Let’s welcome GST with high hopes and fears

At the stroke of the midnight at Parliament’s Central Hall, India switched to GST, the single biggest tax reform undertaken by the country in 70 years of independence. However, experts believe that GST reform will be a litmus test for the government as well as for some crucial industrial sectors, especially when our economy is struggling to recover its strong growth record, beset by record low inflation, a widening output gap, and short term uncertainty from the introduction of this uniform sales tax.  

However, if GST goes well, India’s reams of red tape will be slashed, doing business will become dramatically easier and as per the government, the growth could be increased by as much as 2 percentage points a year. It will also secure the country’s Prime Minister, Narendra Modi, a place in the history books as an economic moderniser. But critics warn that the past three months of political jostling and negotiations have led to a raft of compromises that weaken the impact of the reforms.

Having already ceded the crown of the fastest growing major economy to China in the January-March quarter, India is significantly under-performing compared to its potential now for quite some time. According to economists, the major reason for this slowdown is a self-inflicted goal in the form of a cash ban from which India is still recovering. 

Now, coming to our own metal sectors, it is really a tough time for the unorganized sector in our industry since GST implementation will broadly usher in two major changes: either the unorganised sector will become organised and come under the tax net or companies that operate on thin margins will go out of business. In a nutshell, GST is a transition period for the metal industry for they have to become tech-compliant and companies evading taxes would not be able to survive any longer. 

Many metal industry associations have expressed that the unorganized sector will have to go through a learning cycle to adapt to the new tax structure as GST will be more IT-enabled. The number of IT-enabled stakeholders in the unorganized sector is not significant. Now, with GST in place, we have no option other than wait and watch to codify the real impact of GST on the economy and our businesses.  

However, it is not like that GST is the only thing happening in India. There are many other positive developments taking place which has the potential to bring our economy back on track. According to a data released by the Commerce Ministry, India’s exports grew by 8.32 per cent to $24.01 billion in May, mainly on account of robust performance by sectors like petroleum, chemicals, engineering goods as well as gems and jewellery. 

Imports too jumped 33.09 per cent to $37.85 billion last month from $28.44 billion in May 2016. If that’s not enough, the government is also planning to reform the current manufacturing and industrial policy. The Department of Industrial Policy and Promotion (DIPP) has already started holding consultations with industry on revamping the country’s manufacturing and industrial policy.