GST could lead to 8%-plus yearly growth: Shaktikanta Das

Interview with Economic affairs secretary

Economic Affairs Secretary and former revenue secretary Shaktikanta Das said on Thursday the goods and services tax (GST) implementation may not necessarily lead to any short-term inflationary pressure. In an interaction with Arup Roychoudhury, Das also said that the uniform tax law could lead to growth exceeding eight per cent over the next two-three years, and expressed confidence that the deadline of April 1, 2017 will be met. Excerpts:

How big is the GST reform and how will it impact the economy?

It is the biggest tax reform in independent India. It completely transforms the fiscal architecture in the Constitution. You had indirect taxation parallely being levied by the states and the Centre. Now, you will have common indirect taxation, where Centre and states are equal partners. GST places Centre and states on equal footing, with regard to levy and collection of indirect taxes.

It will infuse a lot of efficiency and energy into the economy, by way of reducing production costs. The benefit of input tax credit is now available across the country. India is one market. You may buy your raw materials in Maharashtra, you may have your manufacturing unit in Tamil Nadu or Gujarat; you will get the tax credit. Therefore, costs of manufacturing and logistics and transportation will go down. At present, the average waiting time for trucks can go up to 48 hours at checkposts. Now, there will be no barriers. There will be seamless movement of goods. These are the broad benefits. GST will revive the investment climate in India and, in the medium term, say two-three years, we can expect annual growth to be eight-plus per cent.

Passage of the constitutional amendment is a big step but there is still a lot to be done. Can the rollout target of April 1, 2017, be met?

It is doable. The critical factor is timely movement in all the steps that are yet to be taken. Which requires the cooperation and active participation of all stakeholders. I think the states are also sufficiently sensitised to work closely to make this happen. State governments are keen that it should come as early as possible.

To what extent will GST impact inflation over the short term?

As the finance minister explained on Wednesday in Parliament, the combined impact of central excise and value-added tax is in the region of 27 per cent. In some states, it could be as high as 30 per cent, due to local surcharge. So, the combined Centre-state impact of taxation is 27-30 per cent. When we are talking about a rate, we are talking in the range of 18-24 per cent. In the public space, numbers in this range are the ones being discussed.

In the end, a balanced rate will be decided, which will protect the revenue interest of states, which does not take the positivity out of GST, and which is non-inflationary and good for the consumer. If we are looking at a rate of 24 per cent and below as compared to 27-30 per cent, where is this talk of inflationary pressure coming from? India will become one common market. The benefit of tax credit will be available across the country. Cost of manufacturing will go down. It might not lead to an immediate lowering of prices but, in the long run, it is expected to have a sobering impact on inflation.