Winter session legislations on GST, negotiable instruments, real estate, MSME and labour reforms stand out for their long-term economic impact
India is poised to emerge as one of the key drivers of global economic growth. The confidence in the Indian economy can be gauged from this assertion of a venerated institution like the IMF: “India is among the few bright spots in the global economy.” The trajectory of the economy speaks for itself with conviction. The country is now the fastest growing large economy in the world. For the first half of 2015, India had the highest inflow of FDI, surpassing even traditional top performers like the US and China.
The primacy of economic development in governance and progressive reforms to facilitate investments has been the hallmark of the Narendra Modi government. Legislative facilitation becomes crucial to provide further impetus to this growth momentum. What happens in the remaining days of the winter session assumes significance with regards to enacting key Bills.
In this regard, legislations on goods and services tax (GST), negotiable instruments, real estate regulation, MSME and labour reforms stand out for their long-term economic impact.
* GST can be a game-changer for the Indian economy as it would lead to simplified indirect taxes with easier compliance norms for business. Independent studies indicate that a full implementation of GST would lead to additional 0.9-1.7% annual growth in India’s GDP. With the new tax regime, tax revenues are expected to rise by 0.2% while tax liabilities would come down, which can result in 20% lower logistics costs for non-bulk goods.
Domestic products and services would become cost-effective and contribute to 3.2-6.3% increase in exports of the Indian economy.
For the economy to effectively harness the intended benefits of GST, some aspects have to be suitably addressed.
Revenue-neutral rate (RNR) must be suitably determined to reduce the overall tax burden. The threshold limit for GST should be fixed so that the interests of small business are protected. To make up for the revenue shortfall of states from GST, 1% additional levy on inter-state supply of select items for a period not exceeding two years can be considered. In fact, the proposed Bill can have a provision to compensate states for the initial five years.
* Another significant Bill which has a nod from the Union Cabinet is the real estate Bill. It will give a strong boost to this sector in India. The Bill proposes that a Real Estate Regulatory Authority (RERA) be created and all housing and commercial projects will require prior registration with this regulator. The Real Estate Appellate Tribunal would also be formed to fast-track settlement of disputes. This will create a uniform regulatory environment and protect the interests of buyers.
For efficient project execution, developers would have to make mandatory public disclosure of all registered project details and mandatorily deposit 50% value of overall real estate project in a separate bank account within 15 days of registration.
As the real estate and housing sector grows in India, this Bill will ensure orderly growth. It can provide great economic growth multiplier for India’s economy.
* Dishonour of cheques is a perennial concern, particularly in commercial transactions. The Negotiable Instruments Act, 1881, stipulates that courts within whose jurisdiction the cheque is dishonoured by the drawee bank should adjudicate such disputes. This provides undue advantage to the defaulter at the expense of the aggrieved counter-party.
The proposed amendment can correct this anomaly. It will ensure that the jurisdiction of the courts would depend on where the payee maintains the bank account. This would strengthen the legal rights of the entity affected by dishonoured cheques as well as act as a deterrent to wilful defaulters.
* The micro, small and medium enterprises (MSMEs) have a crucial role in promoting inclusive growth at the grass-roots level. An upward revision in the investment limits for plant and machinery is essential to account for inflationary trends in the economy. This will also ensure that more firms are included within the MSME fold and are able to benefit from the favourable policies on taxes, bank credit etc.
The amendment to the MSME Development Act, 2006, addresses these aspects suitably. There would be a provision to allow the government to revise these limits through notifications rather than hitherto legal amendments.
* Existing laws have not been able to bring about vibrancy in the labour market in tune with the demands of a globalised economy. In this regard, Parliament can prioritise select legislations to redress some of the labour-related constraints with the labour laws & small factories Bill.
The child labour Bill will strengthen safeguards against child labour by clear delineation of prohibited sectors of employment as well as increased penalty for the breach of law. This will make India a safer workplace and a responsible investment destination in the long term.
The small factories Bill is expected to standardise working conditions and payment of wages in SMEs, which are one of the pillars of the Indian economy. The provisions of the Bill will improve social security of workers and scope of women’s employment in small firms. Moreover, the Bill will rationalise 14 central labour laws for small enterprises into a single legislation and improve the ease of compliance.
Of late, the perception of investors about the economy is increasingly predicated to the efficacy of our Parliamentary deliberations. This has a significant impact on the long-term growth prospects of India. The nation, thus, expects a broad political consensus to ensure legislative business is conducted smoothly during the winter session.
The author is MD & CEO, YES Bank, and chairman, YES Institute