Brainstorming: Rationalisation of GST

Brainstorming: Rationalisation of GST: There is strong demand for reduction in GST for Automobile sector. While Automobile sector is facing serious demand slowdown. But knee-jer...

Rationalisation of GST

There is strong demand for reduction in GST for Automobile sector. While Automobile sector is facing serious demand slowdown. But knee-jerk reaction in helping the particular industry is not going to help the economy.

Instead, taxes by way of GST, Toll Tax, Road Tax, Permit fee applied on commercial vehicles need to be rationalized as these are not luxury item and it has impact on cost of moving goods from one place to another affecting the agricultural goods most. Transport sector is widely distributed and competitive enough for having pass-through mechanism to pass on the benefits of cut in taxes.

Similarly, high rate of tax on cement is uncalled for. The reduction in cost of cement will benefit both housing and infrastructure sector.

Govt. should also expedite the process of developing tier-II and tier-III cities. Improved air-connectivity for these cities is a step in right direction. Growth there will lead to increased demand of private vehicles in these centers. App-cab aggregators find it difficult to operate in these cities. Growth of tier-II and tier-III cities will also increase the semi-urban areas, thus spreading the economic growth to a larger geography.

GST collection may rise, if there is uptick in the economy and consumption level improves. Even the sales of private vehicles will improve, if demand and growth cycle move to rural and semi-urban centers.

Govt. should aim at high volumes-low taxes from a low volumes-high taxes regime.

Disinvestment of PSUs

While there cannot be any second thought on disinvestment in PSUs to reduce the borrowings by Government, it is more necessary to find the right valuations. There cannot be a single formula for all the PSUs. 

The units under stress like BSNL and Air India have huge asset bank, both physical in form of land, buildings, towers etc. and soft assets like licenses, spectrum etc. If the assets are bifurcated among separate subsidiaries, it can fetch a better value than the combined entity. 

On the other hand, Maharatna companies like SAIL, Coal India, NTPC are struggling because they cannot expand in absence of sufficient cash. These companies should be allowed to raise funds from the market by issuing fresh equity. Finding buyers for these large companies for strategic sale will be difficult if not impossible. Any apprehension about Govt. holding going below 50% should be ignored. These companies can grow much faster if there shackles are withdrawn. We have the example of ICICI and HDFC. The valuations of Government holding in these companies will rise manifold.

The same logic can be applied to companies like Concor, SCI etc. before going for strategic sale.

There is general apprehension that bunching of too many IPOs and FPOs will affect the market appetite. But it can also be argued that better intentions of the Govt. to combat the crisis will improve the sentiments and will bring more funds to market.

If need be, a separate income tax exemption on the line of NPS (but with shorter maturity period of five or ten years) can be offered to all tax payers.

  

Payment Discipline by Indian Corporates

Payment Discipline is rare thing in Indian Corporate Sector. The Managers seldom realize that timely payment to the supplier can ensure better service, better quality of goods at much reduced rate. This will not only improve the quality of the end product, but also the reduction in costs due to better utilization of machinery and spares.

Low quality of goods and services along-with poor packaging is the reason behind our huge trade deficit as we are not competitive enough to export. Further, poor quality of feedstock at high cost by large corporates also reduce the competitiveness of MSME sector too. 

If we analyze the Balance Sheets of Indian Corporates and Subsidiaries of Foreign Companies in India., We will find Indian Corporates not only Debt-laden, but also run high current liabilities in comparison to their purchase of goods and services. 

We badly need capitalization of Indian Corporate Sector by way of more equity funding, than debt funding. We have hardly found any IPO or FPO from Corporate World to fund their capital needs. They rely more on debt and suppliers' outstanding for expansion.

This has also slowed down the industrial growth and ultimately job creation. Let us hope that somebody saner will take the lead.