‘GST roll-out by 2016 is too ambitious a target’

M Govinda Rao, NIPFP and member, 14th Finance Commission believes that the government needs to cut down wasteful expenditure.

Written by Surabhi | Updated: February 15, 2015 2:43:03 am
M Govinda Rao. M Govinda Rao.

As the Centre gets ready to present the Union Budget 2015-16, M Govinda Rao emeritus professor, NIPFP and member, 14th Finance Commission believes that the government needs to cut down wasteful expenditure. He spoke with Surabhi about measures that need to be taken. Excerpts:

The new series of GDP data gives a significant boost to growth. Your comments:

The numbers raise several questions, particularly on the consistency with other macro data.  The press note explains the new series takes into account new data sources, has extended coverage and has made conceptual changes consistent with the international guidelines. In particular, in manufacturing sector, CSO has taken the “enterprise approach” using the MCA 21 database which covers various ancillary activities not covered under the earlier “establishment approach”.  Perhaps, these ancillary activities were various services which were earlier not considered or classified as services.

What about the dichotomy between the GDP data and other indicators such as tax collections, index of industrial production and credit growth?

Surely, there are discrepancies.  The IIP  is not estimated using the MCA 21 data.  There can be lags in tax collection and not all activities reclassified may be liable to pay taxes.  Earlier, there were attempts by the UPA government towards the end to speed up clearances.

Will lower retail inflation under by the CPI series impact monetary policy decisions?

The finance minister despite the difficulties will conform to the target of 4.1 per cent of GDP.  In any case, when the mid-year review states that the estimate of spill over of subsidies from last year is in the range of 0.3 per cent to one per cent of GDP, I do not know how much faith and credibility can be attached to these numbers.  The FM will do well to bring in some credibility by placing a roadmap for moving over to accrual accounting.

Is introduction of the goods and services tax by April 2016 too ambitious a target?

We can always hope for the best but 2016 is too ambitious a target. The Constitutional amendment is only the first step.  There are so many issues to be agreed upon by the Union and the states and even amongst the states.  The exemptions, rate structure, the taxes to be included including petroleum products and alcohol, the application of place of supply rule for allocating revenue from service tax with inter-state span, the allocation of revenues from e-commerce related transactions, the technology to deal with IGST, the mechanism for compensation, training of tax officials, harmonisation of forms and procedures, training and preparedness of the administration, taxpayer service all these need to be finalised. For the same reasons, the GST that will be implemented will not be flawless but a compromise solution.  While the reform is important and necessary, it should be considered as the next state of reform rather than an event.

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