It all seems to be finally coming together. India’s macroeconomic stability indicators — low inflation and control over the “twin”, that is, fiscal and current account, deficits — haven’t looked better in a long time. The ruling party’s decisive win in the Uttar Pradesh elections has settled any lingering doubts among investors about the country’s political stability. There can be no better proof of this than the record Rs 56,000 crore being pumped by foreign portfolio investors into India’s equity and debt markets in the current month, and the rupee surging past the 65-to-the-dollar mark to hit a 17-month high. Amidst all this comes the Lok Sabha’s approval on Wednesday to the four bills clearing the decks for the rollout of the nationwide Goods and Services Tax (GST) regime from July 1. The Narendra Modi government can certainly take credit for closely working with states to push through arguably the most ambitious indirect tax reform attempted in the country.
The GST’s ultimate goal is to create a common market where goods can move and services delivered seamlessly across the country. The multiplicity of taxes and rates at the Centre and states have so far led to fragmented markets. Contrast this to the European Union, an amalgamation of disparate nations that have forged a common market with a single currency. Now that Parliament has collectively willed the move to a single nation-single market, the focus shifts to the nitty-gritty. That would first involve deciding the rates. The GST Council, which comprises finance ministers from the Centre and states, has proposed four slabs — 5, 12, 18 and 28 and 40 per cent — which may not be what the purists want. That, and deciding which goods would fit into each of slabs may involve some hard bargaining between the Centre and individual states. But these are inevitable trade-offs to be made in order to get the states on board.
The GST’s passage, more than anything else, is a strong demonstration of the current government’s resolve to be reformist in the eyes of investors. Business is ultimately about sentiment. There can be nothing better for sentiment than a convergence of developments seen to be positive for the economy. That seems to be happening. What is needed next is a revival of private investment, the key to creating jobs.