New Chapter in India’s Economic

A stable government, not dependent on the support of coalition partners, has come to power after 14 years. Given its sweeping victory in the recent elections, the new government does not need to oblige any political partners unlike the preceding coalition government that was in power for a decade. It is this that gives hope to citizens and investors alike that a new chapter in India’s economic growth is being scripted.

The new government inherits many economic, social and security challenges both from within and outside the country. The slow economic growth, the rising prices and the mounting inflationary pressure, the widening fiscal deficit and the sharp drop in the value of the Indian Rupee are a few of the economic challenges that are crying out for immediate attention by  the new government. Reduction of unemployment and the poverty ratio are among the main social challenges. Promoting a good trade and border relationship with neighboring countries is another major area where the new government needs to act.

In order to energize the economy, reforms must continue. New policy initiatives with fewer regulatory hurdles and bureaucratic burdens are absolutely critical. Perhaps more critically, reforms and policies must no longer remain on paper and need to be implemented. Only will swift, transparent and consistent implementation of the right reforms will make it easy for corporate India and foreign companies to invest and do business in India.

Reforms necessarily encompass various business perspectives. From the tax perspective, GST is one of the reforms that have been conceptualized a few years ago. Several administrative, operational and legal challenges that are common to a federal set up like India have delayed the implementation. The new government needs to be convinced of the need for speedy implementation of this tax reform to achieve a higher rate of GDP growth. Even a small incremental percentage GDP growth at this point of time means a lot to the economy. The new government must also move swiftly to restore trust and credibility by avoiding the ambiguity and uncertainty associated with retrospective amendments to tax statutes. Undoing the damage and providing certainty to the country’s tax regime is critical to attracting investment and thus driving growth and job creation.

The hopes, beliefs and expectations of the Indian electorate will need to be converted by the new government into achievements and make the following economic axiom untrue – “Growth, equity, price stability are hard goals to pursue together simultaneously and even harder to achieve over long periods. Comparison teaches no simple remedies for combining price stability and high growth, or for macroeconomic management in general. Societies have countless variables that change from one to another. It is difficult to be sure which factors achieve desirable results”.

In this widely-awaited new chapter in India’s economic growth, the months of June and July 2014 are seen to be eventful periods, as new policies will be unveiled and the Union Budget presented. We hope that there will be a thrust to implement a GST regime as part of the broader package of tax reforms.