- 2 months ago
A major overhaul of the Goods and Services Tax, termed GST 2.0, has been initiated, which the government is calling a significant 'Diwali bonus' for consumers and the economy.
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00:00The big question, will GST 2.0 offset Donald Trump's tariffs?
00:04Make in India and make for India, can that happen now?
00:08Will consumption and thereby investment get a real boost?
00:12Will the fiscal deficit rise as some fear?
00:15Will GST 2.0 really be a booster dose, the Diwali gift that the Prime Minister is promising?
00:21Joined by Nilesh Shah, Managing Director, Kotak Mahindra Asset Management,
00:25member of the Prime Minister's Economic Advisory Council,
00:28Mukesh Bhutani, Managing Partner, BMR Legal, one of the country's leading indirect tax experts.
00:33Subhash Chandragarh, former Finance Secretary,
00:36someone who was part of Arun Jaitly's team when GST was being brought in.
00:40K. Raghunathan, National Chairman, Association of Indian Entrepreneurs.
00:44Suman Sinha, Founder, Chairman and CEO of Renew, also joining us.
00:48I want to get each and every one of you to respond to this major step.
00:53Government calling it a big Diwali bonus, opposition saying eight years too late.
00:57Nilesh Shah, how do you see it?
01:00Do you believe it's too little too late or do you believe it's come at the right time,
01:04will offset Trump's tariffs in particular?
01:07So, it is a step in the right direction.
01:10It will partially offset the tariff impact of America.
01:15More importantly, if we can find other countries for exports,
01:19combined, this can reduce significantly the adverse impact of U.S. tariff.
01:25This GST reduction and slab rationalization will target many things.
01:33One, it will boost consumption with about 48,000 crore put in the pockets of consumers.
01:38Second, the hope will be that it will revive private investment as capacity utilization bumps up.
01:47Inflation will come down, which will give boost to RBI to pursue more liquidity and rate cuts.
01:56Finally, these tariffs will partially offset U.S. adverse impact of tariff.
02:01And the fiscal slippage at about 7-8 basis point is something which is manageable.
02:08And if growth indeed recovers, then maybe we won't even have adverse impact on fiscal side.
02:15So, this is one teer kai nishan.
02:19One teer kai nishan, which is of course the slogan which the government is giving at the moment.
02:24But let's look at the practical aspect and get you in, Suman Sinha.
02:29You head one of India's largest renewable energy companies.
02:32Do you believe that business confidence will return?
02:36I'm looking at the latest Business Today survey which says that business confidence is among its lowest for the last 11 quarters.
02:44So, will this now revive the business confidence that has seemingly been lacking for several quarters now?
02:51Yeah, look Rajneep, I think this is a pretty game-changing move on the part of the government.
02:57And you can quibble over whether it should have been done earlier or later.
03:00The good news is it's happened.
03:02And I think from this point on, there will be a number of positive impacts.
03:06Just for example, if you take the power sector, the cost of all renewable energy is going to come down
03:12because GST for our sector has been reduced from 12% to 5%,
03:16which means lower power costs to end consumers, which means lower input costs
03:21and therefore, hopefully, a reduction in the inflationary pressure as Nilesh was saying as well.
03:27And so, all of those are things that are going to result in positive momentum in the economy
03:32by bringing the cost of growing business down a little bit.
03:35It will put more demand in the hands of consumers.
03:38And all of that is going to be a fiscal stimulus and a demand stimulus to revive the economy even further.
03:44I shouldn't have used the word revive.
03:46I think really to grow the economy even further.
03:497.8% in Q1 is already very good numbers.
03:52And I think that we should be fairly positive about the fact that this is now going to allow us
03:58to obviously deal with the impact of the Trump situation on the tariffs.
04:03But I think even leaving that aside, I think this is a phenomenal step forward
04:08to grow the economy faster and further.
04:10I just want to ask you this.
04:13You know, a few years ago, the corporates got a corporate tax relief.
04:17That too, there was a presumption that they would then use the tax breaks to reinvest in the economy,
04:25to revive animal spirits.
04:26It never happened.
04:27Yes, COVID came a few months later.
04:29But the truth is that there has been a tepid demand.
04:32Are you telling me that all of that will change now?
04:35I'm not saying that all of that will change.
04:37But I think that there is certainly going to be a significant incremental boost to the economy,
04:42whether that results in half a percent growth or one percent growth or more or less.
04:46Hard to say.
04:47But keep in mind that without this, the economy would have been doing less well.
04:51And so even to your point around tax reductions in the earlier sort of years,
04:56perhaps the economy would have done less well if those had not happened.
04:58So it's great that the government is doing this.
05:01As I said, it's going to bring down a lot of the input costs, bring down inflation,
05:05allow the RBI to cut interest rates.
05:08So there are multiple benefits that we as an economy are going to get from getting all of this done.
05:14And I think, you know, the overall reduction in prices is going to be very positive for us.
05:18You know, it allows us to pass on a lot of that benefit in the form of lower prices for, let's say, power in our case.
05:24So I think...
05:25So you're saying that the benefits will be passed on to the consumer.
05:28Subhash Garg, as someone who was involved with the finance ministry when GST 1.0, if I may call it, was being rolled out.
05:37You were smiling when you were hearing Suman Sinha.
05:40Is there a sense of skepticism among some who are critics of this government's economic policies that,
05:46look, there is something more fundamentally wrong, which is why demand and business confidence is not picked up?
05:52See, I think the contradiction which I see, let me first welcome the simplification, the reform in the rate structure, which is overdue.
06:08It's a continuum carried on from 1998.
06:11We have had enormously long journey to come to this stage.
06:16And this is part of that.
06:17So I welcome that.
06:19But would it have been done earlier?
06:20In your view, could it have been done earlier as someone who was involved?
06:23Of course, it could have been done earlier.
06:25The government had also taken some of the steps even earlier, bringing the digitalization and a lot of other things.
06:33But it could have been done earlier.
06:35No doubt about this.
06:37But whenever it happened, even now, I think it's a welcome step towards that.
06:43But what I was a little skeptical is that if we believe that this 48,000 crore of the tax giveaway can create such a large consumption, investment, boost,
06:59then we are contradicting ourselves.
07:02Either the giveaway is much more than 48,000, or the impact would not be as we all are trying to make up.
07:13That is where I think we need to get the numbers right.
07:16In my judgment, the loss or the fiscal implication is about 2 lakh crore, not 48,000 crore.
07:27And that is what makes it a little more substantial as far as the economy is concerned in terms of consumption and all.
07:34Here, we are not, if we are looking at it from the point of view of sort of countering the Trump tariff effect or something.
07:47By the way, exports attract no GST.
07:51And therefore, exports effect is not there.
07:55The idea is perhaps that the exports which we will lose might be compensated by the domestic demand from this kind of reduction in the GST.
08:07That is where I think we need to do a little more careful calculations.
08:11Look at two items.
08:13Look at two items.
08:14The textile, which is being hit by the Trump tariffs, and the jams and jewelry, which is also being hit.
08:21We are a major exporter.
08:22Now, on the textile, actually the GST has been increased for 2,500 rupees and all.
08:32So, whatever was not exported, will it be consumed in the domestic demand because the GST is going up?
08:39So, that is where there is no change in the jams and jewelry sector as far as the GST rates are concerned.
08:45So, I think you make an interesting point there to see whether domestic demand will really get stimulated, which is the big challenge for the government and the hope, of course.
08:58But, Bukesh Bhutani, I want to bring you in because there is a lot of people who have had to deal with GST.
09:04The GST, Inspector Raj, have spoken to me about the cost of compliance, the real sheer volume of forms that had to be filled in for the longest time.
09:15The fact that there was almost punitive measures, even criminal measures against those who are seen not to follow GST, not treating it as a civil offense.
09:24Do you believe all of that will end with this simplification?
09:27Well, Rajdeep, the most important change in this GST Council meeting has been the operationalization of the GST Appellate Tribunal.
09:39This, I think, will go a long way, not just to be able to address the audits and demands and disputes for the last seven years, but also set out an element of precedence.
09:53One of the reasons the GST disputes had been high was the classification challenges.
10:00Now, classification challenges were there even in the erstwhile excise law and still continues to be there in the customs law as well.
10:08But that was largely because of the, that you have now state revenue officials and federal revenue officials coming together under a common forum.
10:18And also because of the multiplicity of the compliance requirement.
10:23So, what this GST Council has done has also simplified the process for filing the returns.
10:32So, you can expect that this so-called Inspector Raj that was prevalent will be tamed to some extent in the future as well.
10:41So, I think GST tribunalization also is another move which ought to have come in at the time of the design stage way back in 2016.
10:51But unfortunately, it was delayed.
10:54And one of the reasons for delayed was also the constitutional aspect in relation to the appointment of members for the GST Tribunal.
11:02I want to bring in now K.E. Raghunathan, he's National Chairman Association of Indian Entrepreneurs, deals with MSMEs primarily.
11:10Mr. Raghunathan, MSMEs are the ones who've had the maximum complaint, some believe, with GST.
11:16Again, costs of compliance and thereby they should be the ones presumably welcoming it.
11:22Do you welcome what the government has done or not?
11:26Rajdeep, there are two aspects of beneficiaries.
11:29One is the consumers, the other one is the corporates.
11:32MSMEs have been left out.
11:35It is very disappointing that a 98,000 crore loss of revenue to the government with an additional 45,000 crore coming in from the syntax,
11:47which is constituting 0.13% of the total GDP, will stimulate the consumer market.
11:56Let's understand this very clearly.
11:58There are beneficiaries, which are consumers.
12:01Those who are day-to-day buying materials will benefit.
12:06Those who are retired and taking policies, whether life or medical, will stand to gain.
12:11But they are not going to increase their consumption because of the gain.
12:16They will use the gain to repay their loans.
12:19The personal loans are very high today in the market.
12:22And people are not able to make their ends meet.
12:25Now, coming to the MSME aspect of it, MSME, let's take only micro-industries, tiny industries, and small traders.
12:33All the three of them will now have much more aggressive survival after these setbacks.
12:40Let me explain to you why.
12:43Now, earlier, the small entrepreneurs made products were taxed at 5%.
12:49Now, the big players have also been equalized to the 5%.
12:53Most of the products will now compete with the small, localized makers' products.
12:59And thereby, corporates will get the benefit in totality in every aspect of it.
13:06No, Raghunathan, for the longest…
13:07No, no, one minute.
13:08One minute.
13:09You are saying that you will have to compete with the big players who will get the same benefits.
13:12But for the longest time, you wanted a rationalization of the tax structure.
13:17The government does it.
13:18And you are yet complaining.
13:19There are three aspects of the GST, Rajdeep.
13:23First is the tax structure.
13:25The second is the compliance aspects.
13:28And the third is, after the notice is served, how redressal of the problem is.
13:33I am limiting myself to the tiny industries and micro-enterprises.
13:37Now, the government should have done increase of the threshold limit from 40 lakhs for manufacturer,
13:4320 lakhs for service industries, to 1 crore and 50 lakhs, respectively.
13:47If they had done that, then most of the small players would have been away from the clutches
13:53of the GST, clumpines as that thing.
13:56You and I read the UPI went very high in Bangalore.
14:00Several traders were served with the GST notices.
14:04Even today in Khoi Mbathur, 23,000 GST notices have been served.
14:09The associations have taken out a separate position to the collectors and gave them the referendum.
14:14So, you are saying you needed a greater cushion for the MSMEs so that they were not put through
14:25what you are calling a punitive compliance regime.
14:30Nilesh Shah, you want to respond to what you are hearing?
14:32Ultimately, the aim will have to be also to revive MSMEs.
14:36They are the ones who perhaps need to really take the economy to the next level.
14:40That's been the challenge for this government in many ways.
14:43The big players are in any case have already had their windfall corporate tax breaks a few years ago.
14:52So, Rajdeep, we have to support competitive industries.
14:59We cannot support inefficient industries.
15:03Suppose, if our IT services was dominated by small and medium enterprises,
15:09do you think we would have got $200 billion of exports?
15:13Do you think we would have created 10% of GDP?
15:15If our pharma companies were dominated by small and medium enterprises,
15:20do you think we would have become supplier of 40% of generic medicine to US?
15:26On the other hand, you can go and see in Morbi how small tiles manufacturers have outperformed Chinese imports.
15:34They are exporting now against Chinese exports in Middle East.
15:38They are going to Europe.
15:39So, we have to support all those MSMEs and large players who are competitive.
15:45People who want to take shadow under inefficiencies and uncompetitiveness,
15:51who wants to shortchange rules and regulation, we should not support at all.
15:57Now, the point raised in simplifying processes of GSD is very important.
16:03We have put enormous compliance burden on our entrepreneurs.
16:07And there are so many regulations.
16:10Like, you have to keep spittoons in your factory.
16:14Angret chale gae spittoons humare liye chhodke chale gae.
16:17We have a rule which says that if your canteen cook's health record is not maintained for three years,
16:22you will be put behind the bar.
16:24I mean, canteen cook's health record, what is the definition?
16:27So, is there a need to simplify processes and empower our entrepreneurs?
16:40Undoubtedly, yes.
16:41But we must support only those entrepreneurs who are competitive,
16:45not those entrepreneurs who are taking advantage of shortcats.
16:47I take your point, Nilesh, but do you believe that this will lead to an ease of doing business?
16:52That's the question.
16:53There's one point that it will benefit consumers.
16:55It's a Diwali gift.
16:56It's a Diwali bonanza.
16:58But the truth of the matter is, how do you also ensure ease of doing business
17:01to really trigger, in a way, the animal spirits of the economy?
17:05Precisely for the reason you're saying, the kind of outdated laws and reduce the compliance burden, for example.
17:13Absolutely.
17:14I mean, all these laws, if a fund manager like me, no, I'm sure industrialist would have presented to the government,
17:21why is government not removing it?
17:25Okay.
17:26Subhash Ghar, is the problem still there for the resistance at different levels?
17:30You know, what I find amazing is that it's only now that the government has woken up, for example,
17:35on health and life insurance, which for the longest time, several people were saying,
17:39why do you need a GST on health and life insurance?
17:41Is the government, did it require the Trump tariffs in a way for the government to wake up to this?
17:47I don't really think that it is the Trump tariffs which is behind the GST reject.
17:54So why was health and life insurance put in the first place at 18%?
17:59It should have been 0% right at the very outset.
18:01Obviously, this has been a mistake.
18:05This health insurance and life insurance is not required to be taxed at 18%.
18:11It should have been brought much earlier.
18:14But it has been done now because of Trump tariffs is what I disagree.
18:19I think the biggest motivation for this reform-based kind of giveaway of a very large amount is actually the populist and probably the Bihar elections are there, which is guiding it.
18:38But that is being unusually cynical.
18:43The government says we've been holding 50-60 meetings for the last 6-8 months.
18:47You're saying it's only with an eye to Bihar election seems a little bit cynical, isn't it?
18:50But you may say, so why does the 1 lakh crore income tax benefit come a few days before the daily election?
19:02Why does the GST reform or GST giveaway or Diwali gift come a couple of months before the Bihar election?
19:10Why is it that if racialization is to be done, let us say, of the rate, why is it that only the larger rates are getting towards the lower rates?
19:24Where is the revenue-neutral aspect of it?
19:28Reform should actually result into racialization, simplification, reform, but of a structure where you don't lose.
19:37If you are actually giving away tax revenue, in a situation where your tax revenues are actually at very big threat,
19:46I don't know whether you saw July number of the CGA suggest that income tax receipts were about 35% lower than the previous year.
19:58The total gross receipts of the government were 11% lower than the previous year.
20:04There is a very large giveaway which is already happening.
20:08And on top of that, if you further give away the GST revenue, it's not reform in that sense.
20:15Reform should also lead to higher fiscal revenues.
20:19Okay, I take, you know, Mr. Garg, I take your point.
20:24But either way, the fact is, I think there is a general consensus here.
20:28Mr. Raghunathan, I'll give you 30 seconds.
20:30Quickly respond.
20:31You heard from Nilesh Shah.
20:33He says, uncompetitive businesses or businesses that cut corners will not get breaks.
20:38Nobody cuts corners.
20:39It's only the survival and nobody deliberately or wantedly cuts corners.
20:45But Rajdeep, what I wanted to insist upon is,
20:48the government should not think that having come out of the GST reform,
20:53they have touched the peak of it.
20:54And this, everything else will automatically go.
20:56So, the export setback from the U.S. territory is entirely a different ballgame.
21:02It affects a sector which does not come under the purview of GST at all,
21:06unless otherwise they get their refund or their input back credit.
21:10So, therefore, a separate stimulus has to be announced.
21:13Already we are late.
21:15It has to be announced immediately for the thousands of crores of stocks which are lying in the store.
21:21A packing credit needs to be extended to them.
21:24The EMIs have to be eased out to them.
21:27So, you're asking for a separate package for MSMEs,
21:33which would make it a triple dhamaka in that sense around Diwali.
21:37We'll wait and see whether that happens.
21:38That's also not really reforms.
21:40That's really, again, asking for benefits,
21:43which will not really result in the kind of long-term reform we need.
21:47But I appreciate my guests joining me here on our talking point.
21:51It's a rare day when there is a broad consensus,
21:53even though there are concerns on specific issues that still remain.
21:57I thank you all very much for joining us on that GST debate.
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