POSITIVE OUTLOOK

The IMF that recently released its Regional Economic Outlook for Asia and Pacific has forecast that economies in China and Japan are further expected to slow down sharply over the next two years. But the outlook for the Indian economy looked favourable with GDP growth projected to strengthen to 7.5 per cent in the current fiscal in spite of “the absence of major structural reforms like GST” according to Mr Ranil Manohara Salgado who heads the Regional Studies Division at the Asia and Pacific Department in IMF. “GST that is struck in Parliament, is a priority for India,” the IMF economist has said. 

It would create a single national market, enhance the efficiency of intra-Indian movement of goods and services, and boost GDP growth further. This is critical, especially now, with Foreign Direct Investment (FDI) inflows to India gathering momentum. Several steps have been taken in recent years by the Government of India to liberalize and simplify the FDI regime, including raising the ceilings on FDI in many sectors of the Indian economy. 

FDI inflows to India went up from USD 34 billion in 2014 (1.7 per cent of GDP) to USD 44 billion in 2015 (2.1 per cent of GDP), a small yet significant mark up that augurs well. In this scenario, the current indirect tax regime is clearly one of the highest hindrances which have adversely impacted domestic manufacturing sector and impeded a greater flow of foreign investment. GST would reduce the cost of manufacturing, both from a tax perspective as well as from the compliance front.