The recent Economic Survey has revealed that the Indian economy is currently sailing through the rough seas. Witnessing the spiral effect of reduction of fixed investment and fall in consumption and demand, the economy has shown decelerating growth trend over the last couple of quarters. Amidst the uncertain global economic environment and geopolitical tensions between the giants, India is trying to stabilise itself, through government sponsored investments and structural reforms.
In order to boost the economy via increased consumption and demand, the Union Budget had a tough task to promote the private fixed investment alongside government investment. To meet the said objective and to achieve the self reliance, Budget has tried to give a booster shot to ‘Make in India’ initiative.
Majority of the indirect tax reforms announced shows that the government’s commitment towards providing a level playing field to the indigenous manufacturing community and MSME sectors. Budget has proposed to rationalise unwarranted customs duty exemptions and concessions for various sectors such as electronic goods, medical devices, agricultural produce, dairy, footwear, furniture, toys, etc., thereby increasing the effective customs duty on import of said goods. The same may lead various importers and traders to relook at their India business strategy and consider shifting the manufacturing base in India. This will not only bring fresh investment in India, but will also create huge job opportunities and consumption potential.
As a welcome initiative, the government has proposed new measures to prevent anti-dumping and safeguard the country from import of poor quality goods in India. The said initiative shows the government’s resolve against dumping and environmental hazards. Further, administration of the Rules of Origin has been strengthened to prevent the misuse of duty-free concessional rate for products imported under Free Trade Agreements. Such measures will surely impact certain industries such as textiles relying majorly on imports from FTA countries. Since, the FTA is an agreement between two sovereign countries, it is pertinent to see as to how the certification under Rules of Origin will be administered at the country of Origin.
One of the important areas of focus is healthcare. In order to promote the manufacturing of affordable medical devices in India, the Budget has proposed to introduce levy of health cess on imports of medical devices. Further, levy of Social Welfare Cess has also been rationalised in relation to various goods to support ‘Make In India’ initiative. National Calamity Contingent Duty has been increased on tobacco products, with an objective to enhance the revenue.
In addition to the aforementioned measures, the finance minister has reiterated its focus on continuous GST reforms in order to bring simplification, governance and digitisation in GST compliance. With effect from April 1, 2020, the government is committed to introduce electronic invoicing together with simplified automated GST returns. The same shall assist improved data analytics, simplified compliances, authorised ITC flow and curbing fraudulent practices in relation to ITC and refunds.
In the last financial year, indirect tax revenue has contributed to the extent of 46 per cent of the total tax revenue. Over the last two quarters, the Indirect tax revenue collection has matured and has shown signs of growth. Thus, the finance minister has followed the emerging trend of protecting the domestic industry to achieve self-reliance and create economic growth through cycle of investment and consumption growth.
( A version of this article appeared in The Economics Times on Feb 02, 2020)