Dear Reader,

With the rollout of the Goods & Services Tax (GST) on 1st July 2017, India effectively becomes one common market, something which is expected to provide a fresh impetus to entrepreneurship. Except for customs duty, the multiple indirect taxes have converged under one banner of GST
with five different rates –0%, 5%, 12%, 18%, and 28%. In addition, for specific categories of goods & services, there are certain cesses over and above GST. Since GST calls for separate registrations in the states, the initial cost of compliance would be high, and it would be especially difficult for small, medium scale enterprises and start-ups. Small traders withannual turnover of less than 20 .Rs lakhhave been exempted from GST registration. They will not get the benefit of input tax credit. Thus, their goods and services are likely to be costlier. There is no clarity in case the turnover of such a trading firm exceeds the stipulated
amount within a financial year. What would be theirposition? Will the trader pay tax on the exceeding amount and or on the amount crossing  20 .Rs lakhs?

Some state governments like those of Maharashtra and Tamil Nadu have begun to impose additional levies above the agreed GST rate. This can prompt other states to follow suit. This is unacceptable and should not be allowed. Apparently these states are doing so to make up for the loss of revenue from local taxes, but it has been already agreed that Centre would be compensating them for their loss. And this is fundamentally against the principle ofone nation, one tax”. Centre should convince these states to withdraw such additional levies.

Infrastructure creation is a national priority. Thus, to promote this sector, it is essential to allow 100% input tax credit for both capital goods and services post GST (and for both national and imported equipment). For most capital goods, the GST rate has been kept at the highest 28% rate. This will put SME customers at a disadvantage, thus this rate should be lowered to 5%. There is no logic to put capital goods alongside luxury and sin goods and charge a 28% GST rate.

Excessive powers in the hands of the authority to prosecute and arrest can lead to misuse and be a deterrent toease of doing business”. However, the GST is Indias biggest tax reform since independence. It has given hopes to 125 crore Indians. GST rates need to be moderate so that the lower income groups and the middle class peopledo not suffer.

However, the good news is GST has experienced a more or less smooth start with no major spike in prices. Even Jammu & Kashmir has come on board and agreed to implement GST. There will be teething problems, but the nation can be patientenough to tolerate that for the future gains. Once those goods and services (which are presently outside GST) are brought within its coverage, the multiple rates are likely to be narrowed down to 2 rates and one exemption list.

As opined by BE, therewould be few takers for stressed assets of banks as all big promoters/entrepreneurs are
knee-deep in an ocean of debts. Adding new capacitywould be suicidal. However, stressed assets, especially those in the infrastructure sector, should be revived as these generate long-term benefits. Overseas investors have been showing some interest in such assets. Rich PSUs should also consider investing in such assets. Banks have shortlisted 9 coal-based stressed power projects totaling generation capacityof 25,000 MW and are evaluating them for equity purchase. NTPC may operate them subsequently.
Although NTPC is not part of the evaluation process, thePSU power major is reportedly contemplating equity participation in these projects.

The WTOstructure may be falling apart to a great extent. The USA would end up imposing major tariffs and others would do the same thing. It will further accentuate theglobal economic slowdown. Jobs in developing and emerging countries will be shrinking. Capitalflow to the developing countries will also slowdown as situations change in developed countries. Existing promoters would not be in a position to bring fresh equity or fund. They may service the debts for 30 to 40 years if restructured with a maximum interest rate of 8% from the dates of disbursement. Penalties need to be abolished to help the borrowers in repaying their debt.

Four major playersTata, JSW, SAIL, and JSPLaccount for 60% of the domestic steel industry capacity. SAIL is incurring heavy losses. Government had set out a target to achieve a 300 mntonne production capacity in steel by 2030. Government would do well not to pursue that plan. Domestic steel production is already operating at sub-optimal capacity. Chinaand South Korea are the largest exporters of steel to India causing sickness to the steel industry. Other countries are also feeling the heat in their steel sectors. The US is planning to invoke national security to curb steel imports. The EU had levied anti-dumping duty on Chinese steel. Imports from China are down by 32% till April. Chinas steel exportshave had serious repercussions on global steel production capacity.

Nobel Prize-winning American economist Paul Krugman thinks the monetary policy is too tight in India despite a sharp fall in inflation. Indias fiscal policy can afford some expansion to support the countrys GDP. Fresh investments by corporates grew at 5.8% in FY17, the lowest since 1992.

There is near collapse in banks credit growth. PSU banks have put a virtual freeze on fresh lending. Virtually every sector has now opened up. Even in defence, 100% FDI is allowed. For defence manufacturing topick up in India, process of approval, procurement and joint operation without capital participation need to be done in a practical way. Tender criteria for qualifying to be a start-up defence company even with FDI should be relaxed. Start-up companiesfacilities and technical knowhow should be given maximum weightage.

In 2016-17, stock market was up by 17.34% whereas it was 22.40% in Malaysia and 21.30% in South Korea. Marketscan be volatile. Now that the stock market in India is at an all-time high, there are chances of hitting air pockets. So, investors should tread cautiously. The impact of the GST remains to be understood. But various investor classes are upbeat about India and thereforms undertaken. Foreign portfolio investors (FPI) and domestic mutual funds, insurance companies have pumped money in the stock market. Net inflows could only cross` 1.30 lakh crore in six months. A good monsoon, likely lower interest rate and stable crude prices are positive signs for stock markets to maintain a bull rally.

May God bless the Nation.




Dr. H.P. Kanoria

Editor in chief     



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