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GST rate cuts will lower India’s tax collection by Rs 150 billion a year

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Mumbai :India’s move to slash levies on more than 50 goods will lower revenue by as much as Rs 150 billion ($2.2 billion) each year and is raising the prospect of the country missing budget goals again this year.
A panel of federal and state finance ministers late on Saturday cut the goods and services tax on items from washing machines and lithium iron batteries to stone-carved deities and sanitary napkins as Prime Minister Narendra Modi looks to boost sentiment and growth before he faces re-election next year. The revenue loss will be minimal, India’s interim Finance Minister Piyush Goyal told reporters in New Delhi, without elaborating.
The decision could result in a revenue loss that’s as high as 1 per cent of tax budgeted to accrue to the federal government, according to officials who didn’t wish to be identified as they aren’t authorised to speak to the media.
The estimated loss in revenues comes at a time when India needs to keep its budget deficit in check as Modi prepares to ramp up spending on welfare programs from health to farming before general elections next year. The government has already widened its deficit goal for the current fiscal year to 3.3 per cent of gross domestic product from 3 per cent, putting pressure on bond yields.
The benchmark 10-year yield is up nearly 50 basis points this year, after climbing 81 basis points last year.
“It may not be the most marvelous move for the overall budget, but it is not a bad deal either if overall collections pick up for the government,” said Indranil Pan, chief economist at IDFC Bank Ltd. in Mumbai. “These rates were expected to come down and have been advanced because of the election cycle.”
The new GST rates are effective July 27 and the panel will meet again Aug. 4 to discuss issues faced by small businesses.
India’s GST is just over one-year-old and the panel has already revised rates several times. The latest reduction comes before polls later this year in the states of Madhya Pradesh and Rajasthan, both governed by Modi’s Bharatiya Janata Party. Tax cuts on the last few occasions came closer to the date of some state polls, lending strength to arguments it was done for electoral gains.
Modi needs resources to boost welfare spending before the federal election in 2019. Monthly GST receipts have picked up after teething troubles, but are still not strong enough to meet the government’s annual tax target of about 15 trillion rupees.
GST, touted as one of the biggest reforms of the Modi government, replaced a myriad of levies with a nationwide sales tax. Its introduction was marred by glitches and business disruptions.


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Business

Cabinet clears setting up of centralised GST appellate authority

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New Delhi: The Union Cabinet on Wednesday approved setting up of a centralised Appellate Authority for Advance Ruling (AAAR) under the goods and services tax that would decide on cases where there are divergent orders at the state level.

The setting up of a centralised AAAR would require amendments to the GST Acts. The centralised authority as an appellate body will only take up cases wherein the Authority for Advance Ruling (AAR) of two states have passed divergent orders.

The Goods and Services Tax (GST) Council, headed by Finance Minister Arun Jaitley, and comprising state counterparts, in December decided to establish the centralised AAAR.

 

“The Cabinet has cleared the GST appellate authority,” a source said after the meeting of the Cabinet headed by Prime Minister Narendra Modi.

In view of the confusion created by contradictory rulings given by different AARs on the same or similar issues, the industry had been demanding a centralised appellate authority that could reconcile the contradictory verdicts of different AARs.

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Urbanisation to be big driver of Indian economic growth: Kant

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Davos: Urbanisation will be a big driver of economic growth in India going forward, supported by favourable macroeconomic factors, accelerated infrastructure building and continuing reforms, NITI Aayog CEO Amitabh Kant said.

Speaking here at an event on sidelines of the World Economic Forum Annual Meeting, he also said the Indian economy may even exceed the IMF growth forecast of 7.5 per cent for the country.

Kant said IMF has forecast 7.5 per cent growth for India despite a gloomy outlook for the global economy and this itself is good, though there are expectations that this estimate would be surpassed. He said India is giving a big push to urbanisation with more than 100 smart cities being developed.

 

The country is also using technology in a big way to change the way business and governance is done, he added. Besides a massive infrastructure building is happening, bank credit flow has rebounded and macroeconomic factors like inflation and fiscal deficit are also being supportive, Kant said.

DIPP Secretary Ramesh Abhishek noted that states are competing with each other to attract investments and all political parties have adopted the economic reform process. He listed various reform initiatives undertaken in India, including on areas like ease of doing business, FDI, manufacturing and taxation.

They were speaking at Institutional investors’ breakfast roundtable, organised by the industry chamber CII and Kotak Mahindra Bank. Other participants included CII Director General Chandrajit Banerjee and leaders from Indian and foreign companies.

On questions about some persisting issues in doing business including on tax and insolvency related issues, Abhishek said a lot of efforts have been put in to remove all bottlenecks and starting a business doesn’t take more than a day. Besides, special provisions have been made for startups and angel investors, he added.

Kant said efforts are also being made to remove all physical intervention and digitise the entire process of inter-ministerial and inter-department consultations to fast-track the decisions.

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India will surpass China, says Raghuram Rajan

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Davos: India will eventually surpass China in economic size and will be in a better position to create the infrastructure being promised by the Chinese side in South Asian countries, former RBI Governor Raghuram Rajan said.

Addressing a session on Strategic Outlook for South Asia, Dr Rajan said that the Indian economy would continue to grow while growth rate is slowing down in China.

“Historically, India had a bigger role in the region but China has now grown much bigger than India and has presented itself as a counter-balance to India in the region,” Dr Rajan said at the WEF Annual Meeting 2019.

 

“India will become bigger than China eventually as China would slow down and India would continue to grow. So India will be in a better position to create the infrastructure in the region which China is promising today. But this competition is good for the region and it will benefit for sure,” he said.

The comments assume significance with China working on a lot of infrastructure projects across the region. In 2017, India became the sixth largest economy with a GDP of $2.59 trillion while China was the second large with a GDP of $12.23 trillion.

At the same session, Nepal PM K.P. Sharma Oli cited collaboration with China as well as India as reasons for the economic growth.

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