Bikky Khosla | 01 Dec, 2015
The past week came with a great piece of news: the Prime
Minister reached out to top Opposition leaders to discuss differences over the
GST Bill. In a 45-minute meeting, Modi and some other senior ministers
discussed the proposed legislation with Congress President Sonia Gandhi and
former PM Manmohan Singh. Till now no resolution has officially been reached,
but the meeting has raised hope that India would get its new tax reforms law
before the Winter session concludes. The bill is pending approval from the
upper house, where the government lacks a majority, and now the hope of its
passage certainly looks brighter.
It is a big relief to see that the two sides have at least come to the table.
During the Monsoon session of the Parliament, politics of obstructionism
blocked the economic agenda of the government, but this time the situation
seems different. According to news reports, the Congress has demanded scrapping
of 1 percent additional tax for producing states, which I think the BJP will
not find much difficult to concede. But there are two other demands -- setting
up of a separate dispute resolution mechanism and capping of revenue neutral
rate for GST at 18 percent -- which, it seems, will require both sides to find
some sensible middle ground.
Meanwhile, the Government said that it may retain corporate tax incentives for
select industrial segments. According an estimate, such tax sops account for
more than 90 percent of the estimated revenue foregone. The amount stood at Rs
98,408 crore for the year 2014. In addition, it is often alleged, the sops
benefit a few favored industries with good political connections. But it is
equally true that some industrial sectors are currently in dire need of
support, and considering this, the idea of retaining tax exemptions for sectors
like MSME, manufacturing, infrastructure and power sounds logical.
In another positive development, the Centre is reportedly planning to relax
several limits on external commercial borrowings to bring the guidelines in
line with that allowed under FDI rules. Recently, FDI norms for 15 sectors --
including construction, banking, defence, broadcasting and retail -- were
eased, and now easing of ECB guidelines will further help speed up foreign
investment. After the NDA's defeat in the Bihar assembly elections, there was a
widespread concern that the result might have negative implication on the
government's reform agenda, but fortunately it has now proved to be a blessing
I invite you opinions.