Asserting that the goods and service tax (GST) regime will be ushered in from April 1 next year, economic affairs secretary Shaktikanta Das on Tuesday said the recent series of reforms would help the economy grow at close to 8% in FY17 with the farm sector clocking 4-4.5% growth.
India’s economy grew at a lower-than-expected 7.1% in the June quarter — the lowest expansion in six quarters — as a 19% year-on-year jump in government consumption and near removal of the drag on growth from foreign trade were more than reined in by a fall in investments.
The GDP had grown 7.9% in Q4FY16 and 7.6% in FY16. Farm and allied sector growth (based on gross value addition) grew by 1.2% in FY16 as compared to a contraction of 0.2% in FY15.
“We have an economy which had recorded 7.6% growth (in FY16). Thanks to good agriculture where we expect growth to be upwards of 4% ..and it could be even 4.5%… we are looking at (GDP) growth of close to 8% (in FY17),” Das said at an event organised by industry body Assocham here.
Das’s optimism emanates from a normal and evenly dispersed monsoon after two years of deficient rains that hurt growth.
“The GST will happen, bankruptcy law has happened. Both these pieces of legislation together with amendments to the arbitration law, debt recovery tribunal and company laws have potential to create a very vibrant and dynamic economy,” he said.
The GST Council headed by finance minister Arun Jaitley has already held two-three rounds of meetings to finalise the details of the new tax regime, including tax rates. The Centre has proposed a multi-tier structure for GST: 6% on essential items, 12% and 18% standard rates on most of the goods and services while a peak rate of 26% has been proposed for demerit goods. Gold is proposed to be taxed at 4%.
Separately, the Centre has suggested imposing a cess on demerit goods to fund compensation to states under the new regime for any loss of revenue, a move opposed by some states, though there has been sort of an agreement on keeping the clean energy cess in the GST regime and having a new impost on tobacco.
Das expressed confidence that the revenue-neutral rate structure would be decided in the council’s meeting next month. Dismissing criticism, he said the rate structure has been prepared on a very practical basis. “The rate has to be necessarily revenue-neutral. One cannot have a rate structure where governments run into huge deficit… Therefore, GST rates are worked out in such a manner that bulk of commodities are under the standard rate, which is 18%,” he said.
Besides GST, the other big reform is the Insolvency and Bankruptcy Code 2016, which got Parliament nod in May. It is touted as a big reform initiative to improve the ease of doing business by helping speed up unlocking of distressed corporate assets and boosting creditors’ ability to recover debts before they are truly sunk. “The law ministry, the legislative department are also working on finalising the regulation. We expect therefore the entire bankruptcy and insolvency law will become operational by end of December,” Das said.
Separately, the government has floated a draft Financial Resolution and Deposit Insurance (FRDI) Bill for resolution of failed financial institutions.”It’s our endeavour to introduce the Bill as early as possible in Parliament. We are trying to introduce it in the Winter Session,” he said. The FRDI Bill, together with the Insolvency and Bankruptcy Code, when enacted, will provide a comprehensive resolution mechanism for the economy.