The much-awaited Constitution Amendment Bill to roll out the Goods and Services Tax has finally passed the Rajya Sabha hurdle. India Inc welcomes the crucial reform legislation with open arms.

BTVI

What’s your assessment of the GST? What kind of GST rate will India Inc be happy with?

This is an excellent development. Implementation of the GST will lead to a GDP growth increase of about 1.5-2 percentage points, which will be excellent for the Indian economy. This is very good for the Indian industry. It will lead to lower prices of goods that will lead to higher consumption demand and production. And it will also lead to much higher collection of revenues by both the Central and the State governments because evasion of indirect taxes will become extremely difficult under the GST regime.

Other pending legislations are easily doable because everybody is on board. It will not take much time and there is more than adequate time to implement it thoroughly from April 1, 2017.

Going by some of the past data in other countries such as Indonesia and Malaysia that had switched to GST, in the first few years growth had slowed down. So when do you think the GDP boost will happen?

First of all, it is a wrong comparison to make with other countries, which implemented VAT or GST from scratch or increased the rate from the existing rates. In our case, the rates will be lower than the current very-high indirect tax rates. So it is a totally wrong comparison.

It is very clear that for many reasons the GDP growth in India will rise from day one. I expect, even the GDP growth for the April-June quarter to a strong bump-up.

How big a relief will the GST bring in the FMCG segment, and what will be the pass-through to consumers?

The current indirect tax burden on the FMCG sector on an average is around 25 per cent. And with the new GST rate, it will be around 18 per cent. So there is considerable advantage. This will be passed on to consumers through lower prices. Therefore, consumer demands for FMCG products will rise considerably. This will lead to higher production and investments, and a win-win cycle will be developed.

At the group level, what kind of savings are looking at in terms of logistics, warehousing and costs?

It is very difficult to calculate it until we see the details. But there will be considerable savings on logistics, freight and various other overheads. But the big advantage will be varying because of the higher GDP growth, higher demand and lower prices. The logistic cost reduction is important. But that is not the main advantage.

In addition to what the auto industry will get, FMCG will stand to benefit because there are many small and medium players where there are some evasion of taxes; which will end. I think the larger players and the complaint players in the small-scale sector will definitely benefit a lot.

Related Topics