Modi govt eyes spending cuts in railways, roads as GST glitches hit revenue

[ashok321]

The revenue shortfall could be at least $12.5 bn if the current trend continues until the end of the year

http://www.business-standard.com/ar...-gst-glitches-hit-revenue-117091800952_1.html

India could be forced to cut spending on key infrastructure such as railways and highways as lower-than-expected tax collections and sluggish growth have upset the government's budget calculations, two finance ministry officials said.

Tax receipts were about $7.8 billion in July - a little over half the monthly target - mostly because millions of firms failed to comply with the new Goods and Services Tax (GST) system that harmonises all state and central sales taxes but is still a work in progress.

The big worry is that economic growth, which slipped to a three-year low in the last quarter, could take a further hit if the public spending that largely underpinned expansion were to be slashed.

"There is a concern over lower tax collections," a senior finance ministry official said.

The revenue shortfall could be at least 800 billion rupees ($12.5 billion) if the current trend continues until the end of the year, a second official said, forcing a re-think in government spending.


ALSO READ: Note ban, 'hasty' rollout of GST has affected GDP growth: Manmohan Singh
He said receipts from individual and corporate income tax may slightly overshoot the target of 9.8 trillion rupees ($152.8 billion) for the whole year, partly due to a crackdown on tax evaders. And in coming months, GST collections may pick up.

Both officials spoke on condition of anonymity.

Without spending cuts, the second official said, the fiscal deficit could slip to 3.5 per cent of GDP, from the target of 3.2 per cent that Prime Minister Narendra Modi's government has set for 2017/18.

GST "chaos and pandemonium"

The main problem has been the introduction of the GST, billed as India's biggest tax reform in 70 years.

Ambiguous rules, an onerous return filing system and glitches with its IT back-end have made doing business far more complicated for many companies. Frequent changes in tax rates after the GST's launch have heightened business uncertainty, resulting in many firms failing to register for the new tax.

Manpreet Singh Badal, finance minister of Punjab, told Reuters the new tax was launched in a "hurry resulting in a lot of chaos and pandemonium".


Punjab, for example, had suffered a revenue shortfall of about 8 billion rupees in the first month of its launch, he said as the textile, engineering goods, and other small industries were hit. The state expects to raise near 395 billion rupees ($6.17 billion) in tax in 2017/18.

Under a GST deal, the central government has to compensate states if their receipts fall below an annual growth of 14 percent in taxes for the next five years.

India's GDP growth itself has slowed to 5.7 percent in the April-June quarter from 7.9 percent a year earlier, a slowdown also partly blamed on the introduction of the GST, adding to the pressure on the state coffers.

Dividends from state-run companies are expected to fall and a $11 billion share sale programme is slowing down.

"If the revenues remain below target, then the government could cut spending on railways and road transport," the second finance ministry official said.


ALSO READ: GST hits exporters' order book hard; 15% drop till October: FIEO

Aiming to boost growth, Finance Minister Arun Jaitley increased budgetary allocations for the railways by one-fifth to 550 billion rupees and by 24 percent for highways development to 649 billion rupees this fiscal year from a year ago.

Complicating the finance ministry's budget arithmetic further, the Reserve Bank of India announced last month that its annual surplus, a dividend transferred by the central bank to the government each year, would be only $4.9 billion, less than half the initial estimate, largely due to costs of Modi's shock "demonetisation" initiative last year.

"This is an abnormal year. A shortfall in tax and non-tax revenue could give a shock," said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank funded by the finance ministry.

He said the economy was still recovering from Modi's move to withdraw 86 per cent of high-value banknotes as part of a fight against graft.

Tax collections

A finance ministry spokesman said tax receipts were expected to improve as problems related to the new GST system and the technology underpinning it were tackled.

In his annual budget presented in February, finance minister Jaitley had projected a 17 percent growth in tax collections, while estimating spending of nearly $335.05 billion in the current fiscal year.

Jaitley also has to set aside funds for India's stressed state-run banks, which need nearly $60 billion in extra capital to meet new international banking rules by March 2019 according to Fitch Ratings estimates.

Balancing those demands while trying to control the fiscal deficit would involve a cut in public spending, analysts said.

Soumya Kanti Ghosh, chief economist at State Bank of India, said in a research note this month that first-quarter economic growth was supported by higher state spending, but the need to rein in the fiscal deficit could force the government to cut expenditure.

 

[ashok321]

India in dire straits under 10th pass Modi!

 

[Jlaw]

Does this mean no Japanese hsr?

 

[pothead]

Wasn't it Harvard educated MaunMohan Singh who started GST?

The OP as usual is pulling things out of his DumbAss.
Here are the facts about GST collections. Even with millions of businesses not filing yet, the collections are the best ever. When you have best ever collection of taxes, how come the Harvard logic of less tax apply? Is it Similar to Sibal's ZERO LOSS theory?

http://indiatoday.intoday.in/story/gst-collections-hit-rs-92283-crore-in-july-jaitley/1/1036548.html


http://www.livemint.com/Industry/IG...-first-month-at-Rs92283-crore-exceeds-es.html

http://www.dailymail.co.uk/wires/af...xceeds-expectations-month-GST-collection.html

http://www.business-standard.com/ar...ed-estimates-arun-jaitley-117082901284_1.html

 

[Homo Sapiens]

http://www.business-standard.com/ar...-gst-glitches-hit-revenue-117091800952_1.html

India could be forced to cut spending on key infrastructure such as railways and highways as lower-than-expected tax collections and sluggish growth have upset the government's budget calculations, two finance ministry officials said.

Tax receipts were about $7.8 billion in July - a little over half the monthly target - mostly because millions of firms failed to comply with the new Goods and Services Tax (GST) system that harmonises all state and central sales taxes but is still a work in progress.

The big worry is that economic growth, which slipped to a three-year low in the last quarter, could take a further hit if the public spending that largely underpinned expansion were to be slashed.

"There is a concern over lower tax collections," a senior finance ministry official said.

The revenue shortfall could be at least 800 billion rupees ($12.5 billion) if the current trend continues until the end of the year, a second official said, forcing a re-think in government spending.


ALSO READ: Note ban, 'hasty' rollout of GST has affected GDP growth: Manmohan Singh
He said receipts from individual and corporate income tax may slightly overshoot the target of 9.8 trillion rupees ($152.8 billion) for the whole year, partly due to a crackdown on tax evaders. And in coming months, GST collections may pick up.

Both officials spoke on condition of anonymity.

Without spending cuts, the second official said, the fiscal deficit could slip to 3.5 per cent of GDP, from the target of 3.2 per cent that Prime Minister Narendra Modi's government has set for 2017/18.

GST "chaos and pandemonium"

The main problem has been the introduction of the GST, billed as India's biggest tax reform in 70 years.

Ambiguous rules, an onerous return filing system and glitches with its IT back-end have made doing business far more complicated for many companies. Frequent changes in tax rates after the GST's launch have heightened business uncertainty, resulting in many firms failing to register for the new tax.

Manpreet Singh Badal, finance minister of Punjab, told Reuters the new tax was launched in a "hurry resulting in a lot of chaos and pandemonium".


Punjab, for example, had suffered a revenue shortfall of about 8 billion rupees in the first month of its launch, he said as the textile, engineering goods, and other small industries were hit. The state expects to raise near 395 billion rupees ($6.17 billion) in tax in 2017/18.

Under a GST deal, the central government has to compensate states if their receipts fall below an annual growth of 14 percent in taxes for the next five years.

India's GDP growth itself has slowed to 5.7 percent in the April-June quarter from 7.9 percent a year earlier, a slowdown also partly blamed on the introduction of the GST, adding to the pressure on the state coffers.

Dividends from state-run companies are expected to fall and a $11 billion share sale programme is slowing down.

"If the revenues remain below target, then the government could cut spending on railways and road transport," the second finance ministry official said.


ALSO READ: GST hits exporters' order book hard; 15% drop till October: FIEO

Aiming to boost growth, Finance Minister Arun Jaitley increased budgetary allocations for the railways by one-fifth to 550 billion rupees and by 24 percent for highways development to 649 billion rupees this fiscal year from a year ago.

Complicating the finance ministry's budget arithmetic further, the Reserve Bank of India announced last month that its annual surplus, a dividend transferred by the central bank to the government each year, would be only $4.9 billion, less than half the initial estimate, largely due to costs of Modi's shock "demonetisation" initiative last year.

"This is an abnormal year. A shortfall in tax and non-tax revenue could give a shock," said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank funded by the finance ministry.

He said the economy was still recovering from Modi's move to withdraw 86 per cent of high-value banknotes as part of a fight against graft.

Tax collections

A finance ministry spokesman said tax receipts were expected to improve as problems related to the new GST system and the technology underpinning it were tackled.

In his annual budget presented in February, finance minister Jaitley had projected a 17 percent growth in tax collections, while estimating spending of nearly $335.05 billion in the current fiscal year.

Jaitley also has to set aside funds for India's stressed state-run banks, which need nearly $60 billion in extra capital to meet new international banking rules by March 2019 according to Fitch Ratings estimates.

Balancing those demands while trying to control the fiscal deficit would involve a cut in public spending, analysts said.

Soumya Kanti Ghosh, chief economist at State Bank of India, said in a research note this month that first-quarter economic growth was supported by higher state spending, but the need to rein in the fiscal deficit could force the government to cut expenditure.

Indian should thank God everyday for 56'' chest of Modiji.56'' chest made Modiji a very daring person.His economic masterstroke like demonetization and GST is a big leap forward to realize the dream of becoming superpower in 2020.Due to his 56'' chest, we are seeing one Modi magic after another.All hails to 56''.

 

[ashok321]

Slow industrial growth:

The slow growth of the manufacturing sector has been a matter of concern for quite some time. The Congress government ceremoniously inaugurated a national manufacturing policy in 2011. When he fought the 2014 general elections, the current prime minister coined the slogan, "Make in India". Although he did not specify what he wanted people to make, it was implicit that he wanted to attract more industry to India. It has not happened in these three years; industrial growth continues to languish below 5 per cent a year. What can be done about it?

Before that question can be answered, a more basic question needs to be addressed, namely, why has India's industrial growth been so slow? Isabelle Joumard of OECD did a good bit of work on this and related problems before she moved on recently to other things. She and her colleagues found that productivity of labour employed in Indian industry was low. Chinese productivity is 1.6 times as high; in Brazil, it is almost three times India's. Productivity in industry is even lower than in services within India: manufacturing would find it difficult to compete for labour with services, which have grown much faster.

This low productivity is closely connected with the predominance of the 'unorganized' sector - more specifically, firms employing 10 or fewer workers. They account for almost two-thirds of industrial employment in India, against 9 per cent in Brazil and 14 per cent in OECD. Everywhere, successful firms grow bigger; the strange thing is that small firms in India do not grow. Non-agricultural employment grew by 51 million between 2004-05 and 2011-12; but only 6 million of it was in manufacturing, and almost all of it was in small firms. It looks as if even successful firms in India concentrate on staying small; if an industrialist makes a lot of money and decides to expand, he will set up another small firm.

OECD calculated countries' revealed comparative advantage from the balance of trade in various product groups. It found that out of 12 groups, India had comparative advantage in just two groups. One was, predictably, textiles; the other, surprisingly, was construction, which is not an export industry. In comparison, China had comparative advantage in seven groups; even Thailand had comparative advantage in five.

The low productivity is also due to the poor standards of education and training. India has done consistently badly in PISA scores; they are 300-400 in Himachal Pradesh and Tamil Nadu, against 400-500 in OECD countries and 500-600 in China. Indian governments do not let private owners of schools make profits, so owners minimize costs and employ cheap and unskilled teachers who give low-quality education.

Wages in India are low; but strangely, manufacturing in India is more capital-intensive than in comparable countries. It is as if industrialists avoid employing cheap workers and prefer to use machines.

One cause of low productivity is poor infrastructure. India's expenditure on infrastructure in 1999-2011 was about 5 per cent of its GDP; China spent almost double as much as proportion of its GDP, which was itself four times India's. Transmission and distribution losses in India are more than 20 per cent - higher than in any comparable country. State-owned power companies are inefficient and cannot supply electricity round the clock; they give priority to domestic consumers, and the brunt of power shortages falls on industry. A quarter of the power produced is unaccounted for - generally stolen. Industry cannot get enough electricity from the public power supply, so it supplies itself electricity from small, high-cost captive oil-based generators

One obstacle to industrialization is well known: red tape. It was recognized long ago; the solution the government homed in on was special economic zones. The first SEZ was set up in Kandla in 1965; 579 SEZs were sanctioned, 160 of which were exporting. And the total employment in them was a million - in a country with 1,250 million people and 600 million workers. Recognizing that SEZs had failed, the government decided in 2011 to go in for national investment and manufacturing zones: they would in effect be self-governing towns of at least 5,000 hectares with first-class infrastructure and transport connections. They would be free of the constraining labour laws. Of these zones, 17 have been sanctioned - eight of them along the Delhi-Bombay industrial corridor.

World Bank studies have repeatedly found India to be low in ease of doing business. This is not because of outdated laws; there are states and cities in India which are efficient in one form of administration or other. Bombay allows pretty quick setting up of new businesses, and Patna's procedures for doing so are quite efficient. Ahmedabad issues building permits pretty quickly, and it is easy to close a business in Hyderabad. But government is expensive in India: a small, honest businessman would pay over 60 per cent of his profits in various taxes in India, against 20-40 per cent in Canada, Indonesia or South Africa.

Labour laws are made by both the Centre and the states; they are so complex that it is generally easier to bribe labour inspectors than to comply with all the laws. The Centre and the states between them have fixed 1,171 minimum wages. If a worker is dismissed and goes to court, his chances of reinstatement are quite high. Provident fund contributions add a quarter to the wage - almost as much as in many industrial countries. Consequently, even in the 'organized' sector, the proportion of workers employed on contract, and hence not protected by labour legislation, is 70 per cent.

India has invested too little in transport infrastructure. Everywhere, water transport is the cheapest, rail transport next, and road transport most expensive; in India, 60 per cent of freight and 85 per cent of passengers move by road. Almost a quarter of the freight in China moves on water, against none in India; half of the freight in the United States of America moves by rail, against 37 per cent in India. Indian railways are quite efficient, but India has just not invested enough in them, or in coastal shipping.

Based on their observations, summarized above, Isabelle Joumard and her colleagues prepared a list of 19 things to do. They go beyond industry; if implemented, they would make India a well administered country. Of them, India has moved only on goods and services tax; there too, complexities were introduced at the last moment which will make it pretty useless. Is it because India's democratic rulers cannot even read an IMF paper in simple English? Is it because the good ideas did not come from an indigenous mind? Is it because it is more fun to have a fight about the script in which names of railway stations are to be written? Whatever the reason, it is difficult to avoid the suggestion that our governance is not improving itself; some reform might make it work better. The reform must carry the rulers with it. One way of doing it may be a third administrative reforms commission. But seeing how little the first two commissions changed things, that is not very promising. Unless there is a will within the government, recommendations, however well conceived, will achieve very little.

 

[Tang_BJ]

surprised to know that " honest businessman would pay over 60 per cent of his profits in various taxes in India" before, due to sanction of GST, anything changed?

 

[srshkmr]

surprised to know that " honest businessman would pay over 60 per cent of his profits in various taxes in India" before, due to sanction of GST, anything changed?

 

[ashok321]

Amid Slowdown, Arun Jaitley To Meet His Top Officials Today: 10 Points