GST will completely transform the way our economy functions. Importantly, it will also bring in greater transparency, greater accountability and widen the tax net, said Shaktikanta Das, Secretary-Economic Affairs, GoI.
The passage of four crucial GST Bills by the Lok Sabha on Wednesday will bring India closer to a unified tax regime.
The Lok Sabha passed the Central GST Bill, 2017 (CGST Bill), Integrated GST Bill, 2017 (IGST Bill), Union Territory GST Bill, 2017 (UTGST Bill) and the GST (Compensation to the States) Bill 2017 after more than eight hours of debate.
Shaktikanta Das, Secretary-Economic Affairs, Government of India said the passage of crucial bills is an outcome of the hardwork done by state governments and the officials of the revenue department.
GST will completely transform the way our economy functions. Importantly, it will also bring in greater transparency, greater accountability and widen the tax net.
The Bill will eliminate the burden of tax on tax, said Das.
According to experts, it may also add 1.5-2% to gross domestic product (GDP) of the country, he said.
Below is the verbatim transcript of the interview.
Q: As Former Revenue Secretary you have also worked on ensuring the passage of the GST bill. What does this now going to mean as far as the macros are concerned?
A: The passage of the GST bill is an outcome of the hard work put in by officers of the revenue department and the state governments together over the last several years.
What it means for the economy is that it is going to completely transform the way our economy functions. You have one India, one market and more importantly what GST will do is that it will bring in greater transparency, greater accountability into our economy, the way our economy functions, it is going to widen the tax net.
It will also eliminate the burden of tax on tax, whole India becomes one market with the availability of input tax credit, the cost of production of various products will also go down because you have input tax credit, the credit will flow across states because India becomes one market and because of this great amount of all these measures put together if you look at it, I think it will give a big boost to the real economy at the expense of the so called parallel and the shadow economy.
Q: Can you quantify that for us, CII estimates have been 2 percent of gross domestic product (GDP) and so on and so forth? What is the assumption that you are working with if you talk about higher compliance, more efficiency within the system?
A: Experts have said that it will add by about 1.5 percent to 2 percent of the GDP. It will certainly give a big boost to the economy because your tax collections are going to become far more efficient, the leakage will go down and with moderate levels of taxation going forward when the tax levels get moderated, you will have more of economic activity.
The other thing which GST will achieve is that by limiting the number of exempted goods – the list of exempted goods will be only confined to those which are essential for the common man, for the poorer sections of the society like food items etc. So when you do that and when the list of exemptions gets moderated gets reduced and focuses only on the poorer sections and on the day-to-day common requirements from the common people, naturally you are creating the groundwork for a moderate rate of taxation.
If you start giving too many exemptions then you will have to have a higher rate of taxation. Therefore, going forward it will widen the tax net, it will also -- as we go about -- moderate the rates of taxation and in any case the activities unless you come in to the GST network for any trader or for any business person or for any manufacture unless you come into the GST network, you will not get the input tax credit. So you become uncompetitive with other manufacturers. So this will increase the competitiveness of the Indian economy.
If I can add just one more point, you have to see demonetisation, GST and the big initiative of the government with regard to Jan-Dhan, Aadhaar, mobile. I think these three initiatives together, are going to give a big boost to our economy.
Q: Let me ask you about what could be the next big trigger and that has to do as far as non-performing assets (NPA) resolution is concerned whether it is the Chief Economic Adviser (CEA) or it is the finance minister (FM), the FM telling me in an interview a couple of days ago, that this is a matter that is going to be addressed with a degree of urgency that some sort of new mechanism for NPA resolution in on the anvil, on the cards, what is the thinking, where do things currently stand as far as the economic affairs department is concerned?
A: The department of financial services is working on it. Already the Reserve Bank of India (RBI) has come out with Scheme for Sustainable Structuring of Stressed Assets (S4A) mechanism and the strategic debt restructuring (SDR), Corporate Debt Restructuring (CDR) and other procedures and systems.
Q: The feedback is that it has not necessarily worked so the need is to now either rework these schemes, bring in a new scheme, where do things stand?
A: Let us also remember that there is an oversight committee which has been put in place and the banks are being encouraged to identify the big cases and to reach some kind of a restructuring, take a haircut which the banks can afford and bring it to the oversight committee. So that the oversight committee gives its stamp approval, it is okay on the proposals which the banks are bringing.
Q: Is there also a proposal that while banks will take a certain degree of a haircut that the government if need be will support also?
A: In the sense that the banks will have to do it, government support to the banks will be only in the form of capitalisation. If the banks require additional capital, the government will provide the required capital.
Having said that, let me also mention that the capital will be provided based on certain performance index. You cannot go on putting tax-payers’ money to recapitalise the banks. The capitalisation of banks will take place linked to certain performance index linked to certain settlement of certain big accounts and default cases, so it has to be performance linked.
Q: These 50 accounts have already been identified by the government where the oversight committee is already in place, how soon can we expect now to move on each of these accounts?
A: You will see good speed in the coming months with regards to the resolution of all these assets.
Q: I understand it cannot be a ‘one-size-fit-all’ approach either. It will probably have to be addressed on a case-by-case basis, so is there also going to be some sort of an ombudsman who will along with the oversight committee provide the political cover so to speak?
A: What regulatory or what other changes which government will bring about that I cannot say at this point. Whatever changes are brought about, in any case, the parliament is in session. So that will be announced by the FM in the floor of the house so it will not be appropriate for me and I cannot make those kind of statements.
You are right to the extent that each case has its own reasons and failure and has its own complexities, each case has been impacted differently because of the change in the business cycle. A unit in the steel sector has been impacted differently in a manner, which is different from a unit in another sector. Then you have to also look at facts of each case where it is a business failure where it is a management failure and what are the other reasons for failure and then each case has its own peculiarity. So you cannot have a one size that fits all. But, yes within the parameters, which have been specified, there is a certain space, there is a certain elbowroom available, within that parameter, within that elbowroom each case will have to be analysed separately.
Q: So would it be fair for me to say that on the priority list, would be stressed assets within the steel sector, within the power sector, within the infrastructure sector, the engineering, procurement and construction (EPC) space, those will be the ones that the government will like to tackle first before you talk about issues of wilful defaulters and so on and so forth?
A: No, not like that. It is not a question of which government will choose whether steel or power, but the fact remains that most of the big NPAs happen to be in these sectors. It is in steel, it is in power, it is highways because these were the sectors which face certain difficulties due to various reasons. And cases of wilful defaulter, it is not a question of sequencing this first or this later, wherever there is a wilful default which has happened, parallel action will be pursued. Nothing is going to be slowed down. Because we are giving priority to a particular number of cases, that does not necessarily mean that action on the other fronts, especially with regard to wilful default cases will be slowed down. Action on wilful default cases will be pursued very vigorously.
Q: You said that the banks will be required to take a haircut. The Chief Economic Advisor (CEA), in his interview to us yesterday, said that is really at the heart of the problem. And the fear of the four C's, the courts, the Central Vigilance Comission (CVC), the Comptroller and auditor general of India (CAG) and so on and so forth. So how is this issue being addressed? Is it only being addressed by way of the oversight committee? How is this issue being addressed on how much haircut to take? What is going to be the exact mechanism of this?
A: The size of the haircut will depend on individual case. It has to be a business decision by the banks. It has to be a commercial and a business decision by the banks. Now, the bank officials are encouraged to take decisions and some time ago, the banks had a meeting, a meeting was arranged between the Chief Vigilance Commissioner and the banks wherein the CVC has very clearly explained that any bona fide decision taken, a decision which is well explained, well minuted, well recorded, well justified in the files or in the papers of the banks, there is no question of having fear factor in that.
Q: So, when was this meeting with the CVC?
A: This happened a few months ago. Now, oversight mechanism is to just provide an additional layer of comfort to the bank management. So, therefore, bona fide decisions need to be taken and I am sure the banks will take and the banks are moving forward in that direction. It is not as if the banks are not doing anything at all, the banks are moving forward in that direction. Now it is a question of implementation. There are enough instruments available, it is now a question of implementation by the banks and the ministry is working very closely, the Financial Services Department is working very closely with the banks and the regulator, the RBI is also very closely involved in the process. So, I would expect, in the coming months, a lot of matters to get resolved.
Q: Will each of these require Cabinet approval or how is this going to work because our understanding is that a Cabinet note is also being prepared and so on and so forth. So, where do things currently stand on this?
A: Restructuring of any particular loan portfolio does not require Cabinet approval. This has to be a decision taken by the banks and their management. It does not need government approval or Cabinet approval.
Q: You said that you expect this matter to be addressed with a sense of urgency and you expect the implementation and the execution, the instrumentalities are in place, but you expect the execution to move very quickly on the ground. Would it be safe to say that early on in the new financial year, you expect us to get started on being able to address a large number of these accounts?
A: Look at it in the context of the government fixing various problem areas of the economy over the last few years. The highway sector problems were fixed, several measures were taken to infuse additional liquidity, to change the promoter, various measures have been taken. In the power sector, particularly, the distribution side, the Ujwal DISCOM Assurance Yojana scheme has been announced. In the steel sector, minimum import price (MIP) and other initiatives have been taken. So, one by one he government is fixing various sectors.
The government has come out with a package for textile sectors. For leather and for footwear, government is going to announce a package as stated by the Finance Minister in his Budget speech. The legislative measures with regard to the insolvency and bankruptcy code with regard to GST which has now made a big step ahead. So, government is very steadily and consistently settling, fixing various problem areas of the economy and taking necessary reform measures. The problem of the twin balance sheet of the corporates and the banks, that still remains. The balance sheet problem if the corporates, the corporates naturally, they will have to fix themselves.
Where there is an interface between the corporate balance sheet and the bank balance sheet that is the NPA issue, there I come to the NPA issue, the problem of NPA of the banks is one of the highest priority items of the government and it is receiving attention at the highest level and there will be visible action in this regard in the coming months.
Q: Let me also specifically ask you about the government's plans as far as Specified Undertaking of the Unit Trust of India's (SUUTI) stake is concerned and there has been a lot of buzz and speculation around Axis Bank in specific. I do not know whether an0020offer has been made by Uday Kotak and Kotak Mahindra Bank for SUUTI's share in Axis or not, but if that were to happen, what would the government's thinking be?
A: I would not like to respond to various stories which appear in the media, somebody wanting to make an offer or somebody has made an offer. I would not like to comment on that. But so far as SUUTI's stakes are concerned, like other disinvestment decisions which government is taking, as and when a situation arises, the government will take a considered call and the government, naturally SUUTI shares are important for the government and government will take the call when a situation arises.
Q: You would not be averse to the idea though? If somebody were to come to you, whether it is Kotak or somebody else, as far as the Axis stake is concerned?
A: I cannot make a speculative answer to your speculative question.
Q: Let me ask you then another speculative question and that has to do with Hindustan Zinc and the residual stake there. We have heard from several Cabinet ministers saying that there is absolutely no reason for the government to continue to hold on to its stake in Hindustan Zinc. We have just seen a significant dividend being announced by Hindustan Zinc as well. Are we likely to see a closure on this long pending matter?
A: Hindustan Zinc, the company is doing well and they have announced an additional dividend very recently which is obviously a testimony to the fact that the company is doing well. With regard to government stake sale, as and when the government takes any decision, you will come to know about it.
Q: When do we see the strategic stake sale process kicking off?
A: I cannot say. You will have to wait. As and when the government takes a decision, you will know.
Q: We have got and monetary policy committee (MPC) coming up next week. What is the expectation now as far as rates are concerned given where inflation currently stands?
A: The MPC will take a considered call.
Q: What is the North Block view?
A: Whatever North Block views on this issue are conveyed to the RBI privately through discussions and through interactions which we have from time to time.
Q: But do you believe there is still elbow room for banks to bring down rates?
A: I would not like to say in public what is our expectation, but yes, post demonetisation, the banks have a lot of liquidity with them and the inflation is very much within the expected zone. And now, I am sure the MPC will take a considered policy call.
Q: What is the outlook now as far as growth itself is concerned? If you are seeing signs of a visible pickup in the economy with demonetisation also having been dealt with. What is the expectation now as far as growth is concerned?
A: Current year, as you know, the Central Statistics Office (CSO) has projected 7.1 percent. We are closing the financial year tomorrow. We will have the figures two months down the road. So far as next year is concerned, 2017-2018 is concerned, I would expect the growth to be in the zone of about 7.5 percent or a little higher than 7.5 percent.
Q: Since we are talking about NPA, I also want to ask you about farm loan waivers and this has been something that various parties have promised as part of the election manifestoes. It is a matter under consideration between state governments as well as banks, etc. Where do things stand on individual promises for farm loan waivers?
A: The Finance Minister has replied this matter in the parliament yesterday and perhaps, day before. What the Finance Minister has stated in the floor of the house is that the state governments will take necessary decision in this regard.
Q: But what could then be the impact as far as the banking sector is concerned? What is the exposure, for instance at least as far as UP because that is now something that is a matter under consideration.
A: I cannot say because no decision has been taken in this regard, so I cannot say what is going to be the way forward. So far as the agricultural loan waiver is concerned, as I said, the Finance Minister has already stated the position in sufficient detail in the floor of the house and I have nothing more to add to that.
Q: On recapitalisation because you said that the NPA issue as well as recapitalisation will have to be looked at parallel-ly. At this point in time, do you believe that given the fact that you want to address the resolution urgently, there may be a need to recapitalise as well beyond what has already been promised?
A: In the Budget speech, the Finance Minister himself has said that as and when additional funds are required, government will provide the additional funds.
Q: Do you feel that there will be a need at this point?
A: At this point of time, no. at this point of time no, there was an Indradhanush scheme according to which, we were to provide Rs 25,000 crore for two years, then Rs 10,000 crore, followed by another Rs 10,000 crore in 2018-2019. So, as per the Indradhanush scheme we have provided Rs 10,000 crore for 2017-2018. At this point of time, we do not feel there is need for any additional capital and let us also remember that with the yields on the government securities coming down with regard to the banks, the value of the securities which the banks already hold there is a significant improvement in that. So therefore, at the moment, I do not see any additional need. In any case, the whole Rs 10,000 crore provided in 2017-2018 is available from day after tomorrow.
Q: A quick question as far as the movement in the rupee is concerned, breaking 65 per dollar, the anticipation was that it was going to go all the way to 70 per dollar. But it is actually moving in a different direction altogether. How are you viewing the moves in the rupee?
A: The markets, especially the currency markets have their own way. We have no fixed. The RBI has also clarified it time and again that we have no fixed level at which we want the rupee to be. But, it is a market driven process. It is a market determined process. At the current level, I would feel that at the current level, there could be some fluctuations here and there, but it goes to show that the Indian economy continues to be robust or exports have also grown over the last 3-4 months. Last month, in the month of February, the growth was about 17.5 percent growth. Exports are doing well. The economy is slowly picking up and the rupee, we will have to see how it plays out, but it is in an expected zone.
Q: Eye on the monsoons? The first forecast seems to indicate that there could be a deficiencies as far as the monsoons are concerned.A: I would like to wait for the India Meteorological Department (IMD) forecast. The IMD forecast has not yet come. Let the IMD forecast come and then we will have to deal with it.