It is critical to take forward GST
The budget this year is being placed amid concerns over a stubbornly high rate of inflation. With rising interest rates, serious doubts are being raised on whether the current rate of growth can be sustained.india Updated: Feb 08, 2011 22:43 IST
The budget this year is being placed amid concerns over a stubbornly high rate of inflation. With rising interest rates, serious doubts are being raised on whether the current rate of growth can be sustained.
The finance minister needs to use this opportunity to announce some measures aimed at strengthening the fundamentals of the economy. It may be a good idea to bite the bullet on several supply-side bottlenecks that have clogged the food chain for decades. India's food chain is in need of urgent reform at every link — starting from farm production to distribution.
The minister should consider various options including allowing foreign direct investment (FDI) in multi-brand retail to create back-end infrastructure in the food supply chain.
It is equally important to reduce the fiscal deficit to address the concerns on inflation and interest rates. The recent oil shock followed by the global recession has led to a reversal in fiscal consolidation.
It is eminently possible to achieve a reduction in fiscal deficit to 4.8% of GDP from this year's Budget estimate of 5.5%. This can be done by strengthening the information system, expanding the base of service tax and facilitating out of court settlements for funds locked up in disputes.
This year the Finance Minister is in the enviable position of having a clear guidance on the changes required in the direct and indirect tax regimes. The Direct Taxes Code (DTC) Bill already introduced in Parliament will bring about changes in the direct tax regime while the Goods and Services Tax (GST) is under discussion between the Centre and States to rationalise the indirect tax system. However, while the DTC is set to become law in April 2012 after suitable modifications, there is no clear date on which GST is to be implemented. It is therefore critical for the finance minister to take forward the implementation of GST.
We have also suggested that the government should maintain existing rates of excise, service and customs duties. The current rates of 10% general excise duty and 10% service tax are at par with the proposed Central GST rate of 10%. The peak rate of customs duty should also be maintained at the current level in view of the slowdown in the global economy.
Sunil Kant Munjal is,chairman, Economic Policy Council, CII. He is also Chairman , Hero Corporate Service Limited.