Rama Krishna Sangem
At a time when Indian businessmen are concerned over US President Trump’s tariffs impact on the economy, global rating agencies are providing some good news. That Indian economy would get a leg up, boost in the revenues over a long term. Lower rates, lower prices and higher consumption and higher revenues – this is their guestimate for India.
Global rating agency S&P on August 19 Tuesday said that it does not expect the proposed rate rationalisation under the goods and services tax (GST) to impact revenue collections in the long term, while in the short run it could boost consumption spending, says a Business Today story.
“With the proposed two rate, the effective rate can be lower but because of easier implementation and accounting processes, there could be a boost to fiscal revenue over the longer term,” said YeeFarn Phua, Director, Sovereign and International Public Finance Ratings, S&P Global Ratings in a webinar on August 19, Tuesday.
While it is still very early days to gauge the actual fiscal impact of the proposed move, he said it is unlikely that the government will reform the tax system to the point that it will hit revenues.
Responding to questions during a webinar on ‘Inside India’s Ratings Upgrade: Sovereign, Financial Institutions, and Corporates’, Phua further underlined that over the past five to six years, GST reforms have proven to be very successful and have been a major source of government revenue. Noting that the GST reforms are being discussed between the Centre and various state governments before the outcome is brought to the GST Council, he said that it will still take some time to play out.
PM Modi set the tone
In his Independence Day speech, Prime Minister Narendra Modi announced Next-Generation GST reforms by this Diwali, aimed at reducing taxes on daily-use items. This entails two rates of 5% and 18% along with a higher rate of 40% while doing away with the current rates of 18% and 28% under the indirect tax levy.
A day prior to that, on August 14, S&P Global Ratings had upgraded India’s long-term unsolicited sovereign credit ratings on India to ‘BBB’ from ‘BBB-‘ with a stable outlook, citing the country’s buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations.
Responding to questions on whether the upgrade, which came after a period of 18 years was too little, too late, Phua said that the agency generally takes a long-term view, from 12-18 years.
