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Politically, tax reforms are tough: ADB chief

It's easy to attack any policy and we cannot be critical. The government has decided to take up a very difficult issue to reform through GST.

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Last Updated: Jul 03, 2017, 09.11 AM IST|Original: Jul 03, 2017, 09.06 AM IST
Need to balance reforms, policies with requirements of democracy, says Nakao.
Need to balance reforms, policies with requirements of democracy, says Nakao.
Asian Development Bank President Takehiko Na kao is all praise for the government for piloting GST and says that he is hopeful that the current model is the starting point. In an interview, Nakao discusses economic prospects and the need to maintain secular ideas in the society. Excerpts:

Do you see any change between 2016 when you last visited India and now?
Compared to then, there has been some progress such as the Monetary Policy Framework. The economic performance has been solid despite some slowdown, reflecting the impact of demonetisation. But that is not as much as some people had expected.

The current account deficit is 1% of GDP . There were many kinds of views on GST and there were concerns on whether it was achievable or not, given that it involved all the states and amendment to the Constitution. Although it is easy to criticise some elements, reforming tax is so difficult politically. I admire this government for doing it through discussions. GST is so important because India needs to be one India, economically .It was like transacting with so many countries due to taxes and different rules. Greater integration, both domestic and international, is essential for growth and there are examples in Asia. Korea, Japan, China and even Vietnam managed to grow much faster due to integration with the global value chain. So, India has been growing solidly af forms, but more integration with the global value chain is so important and GST is an important step.

Your views are different from what The Economist just wrote. It believes that PM Narendra Modi is not a big reformer and GST is very complicated.
It's easy to attack any policy and we cannot be critical. The government has decided to take up a very difficult issue to reform through GST. You can have different views on the design of taxes. But from a complicated system, it is now integrated. Of course, tax rate differences reflect previous taxation policies but the government has taken a realistic approach to design. There is a committee looking at the issues in detail and if it is implemented smoothly and if a need is felt, adjustments can be made in the future. What is needed is progress. But you have to address everyone's concerns in a democracy . The government should take steps to make business easier.

Do you see evidence of that during the last three years?
At least growth has been very solid and there is some pick up in foreign direct investment. India needs much more FDI -it is around 2% of GDP , while for China it was 7-8% at i its peak. For such a large economy , the domestic consumption and investment are very f important but it is important to make the business environment more conducive for FDI.

What are the threats?
Generally speaking, it is important to balance reforms and policies with the requirements of a democracy . How to manage people's expectations, how to persuade people to go for reforms and how to ensure fairness of society are critical. Some people may gain, while others may lose but over a period of time the gains are greater if the reform is successful.

Do the recent incidents such as lynching of people, consuming some types of meat or the perceived intolerance worry the international community?
I will make a general comment. After the World War II, after independence of many countries, the world has made progress in reducing conflict, between countries and within countries. Asia has made progress in making the region more stable and peaceful.What is important for Asia and countries is how to maintain the spirit of cooperation, the spirit of stability which is very important for prosperity .I hope Asian countries, leaders and people, make every effort to maintain society with secular ideas, and also ideas of progress, which bring about prosperity to the society and also keep ideas of fairness for society .

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