GST Rollout to Support India’s Growth Story

After a long wait of 17 years, the goods and services tax (GST) is all set to become a reality from the midnight of June 30.  GST is expected to provide the much-needed stimulant for the economic growth in India by transforming the existing base of indirect taxation towards the free flow of goods and services.

GST is the indirect tax reform that will replace several taxes levied by the central and state governments and change India into a single common market with a unified tax structure. It was introduced as the Constitution (122nd Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. Under GST umbrella, goods and services will be taxed at 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent.

GST, a uniform, indirect tax regime, will no doubt benefit the industrial class by improving the ease of doing business. Integration of current multiple taxes into single GST will 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.

According to economists, lower GST rates may lead to a decline in inflation, however, the economic growth may not improve significantly in the short term even though it will benefit both India Inc and the government in the medium term. However, GST, which will be rolled out in July, will help raise India's medium-term growth to above 8 per cent, as it will enhance production and the movement of goods and services across Indian states.

With the implementation of GST, the flow of Foreign Direct Investments (FDI) may rise as the existing multiple tax laws are one of the reasons foreign companies are wary of coming to India.

In addition, India’s overall revenue is also expected to shoot up by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth.

GST could also result in increased employment, promotion of exports and consequently a significant boost to overall economic growth and factors of production that incudes land labour and capital.

The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. The GST, because of its transparent character, will be easier to administer. The proposed taxation system holds great promise in terms of sustaining growth for the Indian economy.

Latin Manharlal Group

Record Low Inflation in May Spurs Rate Cut Hopes by RBI

India’s retail inflation gauge slumped further in May, hitting a record low amid a sharp drop in kitchen staples, leaving lingering doubts about whether the Reserve Bank of India (RBI) tightened its monetary policy stance too early.

According to the data released by the statistics office, consumer inflation, the benchmark price gauge of the RBI, eased to a record low of 2.18 per cent in May from 2.99 per cent in April. It was 5.76 per cent during the corresponding period last year.

The data would confirm expectations that inflation is running well below the central bank's estimates, adding pressure on the RBI to reduce interest rates during its next policy meeting in August to boost economic growth.

The RBI last week kept the benchmark repurchase rate unchanged at 6.25 per cent in a policy review and slashed its inflation forecasts, acknowledging that price pressures were weaker-than-anticipated, but declined to ease its 'neutral' policy stance amid concerns that inflation may rebound and move close to its 4 per cent medium-term target by the end of the year.

Asia’s third-largest economy is facing a decline in inflation amid cooling food prices. The consumer food price index declined 1.05 per cent in May, compared to a year ago period, led by an almost 20 per cent fall in the prices of pulses and products. Price of vegetables too fell 13.4 per cent from a year ago.

Further, India's wholesale prices also cooled in May. WPI inflation in May was 2.17 per cent compared with 3.85 per cent in April. Similar to retail inflation, the drop in the wholesale inflation is attributed to easing food prices.

Going forward, a good monsoon is expected to keep a lid on food prices and overall inflation, which may force RBI to shift its attention to growth. India's GDP growth slipped to 6.1 per cent in quarter ended March, the lowest in more than two years, as the economy struggled with the effects of November's demonetisation. 

Latin Manharlal