Chief Economic Advisor (CEA) Arvind Subramanian today said implementation of the goods and services tax (GST) will reduce disparities among the states leading to more "convergence".

Arvind Subramanian (PTI)

Chief Economic Advisor (CEA) Arvind Subramanian today said implementation of the goods and services tax (GST) will reduce disparities among the states leading to more “convergence”.

“It is true that people have not fully understood GST. Under GST regime, no state can offer incentives to attract investments. GST will be placing some restriction on states in placing incentives to industries… So, GST would actually promote convergence and reduce divergence among states,” Subramanian said in Q&A in Facebook on Economic Survey and Indian Economy.

Asked whether India should have one GST rate, he said it may not be possible to have one rate in the Indian context.

“Ideally GST rate (RNR rate) would be one rate at around 15-15.5 per cent. If you have only one rate, it encourages compliance. However, India is not in a position to have one rate. The goods that the poor consumes would have to have lower rates,” he pointed out.

To a query of taxing agriculture income, Subramanian said that when the Constitution was written, the decision to tax agriculture income was left to states and the political compromises were embedded in the Constitution.

“Essentially, high income regardless of the sector should be taxed,” the CEA said.