Despite its obvious pitfalls, there is nothing more alluring than letting your imagination run wild and speculate about what might happen. Two lessons that the year 2014 taught me were: ‘Expect the unexpected’, and ‘listen with undivided attention’.
Politically, I see the National Democratic Alliance (NDA) government wielding power to effectively change the lives of citizens. In anticipation, stock market indices have touched record levels in recent months.
Global interest in India on the promise of astute leadership and clean governance will continue unabated. The ‘right to service’ and the ‘determination to serve’ will become powerful paradigms. E–governance will rise to unprecedented levels and encourage communication between people and the administration.
The three economic initiatives that I see getting implemented in 2015 are Goods and Services Tax (GST), unique identification (UID)-driven subsidy distribution, and disinvestment.
If these three initiatives are achieved, the favourable global environment will take us to an 8 per cent exit velocity in the fourth quarter, on the back of an expected enlightened budget in February 2015. Besides these, an overall simplification drive, quick resolution of all tax disputes and the removal of deterrents to bringing back black money will work wonders.
GST: A Win-win Scenario
Ideally, GST has the potential to enhance GDP growth by 1.5 per cent, simply by capturing the entire flow of transactions. Logically, exemptions from GST should be at a bare minimum.
Alcohol, essential drugs and petroleum products are under consideration for exclusion under GST. The fewer the distortions, the better will be the revenue potential and lower the negative impact of taxes on consumption. The movement of goods across India will be eased by the removal of fiscal barriers. Fungibility of taxes will reduce tax cost.
GST will make India a preferred destination for investment. A uniform and simplified tax system will facilitate business and push up India’s rank on the ease-of-doing-business index. The influx of foreign investment and critical technology into important sectors will pave the way for higher growth.
The revenue neutral rate (RNR), which is estimated at 16 per cent, will reduce the tax cost by at least 10-12 per cent on a majority of commodities, thereby reducing inflation that will fuel high economic growth.
GST is a destination-based tax. In other words, higher revenue share will be at the disposal of highly populated states with high consumption. Business decisions, specifically in relation to logistics and distribution, will get a complete overhaul.
The ease of doing business will encourage tax compliance and result in enhanced revenues for the exchequer, which in turn will be used for creating good infrastructure. A simplified tax regime also has a positive impact on the cost of tax administration and reduces tax disputes by removing uncertainty.
Benefits of GST
- Make anywhere in India, distribute widely
- Simplicity and uniformity will support IT-enabled compliance
- Revenue and GDP will rise as costs fall
- Speed of delivery will rise significantly
Once India becomes a single trading zone, the location of manufacture can be anywhere. What will drive success will be a distribution system across all states of India. Partnering with established service providers with a pan-India reach will be another positive fallout. The synergies that can be generated are left only to the imagination of the entrepreneurs.
Besides the obvious links that will generate synergy, interconnected value chains will convert all business to reported business. Banking channels will be activated like never before and the newly established ‘payment banks’ will have no shortage of new business that they can corner.
The domino effect of scale manufacture, linked supply chains, partnering and all -India distribution will deliver the thrust to take India to a double-digit growth. Job creation in these expanded businesses will also be significant.
In 2015, happy people, great governance, compliant citizens and a clean India are some of the outcomes we can all look forward to.
