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Indian economy in 2017: A year of many firsts — tax overhaul, systemic changes and slowdown

While 2016 ended with the government’s surprise and bold currency culling exercise, 2017 had to bear the twin shock of the aftereffects of demonetisation and the mid-year rollout of the new indirect tax system — GST.

 

The Goods and Services Tax (GST) remained in limelight beginning July 1, as it turned out to be the economy’s biggest disruptor, with criticism pouring over shoddy and hasty implementation, hurting especially the small businesses. The teething troubles that ensued included higher tax rates for some items, a complicated return filing system, errors in invoice matching, and major technical snags on the reform's information technology backbone GST Network (GSTN), among others.

 

The criticism of relatively high rates on certain daily-use commodities forced the government to announce tax cuts on close to 300 items within just four months of its implementation, to soothe small traders hit by GST-related disruptions.

 

Impact on the common man and small businesses, and implementation woes aside, both the GST and demonetisation snowballed into a political turmoil putting the NDA government in a precarious situation ahead of the crucial Gujarat assembly election. Although this wasn’t a deterrent in the BJP’s victory in Prime Minister Narendra Modi’s home state, the moves clearly made a section of the business community unhappy.

 

The Indian economy felt the pangs of GST evidently. Manufacturing witnessed slowdown, as companies and traders had emptied inventories to carry over as little old stock as possible into July, triggering an unexpected mid-year pre-GST “sale” season on many products at heavy price markdowns. This large scale inventory clearance had caused an economy-wide slowdown, pulling down overall Gross Domestic Product (GDP) growth to a 13-quarter low of 5.7 percent in the quarter-ended June.

 

Thereafter, GDP growth raced faster in July-September at 6.3 percent as companies shrugged off the inventory disruptions.

 

While implementation of GST became a thorny issue, but the tax reform as a whole was welcomed by the industry.

 

The Narendra Modi-led government rolled out GST on July 1 in a grand midnight event in Parliament. India’s indirect tax system was overhauled by consolidating an untidy patchwork of local and central duties such as VAT, central excise, special additional duties, cesses and service tax into a single levy. GST was also introduced to make tax administration more efficient, bring in transparency, remove red tape and turn India into a common national market by removing fiscal barriers among states.

 

In 2017, the government took several steps to tackle the bad loans menace that has dampened the banks appetite to lend to the sectors in need.

 

The Banking Regulation Act was amended to allow the Reserve Bank of India (RBI) to crack down on loan defaulters. In addition, Insolvency and Bankruptcy Code (IBC) was invoked to deal with sick companies, with realty firms facing the maximum heat.

 

Banks, especially state-owned, have been saddled with non-performing assets (NPAs), mainly across six major sectors. Steel, power, roads, highways, and telecom sectors are in the process of revival, given the pile-up of bad loans that threatens to negatively affect their growth. NPAs held by Indian banks have crossed Rs 10 lakh crore.

 

The Insolvency and Bankruptcy Code (IBC), 2016 was enacted for time-bound insolvency resolution process and to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the code.

 

Over 4,300 cases have been filed for insolvency, out of which around 470 have been admitted to National Company Law Tribunal (NCLT), which is the arbitration authority for cases filed under IBC.

 

The first batch of 12 large defaulters were referred to their creditors by the apex bank in June. These defaulters constitute a fourth of the gross NPAs that the banks have been grappling with. Eleven of them are with NCLT now.

 

In addition, in October, the government also announced Rs 2.11 lakh crore capital infusion into state-owned banks as part of a broad plan to create thousands of new jobs, raise income, boost investment and quicken growth in the broader economy.

 

In many ways, 2017 was a landmark year for the Indian economy as the Budget’s presentation was advanced by a month to February 1, breaking more than a century-old tradition. The rail budget was merged with the general budget, bringing down the curtains on a 92-year old practice.

 

The year also saw India climb into the 100th position in the World Bank's Ease of Doing Business rankings, jumping 30 notches from last year and highest ever since 2014.

 

Similarly,global ratings agency, Moody’s Investors Service upgraded India’s sovereign ratings to Baa2 from its lowest investment grade (Baa3), after a gap of 13 years. The rating upgrade was an indication of giving credit to the Narendra Modi government’s reforms initiatives across various areas.

 

Source: moneycontrol.com

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