GST bill passed in Rajya Sabha clearing way for unified tax regime

[PARIKRAMA]

Ok now since the GST has been passed and the other thread is not having much discussions, let me take this opportunity to define some points.

I had initially said here

I am looking at 2℅ addition to GDP

Let's hit double digits... That would be a great achievement and hopefully without controversies

Let me correct it more here and give a proper perspective.


++++
First lets try to understand what benefits GST derives for us in near and medium term

Growth

• Its clear that in the short run GDP numbers wont show much improvement with impact of GST
• Many places where indirect taxes on goods and services was 22.5% and 15% will now become 18%
• This implies service producers will see higher tax outflow while Manufacturing sector will see ease of taxation burden
• Now the best possible situation can be when manufacturers pass on this benefit to end product pricing..
• Also if service providers where tax is increased absorbs the additional burden and again withheld from passing it to end users.
• Thus it brings to next set of possibilities and situation where either of them changes their stance and likely impacts as described below

• Over the medium term, the whole phase changes a bit as it will lead to the ambiguous growth impact situation (Quadrant 3 bottom left) where full pass through of manufacturer is predicted and services withheld the burden of passing through situation.
• Thus the Investments into the Manufacturing segment should see a bigger boost and expect a 50bps margin increment due to these investments
• A situation depicted below analyses this

Thus, i need to correct my earlier point of 1-2% to more like 80 bps.

Will discuss few more points in next few posts

 

[PARIKRAMA]

The aspect of Inflation

• As per the GST committee report, about 46% of the CPI basket will come under GST umbrella and of this, about 32% will be taxed at a low (instead of normal) rate.
• With the tax changes expect a inflation rising up for some short time
• Over the medium term, by streamlining production, enhancing delivery chains and overall investment, GST could bring down inflation.
• Below is an illustration on this

• As shown with 22%, the impact in inflation owing to services side in foog and health along with clothing will lead to a potential spike of almost 80 bps
• The same with 18% scenario will lead to less than 40bps impact

The aspect of Fiscal Deficit

• Although there should not be any impact on fiscal side, the states would lose out some tax revenue which center would compensate full for 5 years
• Over time since tax angle is widened and net benefit impact will positively boost the tax revenue numbers, thius should lead to more strengthening of our position

The aspect of Job Creation

• Investment boost in manufacturing sector will see a big growth in Make In India Projects
• There would be a need for skill and technically adequate people especially Engineers
• In services side impact would be negative in short term and there would be some benching of staff.

The major hurdles

• Implementation date of April 2017 seems a bit too aggressive
• Getting the constitutional amendment ratified by at least 15 states; finalize and pass the GST bill in the union parliament and state assemblies
• Complete the IT backbone connecting tax databases of the centre, the states, trade & industry, etc
• Subject the technological network to dry runs; train tax administration staff on GST management

Surprise Impact

• FX Impact -GST would lead to strengthening of Rupee in near term
• Increase in FDI numbers
• GST along with a narrowing Current Account Deficit and strengthening of the economic revival of manufacturing (FDI and Make In India) and service sectors should help INR become a strong performer

Source - Multiple reports published by research & brokerage houses

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[Abingdonboy]

@PARIKRAMA the general consensus is that 0.8% will be added to the growth rate with the passing of GST within 3-5 years, I have seen some reporting 1.2-2% but I'm not sure what the basis is for these projections. Either way, the GST should allow India to comfortably break into the 8-9% growth bracket for the forseeable future.

In the long term, GST is going to further expediate the infrastructure development and feed into the manufacturing sector many times over.

The big poltical question is whether the affects are apparent enough by 2019- what the media are saying but I am of a different mind. I think the fact that GST has been passed will see an almost immediate uptake in FDI, consumer spending and investment from industry. From listening to many internal and external investors (or would be) it appeared as though GST was the "litmus test" for Modi and now he has "broken the duck" the signal being sent out is very positive and this will convince many to double down on India as well as for "first timers" to take a risk on the country. The spillover affects for the passing of GST will be quite enourmous and extend far beyond simply creating a common market.


Now Modi has set the bar high, he needs to top this...

 

[Echo_419]

DMK has no members in LS. It was 2 members in RS for now. I also didnt see any statement by Karunanidhi supporting GST. Infact he is silent and testing the waters. Chidambaram as we all know was the finance minister who framed the GST. There is no way he is going to oppose it.
I am not against GST. It is needed. But in a federal structure, the states who are doing good should be rewarded. But TN and even AP is not being rewarded.
TN must be compensated for 3 years I guess. ADMK arguement holds water. GST will bring loss of revenue to TN state.

I agree, Performing states like TN, Gujarat, MP, AP etc should get a greater allocation of resources

Surprising thing is that the requiremts too aren't big by any standard. We had a Super Thermal Power plantplanned ( it would have been alone enough to take care of our needs , along with proposed hydle and 1 small thermal plant ( under construction ) at Bokaro , but Reliance won the tender and then left the project citing huge costs , and years have passed since then without any movement.

I would not say any further than just saying that the semi precious stones sold through our India are " Ileagaly" mined by Naxals here with support from Red brigade and recently 2 higher placed leaders of Secular Parties.

This joint venture is earning then money and is the prime reason why we still see Politicians proposing peace with Naxals.

We have a power surplus situation now, so if you are not getting electricity it's time to ask your state DISCOM WTF is going on?

 

[Ankit Kumar 002]

I agree, Performing states like TN, Gujarat, MP, AP etc should get a greater allocation of resources



We have a power surplus situation now, so if you are not getting electricity it's time to ask your state DISCOM WTF is going on?

As I mentioned people here ask the question to JSEB , which raises its hands showing its inability everytime , when people go to state government they say Coal of Jharkhand is of center and its their decision where to use it , its their decision to give waivers.....

Its just Diya Tale Andhera. ....

The day some one gets mad and makes the coal mine stop for 36 hours , then maybe we will be granted electricity.

 

[PARIKRAMA]

@PARIKRAMA the general consensus is that 0.8% will be added to the growth rate with the passing of GST within 3-5 years, I have seen some reporting 1.2-2% but I'm not sure what the basis is for these projections. Either way, the GST should allow India to comfortably break into the 8-9% growth bracket for the forseeable future.

In the long term, GST is going to further expediate the infrastructure development and feed into the manufacturing sector many times over.

The big poltical question is whether the affects are apparent enough by 2019- what the media are saying but I am of a different mind. I think the fact that GST has been passed will see an almost immediate uptake in FDI, consumer spending and investment from industry. From listening to many internal and external investors (or would be) it appeared as though GST was the "litmus test" for Modi and now he has "broken the duck" the signal being sent out is very positive and this will convince many to double down on India as well as for "first timers" to take a risk on the country. The spillover affects for the passing of GST will be quite enourmous and extend far beyond simply creating a common market.


Now Modi has set the bar high, he needs to top this...

Yes, GST was a litmus test. We need more bills to be passed like

1. Land Acquisition Bill
2. Real Estate Bill
3. A new Bill for Bank Re-capitalization and Non performing assets
4. Privatization of PSUs which are making huge losses
5. Bill for power sector reforms and State Electricity Board
6. Labour Code on Industrial Relations Bill 2015, which will combine the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946
7. Industrial Relations Code Bill 2016,
8. Wage Code Bill 2016,
9. Small Factories (Regulation of Employment and Conditions of Services) Bill,
10. Employees Provident Fund and Miscellaneous Provisions (Amendment) Bill
11. Shops and Establishments (Amendment) Bill

Once done we will see the boost to over all 2% bracket in GDP and hit 10% growth rate surely

 

[Abingdonboy]

Yes, GST was a litmus test. We need more bills to be passed like

1. Land Acquisition Bill
2. Real Estate Bill
3. A new Bill for Bank Re-capitalization and Non performing assets
4. Privatization of PSUs which are making huge losses
5. Bill for power sector reforms and State Electricity Board
6. Labour Code on Industrial Relations Bill 2015, which will combine the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946
7. Industrial Relations Code Bill 2016,
8. Wage Code Bill 2016,
9. Small Factories (Regulation of Employment and Conditions of Services) Bill,
10. Employees Provident Fund and Miscellaneous Provisions (Amendment) Bill
11. Shops and Establishments (Amendment) Bill

Once done we will see the boost to over all 2% bracket in GDP and hit 10% growth rate surely

1- I don't know the ins and outs of the bill but isn't the LAB a very contentious issue? How likely is it?
3- I think this is vital to kick start many sectors of the economy (manufacturing, infrastructure etc) where an inability to source capital from over exposed banks has been a real issue that has been holding back a huge ammount of investment.

 

[Ankit Kumar 002]

@Echo_419
After Reliance backed out of Ultra Mega Thermal Project in Tilayia,and decision on UM Thermal Project of same capacity in Deoghar is hanging in balance as nothing has happened on it for 2 years.Jharkhand was to have rights over 2000MW , but now its plane air.

We have a Thermal Plant in Patratu running at 20% capacity because NTPC has failed since decades to repair all the units, it's a JV between JSEB and NTPC , and when it produces less , we get a lesser share.

We have India's largest Uranium and 3rd largest Thorium reserves but Government of India will setup nuke plants where people don't want it , but not blink at once at Jharkhand. Shouldn't Jharkhand hold 10% of energy rights over every power station using Jharkhands Uranium and Thorium in future ?

 

[PARIKRAMA]

1- I don't know the ins and outs of the bill but isn't the LAB a very contentious issue? How likely is it?
3- I think this is vital to kick start many sectors of the economy (manufacturing, infrastructure etc) where an inability to source capital from over exposed banks has been a real issue that has been holding back a huge ammount of investment.

LAB i dont think NDA can pass during this term. They will need far more support from all parties and states to pass this.

The point 3 is a need of the hour. It takes 9 years of credit growth for Indian banks to build a portfolio which is now getiing wiped out in just last couple of years. Thats the tragic situations.

The Basel 3 will need huge capital needs and GOI pumping it also will not change their health as the bank themselves are in doldrums and Basel 3 will only make it more difficult with special buffer creation and other classifications.

I see some mergers of nationalized banks and major assets being sold to Asset reconstruction Companies.

Certain sectors like Power and Infrastructure should get some leniency like Microfinance was offered where MFIs restructuring loans were allowed and revival was encouraged. So perhaps these two sectors should get this done and help clog a major portion away from NPA and blockage of capital and also the sector can see some liquidity being created for revival

India Infrastructure fund backed by Sovereign Guarantee of GOI is needed for long term investments in Infrastructure. We need to deploy blocked capital in Indian households into this segment. A good way would be tapping household gold for such long term advances. IF we can enable such a unique scheme, we can definitely bring a much structured change. (the present gold loan scheme returns is negligible for a long term investor)

 

[Echo_419]

@Echo_419
After Reliance backed out of Ultra Mega Thermal Project in Tilayia,and decision on UM Thermal Project of same capacity in Deoghar is hanging in balance as nothing has happened on it for 2 years.Jharkhand was to have rights over 2000MW , but now its plane air.

We have a Thermal Plant in Patratu running at 20% capacity because NTPC has failed since decades to repair all the units, it's a JV between JSEB and NTPC , and when it produces less , we get a lesser share.

We have India's largest Uranium and 3rd largest Thorium reserves but Government of India will setup nuke plants where people don't want it , but not blink at once at Jharkhand. Shouldn't Jharkhand hold 10% of energy rights over every power station using Jharkhands Uranium and Thorium in future ?

That's messed up, hopefully the situation will improve in the future

 

[madooxno9]

I agree, Performing states like TN, Gujarat, MP, AP etc should get a greater allocation of resources



We have a power surplus situation now, so if you are not getting electricity it's time to ask your state DISCOM WTF is going on?

Kya yaar din bhaar INDIA , INDIA karte ho , pakistaniyo se laadte ho , phir baad mea UP bihar or gujraat ko alag alag kyu samajhte ho ?

 

[Ankit Kumar 002]

Abhijeet Power was tasked to set up a 1,900 MW power plant. The company developed the plant in Latehar district but is now beset with bank loan problems. It is also yet to get a coal block.
Work on Essar Power's 1,800 MW project is on, also in Latehar district.
But, according to sources in the company, the unavailability of a coal block is the main stumbling block in starting the plant, though the chimney has been installed and and 50 percent of the work completed.
As per the MoA, Essar Power was slated to start its first 600 MW unit by the end of 2013. The new deadline is yet to be fixed.
In all this, it is little wonder that much of Jharkhand is in darkness.

 

[Echo_419]

Kya yaar din bhaar INDIA , INDIA karte ho , pakistaniyo se laadte ho , phir baad mea UP bihar or gujraat ko alag alag kyu samajhte ho ?

Becuz Guj is performing & UP, MP is not

 

[Local_Legend]

GDP will hit near 10 for sure. Bills like this will boost the chances. But we seriously need to concentrate on export market. We have the goods, potentials but no co ordination. There are many quality products and services yet to be exposed to the global market as well as national market . We have to clear the channels to flow these goods and services to whole nation and world which will defenitly boost the GDP.

Few examples , Cocont farmers get less income . But in East Asian countries like Thailand , they process and put tender coconut water and its bits in can and sell it as well as export it. Shelf life of this products are around 6 months.
One of my friend who is into packaging industry once gone for a trip to Himachal where he saw lots of fruits left ignored under the tree. He asked the farmers, why they are not selling them. They said , these are perishible and our buyers buy just fresh and they stores very few quantity . My friend from his experience adviced them that u can buy a packing machine, bring it near to filed and can run on generator, pack the fruits properly to protect perishing due to exposure of open air and sell it to ur stockist . The poor souls just smiled and got busy in what they were doing .
I believe that , after CGST & SGST things will be different but we can do better and just hope that this will be a bright start. This government got majority of seats. Many of the future oriented and people friendly bills can be passed. As social media is getting powerful, people are getting news from every where . Oppositions just can't oppose everything what ruling party brings on table !

 

[Spring Onion]

wonderful step. We here in Pakistan could not stop ourselves from appreciating the step. WOnder if one day we could replicate it in Pakistan