New Delhi, July 2: Amid confusions and apprehensions, the Goods and Services Tax is finally here. As it is being implemented, the government says that it will do wonders to the economy, whereas the principal opposition party, Congress says that it would trouble traders. The Congress also says that it might increase inflation. What is the opinion of economists on the matter? Will the implementation of GST have an adverse impact on GDP growth or will it increase growth as the government claims?
The last quarter of the financial year 2016-2017 had witnessed a huge slump in GDP growth. The Indian economy grew by 6.1 per cent due to Modi government’s ambitious demonetisation move. However, economists say that in the next two quarters, the adverse impact of demonetisation will be dissipated. Modi government’s big-ticket tax reform–GST–will take a few quarters to settle in, resulting in a slightly stunted growth. But, there are no reasons for the inflation to rise.
Economists say that the increase in prices of air-conditioners, air travel and cold drinks will not impact the inflation at all. Also, the new Whole-Sale Price Index-based inflation computation completely discounts indirect taxes. Hence, GST might not have much of an impact on inflation. (Also read: GST Impact: How Much Discount Maruti is Giving on Alto, Swift, Baleno)
Economist DK Srivastav told the Business Standard that economic growth could be slowed down to 0.5 per cent points this year. He predicted that India might grow at 7 per cent against 7.1 last financial year. He said that the GDP will be adversely affected as there would transitional problems.
Economist Aditi Nayar seconded DK Srivastav as she told the newspaper that the second and third quarters are likely to witness some adjustment as people might take some time to become accustomed to new compliance procedure. However, both the economists are of the view that the positive impact of GST will start appearing in the fourth quarter.
Food inflation contributes almost half in the computation of inflation. Agricultural products have been kept out of the ambit of GST. Which might also be the reason for overall inflation to remain in check. (Also read: GST Impact: Mobile Phones Get Costlier, Kitchen Bill Gets 11 Percent Cheaper; Full List of Revised Prices After Goods and Services Tax)
Meanwhile, one of the main architects of GST, P Chidambaram said on Saturday that GST will cause inflation to rise. He said that GST will put an additional burden on the common man as prices of 80 per cent goods and services will increase, reported Indian Express. He said GST will pose serious issues before small enterprises. He also questioned five slabs in GST that was supposed to be a single tax.
Union minister of state for labour and employment Bandaru Dattatreya said on Saturday that more than one lakh jobs will be created in the next three months. 60,000 will be in accounting sector alone. Soumya Kant Ghosh, chief economist of the State Bank of India, told the same to the Business Standard. “This will lead to the creation of more employment and increase in productivity,” he said.
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