The impact of delayed GST

Fri, 18 Dec Pre-Open

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As we have seen, reforms in India come with a precondition- tussle among political parties. Many reforms are delayed for years on the back of such political logjam. This time is no different. The crucial GST (Goods and Service Tax) bill is the latest reform to take a backseat.

There has been a political logjam in Parliament around the Constitutional Amendment Bill on GST. This is because of the cold shouldering by the Congress. The Congress has been stalling passage of the Bill in Rajya Sabha where the ruling NDA is in a minority.

NDA has a total strength of 63 MPs in the Rajya Sabha. In order to support the constitutional opposition bill, it needs at least 163 out of the total 245 MPs. So, the NDA still needs to fill 100 places. And this is challenging for the NDA because there are others, apart from Congress, who have opposed the bill. Some to be named are the All India Anna Dravida Munnetra Kazhagam (AIADMK) and the Left parties.

All of this has come as a further roadblock. And the NDA government has signalled that the GST is off the table for now. It is also not clear on when the constitutional amendment bill will come up in the budget session.

However, it is trying all it can do for the implementation of GST. This comes as Finance Minister has assured the GST rate to be less than 18%. This goes in line with the Congress stand on scrapping 1% additional tax. As far as the strength in Rajya Sabha is concerned, the NDA is hopeful that it will be able to increase its presence in the coming years. The fresh elections in April to fill seats that will fall vacant in the Upper House can aid NDA in doing that.

GST can be a big positive for India. The main objective here is to eliminate the double taxation i.e. cascading effects of taxes on production and distribution cost of goods and services. The exclusion of cascading effects till the level of final consumer will significantly improve the competitiveness of the original goods and services in the market. This will make it much easier to do business in India.

Also, its implementation will bring more companies under the new tax regime. This in turn will provide a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment. In all, it will have a beneficial impact on the GDP growth of the country.

Going by that, the implementation of GST must be a high priority for the economic future of India.

Having said that, according to us, investors should not read too much into whether GST will be implemented in the near term. For the impact of the legislation will not immediately filter into corporate earnings. Plus there are several other factors that will impact corporate earnings in the coming fiscals. So look out for good stocks at discounted valuations rather than worrying too much about the impact of delay in GST.

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