Chief Economic Advisor Arvind Subramanian. (File photo) Chief Economic Advisor Arvind Subramanian. (File photo)

DAYS AFTER Finance Minister Arun Jaitley clarified that the Centre has no plans to impose any tax on agriculture income, Chief Economic Advisor Arvind Subramanian Friday called for taxing rich farmers and said that while the Constitution does not allow any tax on agriculture income, states are free to take a call.

“The legal situation is…nothing prevents state governments from taxing agriculture income. The constitutional restriction is on central government taxing agriculture income.. There too, one could make a case that this is a choice open to 29 state governments and if there are willing takers, all power to them,” said Subramanian while speaking at the CII’s annual session.

Stressing on the need to make a clear distinction between poor and rich farmers, he said, “Why is it that it is very difficult to make a distinction between a poor farmer and a rich farmer… When you say farmer, people think that you are going after the poor farmer. So what is it about political discourse that does not allow these distinctions to be made? Why can’t we say, rich regardless of where they get their income, should be taxed?” he said.

Jaitley had earlier this week dismissed a suggestion from NITI Aayog member Bibek Debroy, who argued that agriculture income above a certain threshold should be taxed.

Amid the sharp rise in the value of rupee in recent months, the CEA cautioned that the currency appreciation was hurting India’s exports and the rising rupee should “not be seen as a sign of national and economic strength”.

Increasing foreign capital flows into India are leading to this surge in rupee, but the authorities are not intervening in the market, he said.

“All the history of opening up the emerging markets in the last 20-30 years, the history and the evidence is very clear that in order to keep the markets open, our exchange rate has to be very competitive. If our currency is very strong then it becomes very difficult to open our markets…Exchange rate is a very important instrument for maintaining competitiveness and for boosting our growth,” he said.

“It is also a mistake and a misguided view that strong currency is a sign of national or economic strength. That is a mistake that we should not make and that is something we should be careful about. Therefore, if you look at last two years our country has lost competitiveness from exchange rate by 10-15% and that is a huge loss in competitiveness that is effecting our exports,” he added. Clothing, pharmaceuticals and leather sectors have been impacted by the surge in rupee, he said.

The rupee, which ended at Rs 64.24 against the dollar on Thursday, has risen nearly six per cent against the US dollar since January 2017. “The reason we are experiencing this (rising rupee) is because a lot of capital is flowing into India, people are rightly bullish about the Indian economy… We are not intervening and we are allowing the rupee to appreciate,” he said.

To a query on whether the government was making a mistake by allowing the rupee to appreciate, Subramanian said “that is a question that you know another city in India will answer and not New Delhi,” in an oblique reference to the Reserve Bank of India in Mumbai.

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