Reduce the levy on services: C K Prahalad
By Manika Gupta, INDIATIMES NEWS NETWORK |
Highlights
NEW DELHI: If you want service economy to grow, tax minimally is the suggestion CK Prahalad, the management guru and profounder of the theory of 'Fortune at the Bottom of the Pyramid' has to offer to the finance minister days before the Union Budget 2007.
In an exclusive interview to Economic Times.com, he said the more you tax the services, the more liable you are for underreporting in service economy. He said " It depends on what the Finance Minister wants in the forthcoming Budget, the service economy to grow or services to be taxed more leading to underreporting of taxable income."
Prahalad who had predicted a 10 per cent growth rate six years ago to the surprise of many, also said that India's 9 per cent GDP growth was sustainable in the long-term. He said it is an average growth rate and some parts of India like the south, Gujarat and Maharashtra have a higher growth rate, therefore, the 9 per cent is an average of all the states.
According to him it is a very realistic number as in India it is consumer led growth with a huge young population and lots of credit available. He said the faster you let the credit flow, quicker the growth would be. "With a billion people, we have a long run-way", he said.
In an exclusive interview to Economic Times.com, he said the more you tax the services, the more liable you are for underreporting in service economy. He said " It depends on what the Finance Minister wants in the forthcoming Budget, the service economy to grow or services to be taxed more leading to underreporting of taxable income."
Prahalad who had predicted a 10 per cent growth rate six years ago to the surprise of many, also said that India's 9 per cent GDP growth was sustainable in the long-term. He said it is an average growth rate and some parts of India like the south, Gujarat and Maharashtra have a higher growth rate, therefore, the 9 per cent is an average of all the states.
According to him it is a very realistic number as in India it is consumer led growth with a huge young population and lots of credit available. He said the faster you let the credit flow, quicker the growth would be. "With a billion people, we have a long run-way", he said.
Even though there were same products and services, more markets could be penetrated and frequency of the usage of the same products would increase. Besides, he also pointed out that the basket of products would also increase inevitably. He said, "If China could grow at 12 per cent for 20 years, why are we concerned about growing at 9 per cent for 10 years."
On the question of increasing taxes in the forthcoming Budget, Prahalad said that economy will move forward very very rapidly as long as the Budget doesn’t overly tax the growth engine. He said "You don't want the tax structure to become more onerous.
On his theory of 'Fortune at the Bottom of the Pyramid', Prahalad said it is an excellent model for India. In countries like this, with 700 million bottom-of-the-pyramid consumers at varying levels of income, the need for bringing down the cost seemingly creates a demand amongst a new customer base -" look what has happened with the airlines.
Ever since, low-cost airlines were introduced in India, many more people fly and half of them are first time fliers". Similarly for Railways, all they had to do was increase the freight rates instead of hiking passenger fares and remove inefficiencies in the systems.
On the question of increasing taxes in the forthcoming Budget, Prahalad said that economy will move forward very very rapidly as long as the Budget doesn’t overly tax the growth engine. He said "You don't want the tax structure to become more onerous.
On his theory of 'Fortune at the Bottom of the Pyramid', Prahalad said it is an excellent model for India. In countries like this, with 700 million bottom-of-the-pyramid consumers at varying levels of income, the need for bringing down the cost seemingly creates a demand amongst a new customer base -" look what has happened with the airlines.
Ever since, low-cost airlines were introduced in India, many more people fly and half of them are first time fliers". Similarly for Railways, all they had to do was increase the freight rates instead of hiking passenger fares and remove inefficiencies in the systems.
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