Sri Lanka has long been an outlier in the extent to which it grants tax concessions, former Chief Economic Adviser to the Government of India Arvind Subramanian said, warning that such policies lay at the heart of the country\u2019s persistent fiscal and macroeconomic troubles.<\/p>\n\n\n\n
Speaking on the sidelines of The Examiner\u2019s book talk, A Sixth of Humanity \u2014 India\u2019s Development Journey, held at the Orient Club recently, Subramanian argued that while most countries offer incentives to attract foreign investment, Sri Lanka has gone far beyond international norms. More troubling, he said, is the practice of granting these concessions on a blanket basis rather than in a targeted and time-bound manner.<\/p>\n\n\n\n
Subramanian contrasted Sri Lanka\u2019s fiscal trajectory with that of India. While India\u2019s central government tax revenue as a share of GDP has stagnated at around 20 per cent since the early 1990s\u2014a situation he described as regrettable\u2014Sri Lanka\u2019s tax-to-GDP ratio has fallen sharply, from roughly 20 per cent to about 13 per cent by 2023. \u201cThe tax-to-GDP ratio is steadily declining in Sri Lanka,\u201d he said. \u201cThis is the heart of a much deeper problem.\u201d<\/p>\n\n\n\n
He was particularly critical of the decision to grant tax breaks even for recent large-scale infrastructure investments by Indian multinational companies. \u201cYou should have just said no,\u201d Subramanian remarked, arguing that Sri Lanka\u2019s weakened fiscal position leaves little room for such generosity.<\/p>\n\n\n\n
Beyond tax policy, Subramanian challenged the tendency to attribute Sri Lanka\u2019s serial underdevelopment primarily to external shocks such as colonial legacies or adverse geopolitical forces. While acknowledging that such factors can play a role, he said prolonged underperformance demands domestic accountability. \u201cI understand blaming exogenous shocks in the immediate aftermath,\u201d he noted, \u201cbut after 40 years, that is something you have to be accountable for personally.\u201d<\/p>\n\n\n\n
Subramanian also cautioned that Sri Lanka is not yet out of its economic crisis and is likely to remain under strain. He expressed concern over the country\u2019s long history of reliance on International Monetary Fund programmes, pointing out that Sri Lanka has been under some form of IMF engagement for much of the period since the 1950s. By contrast, he noted, India has not required an IMF programme since 1991.<\/p>\n\n\n\n
Questioning the underlying political economy, Subramanian asked why Sri Lanka has struggled to sustain macroeconomic stability. \u201cIf Indian society demands low inflation and macroeconomic stability,\u201d he said, \u201cwhy doesn\u2019t the same thing happen in Sri Lanka?\u201d (TP)<\/p>\n\n\n\n