Our Blog

Prime Minister Narendra Modi's government is set to dramatically reshape Asia's third-largest economy with the biggest tax reform since independence in 1947.

 

After finding common ground among India's 29 states, the finance ministry on Friday released detailed rates for the incoming goods and services tax, slotting more than 1,200 items -- from sugar to steel pipes and motorcycles -- into five tax brackets between zero and 28 percent. With that done, India is almost ready to implement a tax code that unifies more than a dozen separate levies, effectively creating a single market with a population greater than the U.S., Europe, Brazil, Mexico and Japan combined. 

 

"It is a tax revolution, in many ways, because the indirect tax structure in India was hopelessly chaotic," said Raghbendra Jha, head of the economics department at Australian National University. "It's mind boggling, the sheer magnitude of the reform taking place."

 

The sweeping tax reform will gradually reshape India's business landscape, make the world's fastest-growing major economy an easier place to do business and is likely to raise government revenues by widening the tax net in the country's largely informal $2 trillion economy. That means India could spend more on desperately needed infrastructure and training programs for a workforce that is growing by 1 million people each month, laying the groundwork for longer-term growth. 

 

With tax experts praising the rates as moderate and generally lower-than-expected, it seems possible Modi might be able to roll out this reform without a politically damaging rise in inflation. However some economists and analysts see a July 1st deadline as unrealistic, raising the possibility that less than 10 months after demonetization, India's economy could again be upturned as businesses struggle to comply with the new tax code.

 

Chaotic Implementation

 

Business groups, fearing a chaotic implementation, have lobbied the government for a September 1 roll out. They argue that companies -- particularly small-and-medium-sized enterprises that contribute more than 30 percent of India's GDP -- need more time as they struggle to become tax compliant in the new system.

 

"To expect that the rates are out on the 18th, 19th of May, and everyone will be able to plug in and run with it by July 1 is very far fetched," said Dinesh Kanabar, the Mumbai-based CEO of Dhruva Advisors LLP and former deputy CEO of KPMG India.

 

Still, lower-than-expected rates mean that there may be little or only mild inflation, less than in other countries that have implemented a GST, he added.

 

There "was an expectation that the government would jack up the rates from the effective rates, which could lead to a huge amount of inflation," Kanabar said. "What we see today is very different. The rates are moderate. And in most cases, the rates are consistent or lower."

 

The tax reform, however, is far from perfect as it should only have had one rate, Jha said. Instead, there are four divergent rates and multiple exemptions. Air conditioners, refrigerators and makeup will be taxed at 28 percent, for example, while toothpaste lands at 18 percent and fruit juice at 12 percent. 

 

Plane tickets attract a 5 percent GST rate, but business class tickets will be taxed at 12 percent, finance secretary Hasmukh Adia said. Staples such as food grains, fresh vegetables and milk are not taxed at all, while Finance Minister Arun Jaitley said education and health services will continue to be exempted.

 

Political Win

 

For Modi and his Bharatiya Janata Party, the release of detailed GST rates is a big political win. It's the relatively calm culmination of months of political wrangling with state governments all trying to shape the country's new tax code in their own favor.

 

"The process of agreeing the GST rates for individual items has been remarkably smooth considering that the overall GST negotiations for India has been a tortuous political process among national and state legislatures that has taken a decade," said Rajiv Biswas, IHS Markit's Asia-Pacific chief economist.

 

Tax Base

 

Importantly for India, a country in which fewer than 1 percent pay income tax, the GST will broaden its tax base, according to University of Melbourne economist Nathan Taylor. 

 

"It will have profoundly positive implications for the economy," Taylor said.

 

Jha, the ANU professor, said India's enhanced tax revenues should be used to boost spending on health and education, which is significantly lower as a percentage of GDP than many other countries. 

 

"The paucity of tax revenue has been a plague for India," Jha said. "You have a population that is young, that is waiting to be trained and educated, and you don't have the resources to attend to them. Any increase in tax compliance, in government revenues, can't come to soon."

 

Source: Ndtv news

The Railways will roll out a high-power electric locomotive early next year which will be used to haul freight trains at twice the existing speed. The public transporter is looking to manufacture 800 such train engines over the next 11 years in a joint venture with French giant Alstom, at the Madhepura Locomotive Factory i

 

Bihar. This is the first major FDI (Foreign Direct Investment) project in the rail sector, said a senior Railway Ministry official

 

The first such locomotive, estimated to cost about Rs 30 crore, will be assembled with components brought in fro

 

Alstom’s factories in France and will have its trial run by February next year. The 12,000 HP (horsepower) locomotives will help in speeding up movement of goods by increasing the average speed of freight trains from 25 kmph to 50 kmph. The Railways is currently using 6,000 HP locomotives for freight services

 

The increase in speed would also result in improving line capacity in the rail network, the official said. As per schedule, 35 locomotives would be rolled out from the factory by 2020, 60 in 2021, followed by 100 every yea

 

till the target of 800 is completed

 

The Railways had awarded the Rs 20,000 crore project to Alstom in November 2015 after the commissioning of the factory in Bihar. The FDI component in the Madhepura project is about Rs 1,200 crore

 

A total of five locomotives will be assembled at the factory by 2019, and rest will be manufactured as per th

 

‘Make in India’ initiative. “The project is running on course and we are looking forward to delivering the first locomotive from our new factory in Madhepura early next year,” said Alstom India Managing Director Bharat Salhotra

 

The Madhepura locomotive factory is coming up on 250 acres of land in Bihar. Besides the plant, a township will

also be built for its employees.

 

Source:ie Business

India's growth is expected to rebound to 7.2 per cent in the 2017-18 fiscal and 7.7 per cent in 2018-19 after disruptions caused by demonetisation, the IMF said on Tuesday, while recommending the removal of long-standing structural bottlenecks to enhance market efficiency

 

The temporary disruptions (primarily to private consumption) caused by cash shortages accompanying the currency exchange initiative are expected to gradually dissipate in 2017 as cash shortages ease, the International Monetary Fund (IMF) said in its regional economic outlook.

 

Such disruptions would also be offset by tailwinds from a favourable monsoon season and continued progress in resolving supply-side bottlenecks, the IMF said. The investment recovery is expected to remain modest and uneven across sectors as deleveraging takes place and industrial capacity utilisation picks up, it noted

 

"In India, growth is projected to rebound to 7.2 per cent in FY 2017-18 and further to 7.7 per cent in FY2018-19," the IMF said

 

"Headwinds from weaknesses in India's bank and corporate balance sheets will also weigh on near-term credit growth. Confidence and policy credibility gains, including from continued fiscal consolidation and anti-inflationary monetary policy, continue to underpin macroeconomic stability," the IMF said

 

The IMF maintains a positive outlook on the Indian economic growth and is confident that the Goods and Services Tax (GST) implementation will be smooth

 

ALSO READ:  India to grow 7.5% next year on higher infra spending, says U

 

"India is one of the countries that have excellently performing reforms and that is one of the major reasons for the country to maintain one of the highest economic growth rates (in the world)," said Changyong Rhee, director for Asia and Pacific Department at IMF at a press conference in Singapore after presenting Asia and Pacific Regional Outlook report

 

Touching on GST, he said, "We have been working very closely with India in preparing the introduction of GST. I am very confident that India has prepared the GST introduction in the past couple of years.

 

He pointed out that implementation of such tax system remains very challenging especially preparation of system integration between the government and the business sectors

 

According to the report, growth in Asia is forecast to accelerate to 5.5 per cent in 2017 from 5.3 per cent in 2016

 

Growth in China and Japan is revised upward for 2017 compared to the October 2016 World Economic Outlook, owing mainly to continued policy support and strong recent data

 

Growth is revised downward in India due to temporary effects from the currency exchange initiative and in South Korea owing to political uncertainty. Over the medium term, slower growth in China is expected to be partially offset by an acceleration of growth in India, underpinned by key structural reforms

 

According to the report, in India, improving productivity in the agriculture sector, which is the most labour-intensive sector and employs about half of Indian workers, remains a key challenge

 

More needs to be done to address long-standing structural bottlenecks and enhance market efficiency, including from liberalising commodity markets to giving farmers more flexibility in the distribution and marketing of their produce, which will help raise competitiveness, efficiency, and transparency in state agriculture markets, it said

 

In addition, input subsidies to farmers should be administered through direct cash transfers rather than underpricing of agricultural inputs, as such subsidies to the agriculture sector have had large negative impacts on agricultural output, the IMF said.

 

Source:Business Today

World’s biggest small commodity wholesale market and with deep bonds with Indian traders is now keen to invite big names in Indian business world including TATAs to invest in the dynamic business hub. 

 

Sheng Qiuping, Secretary General of Yiwu Committee of the Communist Party of China was recently in India and met top names from Indian industry and businesses in both Delhi and Mumbai with an eye on inviting them to China’s business hub. “My mission is to deepen and widen businesslinks with India. It is not just exports and imports, I want to invite big Indian investors to Yiwu,” Sheng told ET.

 

Shen, deeply impressed with India on his first ever visit, informed that there are currently 3000 small Indian traders in Yiwu and there are 314 Joint Venture initiatives between Indian and Chinese companies in Yiwu. 

 

The party leader now hopes that Yiwu will have faster connectivity mode of transport for better connectivity and subsequent trade. 

 

As one of the largest, most influential and most productive commodities trade show in China, 2017 Yiwu Fair Spring - Imported Commodities Fair is currently ongoing between May 6-9 at Yiwu International Expo Center (YWIEC). Several Indian companies are part of this far. 

 

Every year, around 400,000 Indian businessmen visit Yiwu, accounting for three out of every four foreign businessmen in the city. In 2014 Yiwu shipped $750 million worth of goods to India more than any other country.In 2015, Yiwu shipped goods worth $33.8 million to the world. Of it, export to India stood at $18 billion -- a whopping increase of 69 percent from 2014. 

 

Yiwu capital of Zhejiang province in east China sells 1.8 million goods to about 200 countries through its 75,000 shopping booths spread in an area of 5.5 million square metres. 

 

It is said it will take a year to visit all the shops if one walks eight hours every day and does not spend more than three minutes at each shopping booth. Yiwu has it all, ranging from socks to gimcrack toys, and from artificial flowers to fancy wall clocks. 

 

Source:The Economic Times

Prime minister Narendra Modi’s ambitious plan to build homes for all Indians by 2022 could spark an economic revolution worth $1.3 trillion, which is a little more than Mexico’s GDP

 

Between 2018 and 2024, some 60 million new homes are set to be built, mostly under the government’s affordable housing programme, as Asia’s third-largest economy looks to upgrade its people’s quality of life

 

This is expected to create over 2 million jobs annually and add up to 75 basis points to India’s GDP, brokerage firm CLSA said in a report last week.“The housing sector is at a tipping point and will be the economy’s next big growth driver,” the report said. “The catalyst is the government’s big push for an ambitious housing program.

 

Since coming to power in 2014, Modi has focussed on expanding affordable housing. In June 2015, he announced his mission to construct 20 million homes across the country by 2022. In February 2017, for the first time, India gave the affordable housing sector infrastructure status, which will incentivise and subsidise it, besides ensuring tax benefits and institutional funding

 

Last December, as Indian banks’ coffers filled up with cash following the demonetisation of high-value currency notes, the government launched two schemes to make it easier for the poor to access housing. First, it offered a discount of 4% on the interest rate for loans of up to Rs9 lakh for low-income individuals building homes. For loans worth up to Rs12 lakh, the interest rate was to be discounted by 3%. Secondly, in rural India, Modi promised a 3% interest waiver on loans up to Rs2 lakh to modify a house

 

The report came shortly before India put into effect a new law aimed at regulating the real estate sector. Under the new law, each state and union territory in India will have its own regulator. It also requires companies to create an escrow account, where 70% of the money collected from the buyers of under-construction homes will have to be deposited. This money can only be used for the construction of the project.Overall, things have been looking stable for the industry for a while. “In the past five years, mortgage rates have dropped 250 basis points, property prices have remained broadly stable and per capita incomes have posted a 10% CAGR,” the CLSA report said

 

Now, the stage seems set for a real takeoff for realty.

 

Source:Quartz Media