SMEs to gain if govt scraps some taxes for now: Abhijit Banerjee

Nobel laureate Abhijit Banerjee suggested on Thursday that the Indian government look at temporarily removing certain taxes to boost consumption which in turn would benefit small-scale enterprises.

Speaking at a CII event, he backed his suggestion arguing that banks were not keen on lending to small-scale enterprises that have taken the brunt of the fiscal impact from the Covid-19 pandemic. "One of the ideas kicking around is creating a moment of sale, just remove sales tax temporarily and have kind of a VAT window, and get consumption up a little bit. I think, a lot of these small-scale enterprises, that's the only way we really have to help them is to increase the market," Banerjee said during the session on bridging inequality in a post-pandemic world.

"I don't think I just don't think the credit mechanism works very well in India. In the end, we talk about it, but the bankers ... they don't want to give credit to small-scale enterprises," he added.


The suggestion was in response to a question on whether the government can provide additional fiscal support to drive up consumption.

He, however, said the idea can only be implemented for a short period of time, saying that "it's not an idea you can have which has a lot of legs" and therefore arguing for the requirement of having an employment policy which can give sustainable support on a long-term basis.