New Delhi: India will likely miss its fiscal deficit target of 3.3% that was set earlier this year in the union budget, well-known economist Bibek Debroy told The Wire in a recent interview.

Debroy, who also serves as the chairman of the Prime Minister’s Economic Advisory Council (EAC-PM), also hinted that that “sooner or later” the Centre would have no choice but to reduce income tax rates in the country.

“I don’t know what the figure will be, but the target (of 3.3%) will be difficult to reach,” Debroy said, in what is perhaps the first official acknowledgement that the Narendra Modi government is struggling to prop up revenue collections even as it comes up with supply-side solutions like corporate tax cuts.

While the EAC-PM chairman declined to elaborate on what the eventual fiscal deficit target may end up, he said since the rate of growth was less than what was forecast in the budget, it was inevitable that the fiscal deficit would rise.

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On the issue of cuts in personal income tax rates following the corporate tax reduction, Debroy noted that it would happen but did not provide a timeline.

“Now that the corporate tax has come down, it is certain that the government or the finance minister will sooner or later reduce the income tax rate also,” he said, adding that if this were to happen, there should be no exemptions and that direct taxes will “have an element of progressiveness about them”.

GST and growth debate

The prime minister’s adviser also added to the growing chorus around implementation problems in the GST regime. Finance minister Nirmala Sitharaman recently reacted defensively in a press conference, wherein she noted that it was impossible to just “damn GST now” as it was the law of the country.

Debroy said that apart from flagging international growth, GST was perhaps one of the major domestic factors that affected India’s slowdown.

“GST, I think, did contribute to a growth slowdown… and still is (contributing),” he said, but added quickly that it was difficult to statistically say how much it knocked off growth in percentage terms.

Nevertheless, it was clear to him, that the way it was implemented had been a significant cause behind the slowdown.

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In the interview, Debroy also referred to his previous writing earlier this year on the need to abolish the 0% and 28% GST rates and push for reform where an eventual three-rate structure could be settled upon.

The senior economist also added his two cents to the debate over what growth India should expect in FY’20. In the last two months, a number of institutions, including the Reserve Bank of India, have sharply cut their forecast.

When he was asked if this meant he did not agree with NITI Aayog vice-chairman Rajiv Kumar’s claim that growth in the second half of this year would be higher than 7.5% – meaning that FY’20 growth would be at an estimated 6.5% – Debroy said that this question should be put to Kumar and refused to answer.