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Implementation of GST bill could be challenging: DBS

The passage of the GST bill has been hailed as a “breakthrough” in a long battle to unify India’s economy to attract FDI and create jobs but implementation could be challenging and time-consuming as consensus on some of the finer details might not be easy.

GST bill-AV
The Development Bank of Singapore (DBS) today said the Goods and Services Tax (GST) bill passed overwhelmingly by the Parliament last night is a “positive development” likely to provide temporary boost to thedomestic markets.

“It is a positive development. (But) April 2017 deadline (to implement the GST) looks quite challenging… Actual mechanism has not been thrashed out yet, that would be next contentious issues,” said Radhika Rao, vice president and economist at DBS.

“The full roll out (of the GST) will be second half of next fiscal year 2017-18,” estimated Rao, the bank’s lead in monitoring the Indian economy.

“It is not going to be easy to get some of the consensus on some of the finer details. It could be a time-consuming process.

“These developments will be watched closely especially given the busy state election calendar in 2017,” she wrote in the bank’s daily market report.

Price impact will be the highest if a single GST rate is adopted, but it is more likely that a tiered system would prevail, maintaining food and essentials at low rates whilst sin taxes form the highest bracket, according to DBS.

Anticipating an effort to balance in sharing the GST revenue between the central and state governments, DBS expects details likely to be outlined in the fiscal 2017-18 budget due in February.

Leading US dailies said the passage of the bill was an “important step” in Prime Minister Narendra Modi’s campaign to modernise India’s economy and over the long term, will attract foreign investment, boost manufacturing and exports and create jobs.

The New York Times, in its report on the passage of the GST bill in the Upper House of Parliament, said it is the “most important economic measure since India opened its markets in 1991”.

“Potentially one of the most dynamic economies in the developing world, India is hampered by a bewildering array of state-by-state tax codes that discourage doing business across state borders.

“The Goods and Services Tax is widely viewed as a breakthrough that will allow the authorities to confront the problem, eventually creating a more unified economy that will allow businesses to expand nationwide far more easily,” it said.

It cited senior associate in the South Asia programme at the Carnegie Endowment for International Peace Milan Vaishnav as saying that the GST was long overdue and is “hugely consequential for the ease of doing business, and for demonstrating to the outside world that India is dragging its economy into the 21st century”.

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