Consumer and Internet
Budget 2020 | How can the Government revive animal spirits?
30 Jan 2020

Rising wholesale and consumer inflation and a general slowdown in consumer demand have affected India’s GDP growth. However, one year down the line, we can foresee a consumption revival and revitalization of the economy with concerted efforts from the Government and industry alike. 

Some key areas and measures listed below can help create a long-term impact on restoring and building business confidence.

  1. Getting the consumption cycle flowing
  2. Curbing inflation, creating jobs
  3. The RBI meeting its CPI (consumer price index) inflation target of 4-5 percent plus or minus 1 percent, will help improve consumer sentiment about the rising cost of living
  4. The economic outlook is related to the general growth environment which can be improved by resolving the twin balance sheet problem
  5. Simplified labor laws will encourage global manufacturing companies to bring in FDI (foreign direct investment) and create jobs
  6. Improving transportation and manufacturing infrastructure will also help create more jobs
  7. Since high levels of unemployment impact consumption, which in turn affects tax collection, creating jobs will impact both the economy and consumer sentiment positively.
  8. Creating a healthy credit flow-through
  9. Credit growth, expediting GST refunds and simplifying input tax credit mechanism
  10. To push credit growth, banks could be allowed to take pending GST (goods and service tax) input tax credit as collateral and provide loans to businesses, especially MSMEs (Micro, Small and Medium Enterprises) at appropriate interest rates.
  11. Currently, GST refunds can take more than 60 days to be credited, which hampers cash flow and creates pressure on working capital management. The GST refund system can be remodeled to expedite the refund process.
  12. Input tax credit mechanism, which is one of the salient features of the GST system, should be further improved. As of now, IGST liabilities can be settled off by using any type of input tax credit, be it IGST (integrated), CGST (central), or SGST (state). However, while setting off output tax liabilities for IGST, input tax credit on account of IGST must be completely exhausted mandatorily before using input tax credit from CGST and SGST. Also, IGST input tax credit can be used to set off all three kinds of GST liabilities. However, CGST input tax credit cannot be set off against SGST output liability and vice versa, which creates liquidity crunch in a short term for MSMEs operating intra-state. Therefore, allowing the MSMEs to set off their output tax liabilities across the three categories with an input tax credit from all without any restriction will be a welcome move.
  13. Simplifying and improving the user interface so that it can be used even by business owners in tier 2 and 3 cities and rural areas is crucial. The last-minute collapse of the portal is unimaginable. Also, because there is a provision of penalty in the case of late filing, the GST portal could be made robust by increasing the server strength to ensure minimum downtime, especially on the last day of GST filing.
  14. Frequent policy changes have also been difficult to assimilate for businesses. Some changes like frequent GST Council circulars have also necessitated hiring Chartered Accountants, which adds to the cost of running a business. Enough time can be provided to businesses and GST filing tech platforms so that they can understand, update, and comply with changes. A better way to achieve this is to do a pilot testing before rolling out the changes at the national level and use batch releases by clubbing changes and releasing multiple changes together.
  15. Ensuring strict contract enforcement
  16. Fast track contract enforcement, settling cheque bounce cases and tech-savvy legal system
  17. The issue of cheque-bouncing is a major one in the Indian business and legal environment. In four high courts where enough data was available, 87 percent of cheque bounce cases took 10-15 years to be disposed of, and only 5 percent took less than 5 years. Looking at the high number of cheque bounce cases, there is an urgency to set up Fast Track courts to settle these cases.
  18. The Government can also consider setting up an ‘Execution or Enforcement’ agency to attach assets of the defaulter. This would go a long way in restoring business confidence as these cases bring down the morale of companies and the long judicial wait in holding the defaulting party accountable often leads to loss of confidence and trust in the business and legal environment. Reversal or waiver of GST paid on revenue of such pending cheque bounce cases can be considered.
  19. The high backlog of pending cases can be solved by ramping up the pace of appointing judges as the shortage is the primary cause. Additionally, Indian legal processes could be made more technology-savvy. One way might be to digitalize paperwork and save legal time in sorting and searching.

The way forward

Today, India stands among the fast-growing large economies of the world. To continue this growth rate and improve business and consumer sentiment, there is a need to control inflation, resolve the long-standing twin balance sheet problem, create more infrastructure, simplify labor laws, streamline GST, and ensure strict enforcement of contracts. Together, all these small changes would go a long way in restoring and improving confidence in the Indian economy.

Authored by (at the time of writing):

Madhur Singhal, Leader, Consumer and Retail Practice 

This post first appeared on Banking Frontiers and has been published with permission. Read the original here.

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