10 Jan 2015

Domestic indirect tax reform, a plus

In the longer term, it looks like domestic indirect tax reform is on the way. Enabling legislation for a constitutional amendment to allow a national goods and services tax (GST) to replace a myriad of central and state taxes and levies has been introduced. The entire legislative process should take about a year, during which an enabling committee representing the states will manage implementation. The target date is April 1st, 2016 and implementation is forecast to provide a boost of up to 1.5% to GDP. Meanwhile, monthly CPI inflation dropped to 4.3% in November. Favourable base effects may be running out but the benign environment for food and energy prices looks like keeping the headline numbers within the RBI’s target range. The RBI says that sustained low numbers will allow repo rate cuts in the New Year, without necessarily waiting for a policy review meeting and the market is expecting early action. The consensus is for 50 to 100 basis points of cuts but the governor remains a bit hawkish, so it will probably be in 25 basis points moves, spread over a long period. Nonetheless, monetary easing has historically supported equity markets in India so the outlook remains prospective for 2015.

No comments:

Post a Comment