‘GST cut will be a great pos­i­tive for the real es­tate sec­tor ’

Mint ST - - LONG STORY -

base price will be­come ₹5,300 per square feet and, of course, I will only add 5% in that, as ap­posed to 12%, which I do cur­rently.

So, from a cus­tomer’s stand­point, maybe even­tu­ally, the over­all price, in­clud­ing that, will still be lower, but the base price will need to be in­creased and, there­fore, cus­tomers will of course ask ques­tions about why the base price has been in­creased, and there could be dis­pute.

But more struc­turally and log­i­cally, it is not a good idea be­cause when you have re­stricted in­put credit, you are dis­cour­ag­ing the value chain to pay taxes.

At a broad level, there are two con­sid­er­a­tions. First and fore­most, this con­cept of GST, with­out in­put tax credit, has never been in ex­is­tence. It is some­thing which we have been hear­ing pos­si­bly six months af­ter GST got in­tro­duced.

I am not aware of any con­cept, which says there can be GST, but with­out in­put tax credit. We heard it first time in case of restau­rants, and now we are hear­ing it in re­spect of the real es­tate sec­tor.

So, when we talk of GST, which in its pure form a tax, wherein you get in­put tax credit, and you pay only on the value ad­di­tion.

In In­dia we are now try­ing to do mod­i­fi­ca­tion of that ba­sic con­cept, by say­ing there will be a few things where we will have GST, but we will not be hav­ing an in­put tax credit. To me, it de­picts some of the ba­sic pur­poses of hav­ing GST. Hav­ing said that, let me just make one men­tion here from a real es­tate sale per­spec­tive.

Op­ti­cally, it makes a lot of sense be­cause be­fore GST come into the pic­ture, we used to have ser­vice tax, which was 4.5% or so, and the state would levy a value-added tax or VAT of 1-1.50%.

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Y.V. Reddy has been one of the doyens of In­dian eco­nomic pol­icy mak­ing for al­most two decades since 1991, hav­ing han­dled the 1991 bal­ance of pay­ments cri­sis as the bank­ing sec­re­tary, aided the lib­er­al­iza­tion of the econ­omy in Man­mo­han Singh’s fi­nance min­istry, shaped the lib­er­al­iza­tion of the fi­nan­cial and the ex­ter­nal sec­tor as deputy gover­nor un­der Bi­mal Jalan, and sta­bilised the bank­ing sys­tem to face the chal­lenges of ex­ces­sive fi­nan­ciali­a­tion that led to the Lehman cri­sis. Reddy was one of those gov­er­nors who was cho­sen by the NDA in 2003 and con­tin­ued to work with the UPA in 2004. His ad­vice, there­fore, needs to be taken with­out the lens of par­ti­san­ship. If Dr Reddy is in­clined to any party it is In­dia’s pub­lic in­ter­est.

In his R.R. Kale Memo­rial speech de­liv­ered at the Gokhale In­sti­tute on Fri­day, Dr Reddy raised im­por­tant is­sues, which all well-mean­ing cit­i­zens and pol­icy mak­ers in all reg­u­la­tory in­sti­tu­tions, in the North Block and in all po­lit­i­cal par­ties, need to pon­der over.

First, on the is­sue of RBI re­serves, he asked if it was fair for the gov­ern­ment to de­mand the sur­pluses of the pre­vi­ous two years, which have al­ready been made part of RBI’S re­serves, es­pe­cially when a Bi­mal Jalan com­mit­tee is ex­am­in­ing how much of those re­serves were needed for a strong and in­de­pen­dent cen­tral bank. Wouldn’t cour­tesy re­quire that the gov­ern­ment of the day at least wait for Jalan com­mit­tee’s rec­om­men­da­tions, he asked.

Reddy calls this co­er­cive mon­e­ti­za­tion of the deficit, not very dif­fer­ent from the au­to­matic mon­eti­sa­tion of the fisc that pre­vailed be­fore the 1991 re­forms. That’s a mea­sure of how we have re­gressed in terms of de-in­sti­tu­tion­al­iz­ing the RBI.

While we await the Jalan com­mit­tee’s rec­om­men­da­tions, Reddy’s words of cau­tion are worth keep­ing in mind: That it may be worth keep­ing the cen­tral bank’s bal­ance sheet strong, es­pe­cially when the gov­ern­ment’s fisc is weak with deficits.

More im­por­tantly, de­nud­ing the cen­tral bank’s re­serves, in­clud­ing the un­re­al­ized gains, which are kept as reval­u­a­tion re­serves, can be dan­ger­ous when there is a run on the ru­pee.

Se­cond, Dr Reddy warns that trans­fer­ring the RBIS sup­posed “ex­cess” cap­i­tal directly to banks as sug­gested by the for­mer chief eco­nomic

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