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India Today - - UPFRONT - —Prosen­jit Datta

The Goods & Ser­vices Tax (GST), once it is im­ple­mented, will help In­dia achieve a growth rate of 9 per cent or more, says Amitabh Kant, CEO, Niti Aayog. That may be true in the long run, but ex­pect chaos and a damp­en­ing of busi­ness in the short term, all of which could fur­ther slow down GDP growth tem­po­rar­ily. Al­though the GST roll­out has been in the works for a long time, the fi­nal rules are only be­ing no­ti­fied now. And with just three weeks to go for the in­tended July 1 roll­out, there are still big grey ar­eas for busi­nesses to fret about.

Most busi­ness­men ex­pect a big dis­rup­tion in their work­ing cap­i­tal cy­cles. That’s be­cause in­put credit will not be avail­able for goods sold till June 30 once GST comes into force. On July 1, all busi­nesses will start with a nil balance on in­put credit. They will start by pay­ing taxes in full and be able to claim in­put credit only af­ter they have squared ac­counts with ven­dors in the next cy­cle. Mis­matches in re­turns be­tween ven­dors and OEMs (orig­i­nal equip­ment man­u­fac­tur­ers) could re­sult in long de­lays in get­ting in­put credit. Re­search re­ports sug­gest the work­ing cap­i­tal dis­rup­tion could last any­where be­tween two months and two quar­ters, lead­ing to ad­di­tional cap­i­tal costs for most com­pa­nies.

Then there is the prob­lem of un­fin­ished and semi-fin­ished goods and raw ma­te­rial held in stock. Be­cause only part of it will be el­i­gi­ble for in­put credit, many busi­nesses are un­wind­ing stock and de­lay­ing or­ders so that they are left with a min­i­mum on June 30. In a wide range of in­dus­tries, from con­sumer durables to au­to­mo­biles, com­pa­nies are of­fer­ing big dis­counts to get rid of in­ven­tory by June 30.

Fi­nally, there is the over­all level of pre­pared­ness among busi­nesses. Big­ger busi­nesses have been hir­ing con­sul­tants and pre­par­ing sys­tems for GST im­ple­men­ta­tion. But small and medium busi­nesses are still not com­pletely aware of all that they need to do. An­other worry for small busi­nesses and traders is the con­sid­er­ably higher cost of com­pli­ance un­der GST. Whether all this will be cap­tured in the CSO sta­tis­tics when it com­piles its GDP num­bers is still un­cer­tain. But don’t ex­pect a smooth ride.

Il­lus­tra­tion by ANIRBAN GHOSH

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