THE SENIOR ANALYST
front, the finance minister of India Mr.
Chidambaram took a prudent step of increasing
the import duty on Gems and jewellery from 2%
to 10%, thus restricting imports to some level and
reducing the burden on the bop situation. On Sep
3, the new RBI governor Raghuram Rajan
assumed office. He had a big task in his hand and
had to fight on multiple fronts. One was inflation
and the other was rupee depreciation. In the first
review meeting, after he assumed office he raised
the repo rate by 25 basis point (1% equals 100
basis point). On the rupee depreciation front, the
governor opened a special swap window for the
OMC to fulfill their daily dollar demand. By using
this swap window, the OMC could buy dollars
from RBI at current market exchange rate instead
of the open market and return it to RBI later. This
eased the demand for dollars to some extent now
on the supply of dollar. RBI has opened a swap
window for FCNR deposit as well.
The Road Ahead
On Sep 18 US fed chief Ben Bernanke announced
that tapering would not begin in near future. This
coupled with steps taken by RBI and the north
block to increase the supply of dollars and restrict
the import of non-essential commodities gave
rupee a resistance at 64 and a support at 62.
However, tapering cannot continue forever and
as speculated by many economists, it should
begin by mid next year. Improving infrastructure
and fast clearance of projects is the need of the
hour which would improve investor sentiments
and make India a favorable investment
destination all around.
By Ankit Kumar Mittal and Sreyoshi Gupta (IMT,
Ghaziabad)
Jan 2014
GST: A game changer?
”As a citizen, I understand the need of paying my
taxes. But, I have been utterly disappointed for
paying taxes on taxes! Bring in GST.”
GST: Basic Framework
Goods and services tax is India’s most ambitious
and sought for indirect tax reform plan, which
aims to stitch together a single indirect tax
regime by dismantling fiscal barriers between
states. It is a single unified tax levied across India
on all goods and services. The indirect tax system
is currently mired in multi-layered taxes levied by
the Centre and state governments at different
stages of the supply chain such as excise duty,
octroi, central sales tax (CST) and value-added tax
(VAT), among others. In GST, all these will be
subsumed under a single regime.
How will the system work?
Based on the road map, GST would work like:
Suppose a firm makes mobiles. The Union
government charges an excise duty on them as
they are removed from the factory. At the retail
level, the state where the outlet is located,
charges value-added tax (different states charge
different rates of VAT) without giving credit on
the excise duty levied earlier (the state tax is
levied on top of a Central tax). In the GST system,
both CGST and SGST will be collected at the point
of sale. Both components (the CGST and SGST)
will be charged on the manufacturing cost and
hence resulting in lower incidence of tax and
reduced prices.
The possibility of lower taxes comes about as GST
is expected to solve a major problem in involved
in manufacturing taxation i.e., Cascading taxes:
taxes on taxes. Taxes are levied more than one
time for the same good and companies are not
able to offset them as the market is fragmented
and hence resulting in higher costs and prices.
When will it be implemented?
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