Fate of GST Bill uncertain in Rajya Sabha.

With flagging jobs, private investment and exports, the Asia’s third biggest economy is in fragile shape despite robust growth, indicating the need for much delayed Goods and Services Tax (GST) Bill, which aims at changing India into a single common market with a unified tax structure and will create millions of formal sector jobs.

The GST Bill, which was initially scheduled to be introduced from April 1 this year, missed the deadline owing to the protests in the Opposition-dominated Rajya Sabha. The Bill is likely to be taken up for voting in Rajya Sabha during this week. The monsoon session of Parliament ends on August 12.

This uniform, indirect tax regime will no doubt benefit the industrial class by improving the ease of doing business. Integration of existing multiple taxes into single GST will significantly reduce cost of tax compliance and transaction cost. GST will also remove cascading effect of taxes imbedded in cost of production of goods and services.

But there seem to be some point of disagreement, which are preventing the Bill from passing through the Rajya Sabha where the BJP doesn’t have the requisite numbers to push the legislation through.

Although, there should be no fundamental opposition to the notion of having a unified tax structure, the states are still anxious about the total revenue loss that could result from such a levy. The Congress has demanded that the additional one per cent tax to compensate manufacturing States for possible loss of revenue should be scrapped.

The Opposition Congress party wants that a cap be fixed on the tax that can be levied under the GST and include this in the Constitution Amendment Bill. They are demanding that the overall GST rate should be capped at 18 per cent. It also wants an independent mechanism to resolve disputes between states over revenue sharing.

While GST is eagerly awaited by the industry, the legal process to implement the GST in India is quite long and complex. It is therefore very important that the Bill is passed in the current Monsson Session.

Latin Manharlal Group

Faltering services activity in India clouds growth outlook

Indian economy seems to have succumbed a little to the global slowdown as services activity in the country remained soft in June, raising fears over a sluggish recovery in Asia’s third biggest economy, strengthening the case for the Reserve Bank of India (RBI) to deliver another interest rate cut in the upcoming monetary policy review in August.

Signaling fresh signs of slowdown, a gauge of growth in India’s services sector cooled in June as new business failed to pick up amid tepid increase in fresh orders, indicating weak underlying demand in the Indian economy.

According to Markit Economics report, the Nikkei India Services Business Activity Index eased for a third straight month, coming in at 50.3 in June compared to 51 in May, with a reading above 50 indicating expansion in services activity over the previous month.

The softness in the services activity was primarily on the back of fragile global economic conditions and subdued pace of domestic activity. New work at services providers grew at the slowest pace in 11 months as competitive pressure limited greater gains.

However, its’ not all bad. The recent anemic growth was counterbalanced by manufacturing production, which surged to a three-month high in June, pushing the composite PMI that combines services and manufacturing from 50.9 in May to 51.1 last month.

Indian firms increased prices at a weaker pace last month, indicating that retail inflation could remain low in the coming months. Consumer inflation, at 5.76 per cent in May, is somewhat above the RBI's near-term target of five per cent, on higher food costs. According to analysts, country’s consumer inflation may have eased slightly to 5.6 per cent in June 2016 from 5.76 per cent surge in May, leaving a bit more scope for the RBI to cut interest rates, going forward.

The RBI has kept its benchmark interest rate unchanged at a five-year low of 6.50 per cent since April and is expected to cut rates one more time before Governor Raghuram Rajan's term ends in September, given that the inflationary pressures in the broader economy remain moderate.

Latin Manharlal