rs 1.3 lakh crore and he says it is going to be more than the health budget of the country. Someone else is pegging at Rs 10,000 crore. What about the missing details?

Again, let’s wait for the details, because the details have not been worked out. The details are also contingent to what states do. Some states already have health insurance schemes.

Yes, 60 per cent of this money has to come from the Centre and 40 per cent has to come from the states. States also have political reasons to run their own health schemes. Why would they, in an election year, want to join hands with the Centre on this?

The health insurance idea is not something that I would like to link to election. There is a working estimate, but it is not firm enough yet to be placed in the public domain until detailed calculations are done. But, the moment you begin to look at it as an insurance product, and in terms of the premium that governments pay, the cost is not as horrendous on an annual basis as might seem if I were to actually pay away Rs 5 lakh. Something as massive as this has not been experimented with in any country. I think one should applaud the fact that an attempt has been started, at least in terms of the intent....

There has been an unspoken tussle between the government and the RBI on interest rates. How do you see this fault line?

Fault line is a very strong word. One should first recognise that central banks, globally, are cautious. They are certainly not as adventurous as some others would like to be, including some members of the PM’s Economic Advisory Council! The RBI is concerned about inflation. One can have legitimate criticisms about whether monetary policy is the best instrument to address those kinds of inflation. I think the answer is no. So all my sympathies are with people who argue that the RBI should bring down policy rates; but I also acknowledge that the RBI is cautious because of inflation.

When LTCG was announced the markets fell, but recovered later on that day. But, the next day, there was a much sharper fall. There are global factors at play, but you’ve seen Wall Street fighting back. How do we see what has happened to the markets?

The Sensex is not quite representative of the entire capital market. The Sensex is prone to volatility, sometimes oblivious of whether that volatility is warranted or not. This budget is rather remarkable, because clearly the Sensex has not discovered anything hidden in the finance bill. The Sensex might have reacted to the fact that there was no cut in the corporate tax rate to 25 per cent for everyone, nothing significant happened to personal income tax and perhaps even to the STT (securities taxation tax).

What do you think on the STT now with the LTCG tax?

I don’t think the STT should be there anymore. It does not bring in much revenue. It does not have too much of logic. It was introduced when capital gains were not imposed. But, this is strictly my personal view.

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