India’s tryst with GST On the stroke of the midnight hour on July 1, the Goods and Services Tax (GST), India’s biggest indirect tax reform, came into being in an elaborate ceremony in Parliament, boycotted by the Congress party. But with a challenging deadline to implement a national integrated taxation system that included five slabs, nearly 40 exemptions and seven cesses, the goal of One Nation One Tax degenerated into multiple confusions. With economic growth hit and trader unrest growing, a five-member Group of Ministers was set up in September under Bihar Deputy Chief Minister Sushil Modi to monitor technology glitches. In November, the GST Council, slashed taxes for over 200 items and raised the entry threshold to Rs 1.5 crore. These moves have tamped down the unrest. But the impact on 2017-18 tax revenues remains an open question.Scandal without a crime From left: Former telecom minister A Raja and DMK MP Kanimozhi after they were acquitted in the 2G scam case in New Delhi. Photos: Reuters Eight years after the scandal erupted over a report by the Comptroller and Auditor General alleging humongous losses and shenanigans in the allocation of 122 licences for 2G spectrum, the special judge hearing the case filed by the Central Bureau of Investigation (CBI) in October 2009 acquitted all 17 accused for lack of evidence. This included former telecom minister A Raja, Dravida Munnetra Kazhagam MP Kanimozhi, 13 businessmen and several bureaucrats. In a remarkable judgement that has come as a major reprieve for the Congress , the special judge O P Saini castigated the CBI and the special public prosecutor for conducting a “directionless and diffident” prosecution that threw up no hard evidence. Where this verdict leaves the Supreme Court’s dramatic cancellation of licences in 2012 after declaring the allocation as “unconstitutional and arbitrary” is now an open question. Expect multiple appeals from investigative agencies and cases against the government by aggrieved companies in 2018. Crude concerns The agenda for the oil sector was set with the Organisation of Petroleum Exporting Countries deciding to cut crude oil output by 1.2 million barrels per day (mbd) from January 2017 to maintain a production cap of 32.5 mbd, the first such cut in eight years. This and supply disruptions caused the global benchmark Brent crude to cross $65 a barrel in December, for the first time since 2015, an increase of over $10 over the previous year.
Since this price jump is not an outcome of increase in demand, most analysts do not see prices touching new highs in 2018. For the Indian government, which has been enjoying the double benefit of increased tax on petrol and diesel and a lower subsidy burden, any further increase will be a cause of worry.Capital solution Photo: Kamlesh Pednekar This year saw the government finally bite the bullet on the long-pending issue of public sector bank recapitalisation when it announced a Rs 2.11 lakh crore plan. The rising non-performing assets in state-owned banks had over the years stripped most banks of their profits as well as their ability to lend further — credit growth touched the lowest in 25 years. The government was stuck with a tough choice: privatise some of the worst performing banks or boost their capital base so that they could get back to financing fresh economic activity. The former was a political minefield but the latter, too, was not without its downsides. With close to Rs 76,000 crore coming straight out of the central coffers, the focus now is on figuring out the best way to allocate fresh capital. But the more enduring worry is about improving the weak governance in public sector banks that got them into this mess in the first place. Moody’s swing Narendra Modi’s government may be facing flak for slowing growth and growing unemployment, but credit rating agency Moody’s Investor Service expressed confidence in his stewardship of the economy by upgrading India’s sovereign rating from the lowest investment grade, Baa3, to Baa2, and changed the investment outlook from stable to positive. This marks the first investment upgrade in 14 years. A week later, however, Standard & Poor’s begged to differ, holding its rating at the lowest investment grade of BBB- with a stable outlook on account of concerns over the fiscal deficit, government debt and lower per capita income. In May, Fitch had also kept its rating of 11 years unchanged at BBB-, a notch above junk bonds. Air India up for sale — again After almost a decade of struggles and a $ 4.5-billion bailout in 2012 to turn it around, the government in June announced an “in-principle” decision to sell loss-making state-owned airline Air India. The target date is June 2018. The plan chalked out by a group of ministers led by Finance Minister Arun Jaitley is to sell Air India and its low-cost subsidiary Air India Express together. To maximise valuation, separate bids would be invited for the ground-handling subsidiary and the maintenance, repair and overhaul (MRO) units. So far, low-cost airline and market leader IndiGo Airlines has formally expressed interest in the passenger airline, Turkey’s Celebi Aviation and Delhi-based Bird Group in the ground-handling arm, and Airworks, the country’s oldest private MRO firm, in the MRO. This is not the first attempt to sell Air India — previous efforts ended for lack of interested buyers.