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The potential game changer that can give India all the jobs it needs

By Chetan BhagatIf you see where Indian Fortune 500 companies are based, most have their corporate headquarters in Delhi and Mumbai. A few are also based in other metros like Bengaluru, Chennai and Hyderabad. Around half a dozen odd Indian cities house almost all of our top companies. Ditto for the India offices of foreign companies as well.On the other hand, Fortune 500 companies in the USA are evenly spread out throughout the country. Despite New York, Los Angeles, Seattle and San Francisco being the main cites, headquarters of large global companies exist in several dozen US cities such as Atlanta, Houston, Omaha, Rochester and Detroit, just to name a few. In contrast, you will hardly find a large Indian company or foreign company having their headquarters in Indore, Jaipur, Bhubaneshwar or Guwahati.Corporate heads will cite many reasons not to go to such cities. Lack of connectivity, non-availability of talent (or reluctance of talented people to move there), lack of good schools for children and a general feeling of being away from the action. This desire to be where the action is, and the action being limited to a handful of cities means our metros are choked.Just last week, a bridge collapsed in Andheri in Mumbai, bringing the city to a standstill. If you visit Mumbai in the monsoons, it looks like a city where a world war just ended. Traffic in Delhi and Mumbai is insane. Check Google Maps on any weekday evening in our metros, and see the blood red traffic lines across the city.Mumbai airport, a relatively new one, is already jam packed. Getting admission in a good school in metros is akin to scaling Everest. Pollution in Delhi can kill you. Real estate prices in Mumbai are lethal. They all tell the same story – our cities are choked.It is time we actually did something about it. And the only way this can be fixed is if 10, 20 or even 50 new cities pop up, each offering a real alternative to the bursting metros.How will this happen? The missing factors in these cities – connectivity, education options or not being in the middle of action all eventually stem from one key factor, lack of a vibrant job scene. Invariably, a city picks up when it offers a range of jobs – from high end to low end – and people get money in their pockets. The 1990s rise of sleepy Bengaluru came from the accidental start of a couple of IT companies, which happened to grow fast and become large companies.Of course, chance happenings like Bengaluru won’t happen again and again. We need to actually make large companies, which are employment generating giants, willingly move to a smaller city. We need to incentivise major Indian companies to move their headquarters elsewhere, and for new arrivals like startups or foreign companies coming to India to try another Indian city as well.One good way to do this is to modify direct tax (income tax and corporate tax) and make them more federal in nature. Right now the Centre collects income and corporate tax, a portion of which is then allocated to individual states. If we could split the income and corporate taxes into central and state portions (much like the current CGST and SGST), and allow the states flexibility in setting their own tax rates for the state portion, it can be a game changer for India.Not only will this relieve pressure on our big metros, it will also spread employment better across the country. For instance, say the corporate tax rate is 30%. Let us split it into central corporate tax of 15% and state corporate tax of 15%. Then, say a Chhattisgarh or Odisha wants to invite companies to their state. They can then offer a 5% state corporate tax rate, which makes the effective tax rate for a company 20% (15% Centre + 5% state).Hence, a company with a Rs 10,000 crore profit, which paid Rs 3,000 crore in taxes every year, can save Rs 1,000 crore of this money by shifting to the new location. Once the company moves, thousands of jobs move there too. This then creates more jobs in that new location to serve these new arrivals, such as in entertainment, education, real estate and other services. The metro they moved from gets relief. The new city’s economy gets a boost. Yes, the state does lose some tax revenue, but the boom in the state’s economy will make the tax cut worth it.In fact, for certain locations, even the Centre can give a discount on its share of taxes. Imagine, if companies could move to J&K and the north-east and pay only 5% total taxes instead of 30%. Despite the initial hardships, companies will move as their spreadsheets will show enormous savings over a decade. Won’t it give a huge boost to these areas? Will it not improve the Kashmir situation when stone pelters actually have good jobs in their region?Apart from revenue generation, tax policy is an important tool the government has to help fix a lot of problems – choking of metros, taking employment to the interiors and helping troubled regions. If we make our direct taxes more federal in nature, and give states the power to reduce taxes to invite corporate activity, it can go a long way in easing pressure on our metros and creating new vibrant cities.

Source: ET

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