The past week came with a great piece of news: the Prime Minister reached out to top Opposition leaders to discuss differences over the GST Bill. In a 45-minute meeting, Modi and some other senior ministers discussed the proposed legislation with Congress President Sonia Gandhi and former PM Manmohan Singh. Till now no resolution has officially been reached, but the meeting has raised hope that India would get its new tax reforms law before the Winter session concludes. The bill is pending approval from the upper house, where the government lacks a majority, and now the hope of its passage certainly looks brighter.
It is a big relief to see that the two sides have at least come to the table. During the Monsoon session of the Parliament, politics of obstructionism blocked the economic agenda of the government, but this time the situation seems different. According to news reports, the Congress has demanded scrapping of 1 percent additional tax for producing states, which I think the BJP will not find much difficult to concede. But there are two other demands – setting up of a separate dispute resolution mechanism and capping of revenue neutral rate for GST at 18 percent – which, it seems, will require both sides to find some sensible middle ground.
Meanwhile, the Government said that it may retain corporate tax incentives for select industrial segments. According an estimate, such tax sops account for more than 90 percent of the estimated revenue foregone. The amount stood at Rs 98,408 crore for the year 2014. In addition, it is often alleged, the sops benefit a few favored industries with good political connections. But it is equally true that some industrial sectors are currently in dire need of support, and considering this, the idea of retaining tax exemptions for sectors like MSME, manufacturing, infrastructure and power sounds logical.
In another positive development, the Centre is reportedly planning to relax several limits on external commercial borrowings to bring the guidelines in line with that allowed under FDI rules. Recently, FDI norms for 15 sectors – including construction, banking, defence, broadcasting and retail – were eased, and now easing of ECB guidelines will further help speed up foreign investment. After the NDA's defeat in the Bihar assembly elections, there was a widespread concern that the result might have negative implication on the government's reform agenda, but fortunately it has now proved to be a blessing in disguise.
I invite you opinions. |
