Why Shah should listen to economists, not netas, on GST reforms
Home minister Amit Shah has been put in charge of negotiations to reform the GST regime. Will he be able to fix a badly designed system that's rife with fraud?
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Hindustan Times
an hour ago
- Hindustan Times
Reform the economy to defeat tariff threat
The world is in flux, and India is being tested. But every challenge is also an opportunity. Tariffs and global headwinds should not weaken our resolve; they must galvanise us. India must act boldly to seize this moment. This is our once-in-a-generation opportunity to lead. We must not let it slip. A decade ago, a significant push to improve ease of doing business yielded notable results. Now is the time to take it a step further and make India the easiest place to do business in. (Bloomberg) From August 27, India faces a 50% tariff, among the highest of President Donald Trump's 'reciprocal' tariffs. The US accuses India of financing Russia by buying Russian oil. However, Türkiye, the largest importer of Russian oil products, faces 15% tariffs, the same as the European Union, which has paid 297 billion euros for Russian gas since January 2022. The White House also remains unaware of US imports of palladium or fertilisers from Russia. Prime Minister Narendra Modi has heavily invested in the Indo-US economic, trade, and political relationship. However, the US's antagonistic stance will impact future cooperation. Our strong institutional memory emphasises our strategic autonomy. Let us be clear, our energy security and strategic autonomy cannot be compromised. Let us also be clear that this is not about Russia. India is rightfully refusing to bend, as we have so many times in our history. Global pressure should not intimidate us. It should galvanise us into pushing through the once-in-a-generation reforms India urgently needs. The Goods and Services Tax (GST) was India's most significant tax reform. Seven years on, collections are rising, and GST has enabled formalisation of the economy. Now is the time to move forward with strong political will for GST reform. We need to move to a two-rate GST structure and overhaul the GST business processes. New companies and startups being registered must receive their GST numbers along with their PAN/TAN. Technology must be leveraged to minimise the need for physical visits for GST registration. Income tax reforms must also be brought in. A decade ago, a significant push to improve ease of doing business yielded notable results. Now is the time to take it a step further and make India the easiest place to do business in. Pending items, such as notifying the rules of the labour codes, should be completed as soon as possible. States must go beyond incremental reforms and truly embrace single-window clearances. Many of the most cumbersome processes have not been made part of the National Single Window System (NSWS). The cost of capital for private enterprise must be brought down. The statutory liquidity ratio (SLR) mandates that commercial banks hold 18% of their assets in government securities. This reduces the pool of loanable funds in the economy and raises the cost of capital for private enterprise. The SLR must be brought down to zero. This will unlock lakhs of crores of additional lending, bringing down the cost of capital. We must recognise that a liberal trade regime is crucial in building up our manufacturing ecosystem. In recent years, there has been a massive proliferation of quality control orders (QCOs). These QCOs raise the cost of crucial imports and make our manufactured goods uncompetitive in global markets. These QCOs must be scrapped. Further, our tariffs on intermediate goods are too high and must be brought down as well. We need to diversify our export markets by fast-tracking negotiations on trade deals. Tourism faces no tariffs. India, with its natural beauty, history, heritage, culture, and diversity, receives only a 1.5% share in international tourist arrivals. If the visits of non-resident Indians are excluded, this falls further. There has been no concerted branding or marketing campaign for Indian tourism in the past decade. When countries are stepping up their efforts to attract tourists, we are lagging. We need the biggest global branding and marketing campaign to unleash India's potential. Otherwise, the 1,800 planes that Indian airlines are buying will just be ferrying Indians flying abroad for holidays. We must attract global tourists. Our cities are the first impression visitors get when landing. For too long, city governance has been stuck in limbo, relying on state governments for financing, planning, and human resources. Despite the constitutional amendments that devolved powers to cities, it has not been implemented in practice. Our cities must be made autonomous and financially independent. In the Union Budget of 2021-22, a new public sector enterprise (PSE) policy was announced. The policy intended to minimise the presence of PSEs operating across the gamut of the Indian economy. This needs to be taken up in mission mode. In the last financial year, disinvestment receipts stood at ₹10,000 crore. From minority stake sales, we must move to strategic disinvestment. In the most recent budget speech, a second asset monetisation plan worth ₹10 lakh crore was announced. This needs to be operationalised at the earliest. India is far from being a 'dead economy'. We are, in fact, the world's fastest-growing large economy, driven by a decade of structural reforms, digital innovation, and investment in infrastructure. Over 250 million people have exited multidimensional poverty, and the extreme poverty rate has fallen below 3%, reflecting real improvements in quality of life. Women are increasingly participating in this transformation. 80% of Stand-Up India loans and 68% of Mudra loans have gone to women entrepreneurs. India's Digital Public Infrastructure (DPI) has revolutionised financial inclusion, while public capex on infrastructure has more than doubled, laying the foundation for long-term productivity. India has also met its 2030 green energy target five years early, and is investing heavily in AI, quantum computing, and deep tech. Challenges remain, but the direction is clear: This is an economy on the move, powered by ambition, resilience, and reform. Amitabh Kant is India's former G20 Sherpa, and former CEO of NITI Aayog. The views expressed are personal.
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Business Standard
an hour ago
- Business Standard
G-sec yields fall after S&P upgrades India's rating for 1st time since 2007
Government bond prices surged on Thursday after global rating agency S&P upgraded India's sovereign credit rating from 'BBB-' to 'BBB' — the first upgrade since 2007 — recognising the government's resolve to maintain fiscal discipline alongside a strong infrastructure drive. The yield on the benchmark 10-year government bond fell by up to 10 basis points during the day but gave up some gains towards the end of trading due to profit booking. Bond prices and yields move inversely. The rupee, which depreciated 0.14 per cent to close at 87.56/$ compared to 87.44 in the previous session, trimmed some losses after the rating upgrade announcement. The benchmark yield declined to 6.38 per cent before settling at 6.40 per cent, compared to Wednesday's closing of 6.48 per cent. This was the largest single-day yield drop in two months. 'The yield on the benchmark 10-year bond fell due to the rating upgrade and later there was some profit booking,' said a dealer at a primary dealership. 'Now that the yield has fallen below the 6.40 per cent mark, we might see 6.35 per cent soon,' he added. Market participants said they had expected a dovish pause or a hawkish cut, but the domestic rate-setting panel kept the policy repo rate unchanged at 5.50 per cent while projecting inflation for the first quarter of the next financial year above the RBI's target of 4 per cent, thereby diminishing expectations of an additional rate cut. Experts said the bond market rally after the rating upgrade was driven mainly by positive sentiment, expectations of stronger foreign inflows, and recognition of India's improved fiscal discipline — not by expectations of lower government borrowing. They noted that the government is expected to meet its 4.4 per cent fiscal deficit target, but weak direct tax collections (particularly corporate tax) and only a moderate cash surplus mean there is little scope to reduce borrowing or the supply of government bonds. However, indirect tax collections, such as goods and services tax (GST), remain strong, and any fiscal support for exporters is likely to have limited cost. Therefore, a significant increase in borrowing is also not expected. 'The reaction of the bond market is a positive sentiment created by the rating upgrades, but I don't think it reflects the fact that the market expects a cut in borrowing — that will depend on domestic dynamics like tax collection and how the government manages expenditure. Right now, we don't expect any extra borrowing, but at the same time we don't see scope for them cutting G-sec supply,' said Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank. Expectations of increased government bond supply in the latter half of the current financial year, on the back of a 50 per cent US tariff on Indian goods exports, had pushed yields higher over the past week. However, S&P said the tariff's overall impact would be minimal and is unlikely to hinder India's long-term growth prospects. 'The rating upgrade from S&P is a significant positive for India, validating the country's long-standing case for an upgrade and reinforcing the India growth story,' said Madan Sabnavis, Chief Economist, Bank of Baroda. 'S&P has also noted that India will not be severely impacted by US tariffs. While the upgrade will not affect the Indian government's borrowing costs, since it does not borrow overseas, corporates with high domestic ratings could see their cost of funds in international markets decline by 5–10 basis points. The G-sec market's reaction was a one-off, driven by S&P's praise for the government's fiscal consolidation efforts,' Sabnavis added.
Mint
2 hours ago
- Mint
Supreme Court stays ₹273.5 crore GST notice against Patanjali Ayurved
In a relief to yoga guru Ramdev-founded Patanjali Ayurved Ltd, the Supreme Court on Thursday stayed the recovery of a ₹ 273.5 crore goods and services tax (GST) penalty imposed on the consumer goods company by the Directorate General of GST Intelligence (DGGI). A bench of Justices P.S. Narasimha and A.S. Chandurkar issued notices to the Union government and DGGI on Patanjali's appeal, directing that the penalty be stayed until further orders. The court also agreed to examine the Allahabad High Court's ruling that had upheld the levy. The case stems from DGGI receiving information about alleged suspicious tax credit claims and fake invoicing involving companies supplying goods to Patanjali's manufacturing units in Uttarakhand, Haryana, and Maharashtra. Investigators alleged that Patanjali issued invoices without actually supplying goods and had wrongly claimed input tax credit (ITC), amounting to tax evasion. On 19 April 2024, DGGI issued a tax show-cause notice proposing penalties of about ₹ 273.5 crore under Section 122 of the Central Goods and Services Tax Act for alleged offences during the tax period of April 2018 to March 2022. A separate tax demand was raised under Section 74, which deals with recovery of unpaid tax in fraud cases. In January this year, the department dropped the Section 74 tax demand for Patanjali's Uttarakhand unit after scrutiny revealed that the transactions were genuine, sales exceeded purchases, and input tax credit had been properly passed on. Authorities found no substantial reason to hold that tax was evaded or ITC was wrongly availed. However, the department continued with the ₹ 273.5 crore penalty under Section 122, which penalises GST violations such as issuing fake invoices, even if no tax is due. Patanjali challenged the penalty in the Allahabad High Court, arguing that Section 122 penalties were criminal in nature and could only be imposed after a criminal trial, and that the penalties could not stand once the Section 74 proceedings were dropped. On 29 May 2025, the High Court dismissed the plea, ruling that such penalties are civil in nature, can be imposed by GST officers, and deal with violations different from those under Section 74. Patanjali then moved the Supreme Court, arguing it was unfair to continue the penalty when the main tax case had been cancelled, and questioning both the scope of Section 122 and the powers of GST officers to impose such penalties.
