Finance Minister Arun Jaitley has said the government, faced with a “catch-22 situation” over the issue of non-performing assets, is working on a plan to rebuild the capacity of India’s banking sector so as to support growth. He also said the GST Council, in its meeting next month, will discuss the issue of bringing real estate under the GST’s ambit.
“Today, with global growth turning around, we are working to put up an actual plan in play to deal with the banking situation, which is top of our agenda. We need to rebuild the capacity (of the banking sector),” Jaitley told students of Harvard University in Boston. RBI and analysts have pointed out the need for increasing capital infusion in the public sector banks. The government has budgeted to provide Rs 10,000 crore capital to state-owned banks in the current financial year.
“I inherited a banking system whose monies were lying in non-performing assets … are unable to service the debt. We are faced with a catch-22 situation as to how do we improve the capacity of the banks so that they can support growth,” he said. So, all these factors together adversely impacted the private sector, the minister said.
The gross NPA (GNPA) ratio of the banking system was at 9.6 per cent and the stressed advances ratio at 12 per cent as of March 31, 2017, as per RBI data.
The issue of bringing real estate sector under the Goods and Services Tax will be discussed in the next meeting of the GST Council to be held on November 9 in Guwahati, Jaitley said while delivering the ‘Annual Mahindra Lecture’ on India’s tax reforms at the Harvard University.
“The one sector in India where maximum amount of tax evasion and cash generation takes place and which is still outside the GST is real estate. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST,” he said.
“In the next meeting itself, we are addressing one of the problem areas or at least (having) discussion (on) it. Some states want, some do not. There are two views. Therefore, by discussion, we would try to reach one view,” he said.
The move would benefit the consumers who will only have to pay one “final tax” on the whole product, Jaitley said. “As a result, the final tax paid on the whole product in the GST would almost be negligible,” the minister said.
A 12 per cent GST is levied on construction of a complex, building, civil structure or intended for sale to a buyer, wholly or partly. However, land and other immovable property have been exempted from the GST. Currently, states levy stamp duty on property registration ranging from 4-8 per cent.
Jaitley said the reduction in eventual expenditure coupled with incentivising people to enter the tax net may also help reduce the size of “shadow economy”. On demonetisation, Jaitley said it was a “fundamental reform” which was necessary to transform India into a more tax-compliant society.
“If you see the long-term impact of it, demonetisation brought in more digitised transactions; it brought the issue to the centerstage. It expanded the individual tax base. It compressed the cash currency by three per cent which was operating in the market.
“Those objectives are for the long-term. No doubt there are short-term challenges, but (necessary) for transforming India from a non-compliant to a more compliant society,” he said.
The finance minister said India had historically been one of the least efficient tax system in the world with an extremely small tax base. “Frankly, over the last several decades, serious efforts, real efforts to expand this base had not been made. You had marginal efforts,” he said, adding that systematic efforts to challenge the “shadow economy” were made only recently.
“In the last few years, the bulk of the increase in tax payers has not been in terms of number of companies but individuals who are coming into the tax net,” he said.