India will gain by opening up the services sector, including retail and financial sector, to global competition because of its strengths in the sector, said Parthasarathi Shome, Advisor to the Finance Minister, Government of India.
Opening up the sector in which it has comparative advantage,will make services dynamicand enhance productivity. This will help the nation draw global technology and make it more competitive, said Shome addressing the fourth R. Venkataraman Endowment Lecture at the Madras School of Economics, instituted in honour of the former President of India.
Current account surplus
In his lecture on fiscal trends, tax reforms and trade liberalisation, he said India, like the US, has a significant current account surplus in services — its exports exceed imports — and a comparable advantage over goods exports. India must strengthen the goods sector, he said.
Other emerging economies and large players including China, Germany, Russia, Korea and oil exporting countries, have a current account surplus in the goods sector.
Tax reforms are key to bringing down costs, enhancing revenue and efficiency. Goods and Services Tax and Direct Tax Code are much-awaited measures that are needed, he said.
Goods and Services Tax will help cut down the cascading effect and help growth. State-level Value Added Tax does not fully address the cascading effect of taxation.
The “whole world is waiting” for the Direct Tax Code which will improve individual and corporate income tax system. The Finance Ministry is keen on pushing the new tax measures through in the current session of the Parliament, Shome said.
Capital expenditure and public investment in key areas like agriculture and Railways have dropped drastically since mid-1980s as revenue expenditure, driven up by subsidies and interest and administrative costs, has grown. In recent years, this has been corrected with increasing focus on the key areas.