The goods and services tax (GST) is expected to be fiscally neutral and the resulting inflation impact is likely to be minimal at less than 20 bps, says a Nomura report.
According to the Japanese financial services major, while the resulting inflation impact will be minimal, the impact on growth would be marginally negative in the run up to its implementation.
Nomura’s observations of the Indian economy comes at a time when the International Monetary Fund (IMF) has revised India’s GDP growth forecast on note ban woes by one percentage point to 6.6 per cent for the current fiscal.
Meanwhile, the Centre has agreed to allow states control over most of small taxpayers, but the GST rollout date was pushed back by three months to July 1. “With the resolution of the administrative control, a major roadblock has been cleared,” Nomura said in a research note but added that there are still a few pending steps before the GST can be implemented like final draft legislation, approval by legislative bodies and fitment of the rates.
Regarding the new GST timeline of July 1, the report said “this is in line with our base case that the GST would be implemented between April and September 2017”.
The report noted that though in the near-term, implementation of GST would result in slight rise in inflation and growth numbers, in the long run it would be beneficial. “In the near term, we expect the GST to be fiscally neutral, the resulting inflation impact to be minimal at less than 20 bps, and the impact on growth to be marginally negative in the run up to its implementation,” Nomura said.
It further added that “over time, we expect the elimination of cascading taxes and its simplified tax structure to boost productivity, lower costs, aid in the formalisation of the economy and result in large revenue benefits for the government.”