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Economic Outlook

Open GST freeway for faster growth

Retailers and consumer firms are rooting for pro-growth budget that will give spending power to consumers; want clarity on GST.

Away from the wonted cries of Indian retailers for an industry status, a slew of other issues crops up on a daily basis nowadays.

Lack of clarity on policies surrounding the inflow of foreign direct investment (FDI) is just the tip of an iceberg of demands. On the end of the retail spectrum, players in the fast moving consumer goods (FMCG) and consumer electronics/durables and retailing sectors are seeking a clear roadmap for announcement and implementation of Goods and Services Tax (GST) among other levies that have been hurting their businesses for a while now.

Adi Godrej, chairman of Godrej Group with diversified business interests including retail, FMCG, consumer electronics/durables, said the announcement to implement GST from April 1, 2016, is key. “Other things being equal, implementation of GST will add 2% to the gross domestic product (GDP) growth rate while also benefiting manufacturing and exports,” said Godrej.

Implementation of GST will be an important step to remove the various artificial trade barriers, and in return will be a huge boost to trade in the country, experts said. According to Harkirat Singh, managing director, Woodland, GST should subsume all indirect taxes, including road tax, research and development cess, octroi, etc, and can help retailers reduce the cascading effect of taxes.

“GST will not only bring in changes in excise and custom duties but also lower the rate of taxation and encourage higher compliance,” said Singh.

Retailers Association of India (RAI), the industry body, is of the view that there is a lot riding on this budget as it will reveal the government’s attitude towards development and growth. “Retailers, on their part, are looking forward to a pro-growth budget as promised by the government. Implementation of GST can not only help retailers reduce the cascading impact of taxes but also help them in creating supply chain methods based on transportation models rather than taxation models,” said Kumar Rajagopalan, CEO, RAI.

Though the government has given due importance to GST, players in the retail, FMCG and consumer electronics/durables industries are now expecting the decision makers to announce the starting date for its implementation. In fact, this will be an important step in removing various artificial trade barriers and in return will be a huge boost to trade in the country.

Talking specifically on challenges faced by the consumer durables industry, Shantanu Das Gupta, vice-president – corporate affairs and strategy, Asia South, Whirlpool of India, said, “All sectoral indicators have shown that growth has stifled the appliances industry. The increase in excise duty has added to our woes. What we seek from this budget are measures that will stimulate demand.”

While excise duty relief was extended at the interim budget in July last year, the government’s decision not to extend the concession post December 2014 has come as a major setback to the consumer electronics / durable industry.

Anirudh Dhoot, director, Videocon, said the government should reconsider the increased excise duty sops in the upcoming budget as it will give a boost to manufacturing and help revive the sector.

“Our country is capable of making the ‘Make in India’ campaign a reality but to achieve this vision the foremost action required is to formulate policies and grant infrastructural support favouring electronic components and panel manufacturing in India,” he said.

Special addition duty (SAD) is another area, which besides impacting cash flow, pushes up the duty for the manufacturing sector along with countervailing duty to 17% compared with output excise duty of 12%. “This is not aligned with the ‘Make in India’ initiative as it will discourage multinational companies from manufacturing in India,” said Manish Sharma, president, Consumer Electronics and Appliances Manufacturers Association, and managing director, Panasonic India & South Asia.

Also to promote manufacturing in line with the ‘Make in India’ vision, the government should look into reducing customs duty on parts and components of refrigerators, washing machines, air conditioners and microwaves from current 7.5-10% to nil in order to make manufacturing in India more competitive than finished goods imports from FTA countries.

“To further bring down energy consumption by appliances,” Kamal Nandi, business head and EVP, Godrej Appliances, said, “Consumers should be incentivised to purchase higher energy efficient products. The incentive can be passed on to them in the form of reduced sales tax or excise duty for higher energy efficient products.”

Considering global commodity prices are down, disinvestments can be successful as the stock market is doing well. Accordingly, future disinvestments and lower subsidies in the next year will help control the fiscal deficit to a large extent.

“There may be a surplus in the current account. This is a very good time to increase incentives to the manufacturing sector which will aid growth. This will also encourage investments from Indian and foreign companies. Limits for the MSME (Micro, Small & Medium Enterprises) should be increased in order to benefit the sector,” said Godrej.

Better guidelines and framework strengthening consumer durable industry and benefiting homegrown produce is also something the industry is expecting from the budget. “Overall, the Union budget needs to adopt a pragmatic approach towards addressing the needs of the consumer durable sector to manage its fiscal position and take India back to a higher growth trajectory,” said Dhoot.

Finally, foreign direct investment (FDI) in retail has been a highly debated point. While India is the only country that distinguishes retail by brands (multi-brand and single-brand) there is an urgent need to create a retail policy that addresses FDI in such a way that it creates a level playing field.

“Removing ambiguity relating to FDI in multi-brand retail will, in turn, boost foreign investment in both manufacturing and infrastructure and thus help accelerate growth in the sector,” said Prashant Mehra, partner, Grant Thornton India LLP.

Also, giving industry status to retail, according to Susil S Dungarwal, chief mall mechanic, Beyond Squarefeet Advisory, will be a great boost for the players.

“It will allow for better access to capital from financial institutions thus bringing operational efficiency in the retail operations,” he said.

“Hopefully, this year’s budget will give directions for a more healthy internal trade policy. More clarity about retailers getting money through European Central Bank (ECB) and foreign institutional investor (FII) route will allow retailers to get international funds without losing management control,” Rajagopalan said.

The article appeared in DNA. The article can be found here.