An unusual budget

This budget was unusual on many counts: the rail budget was amalgamated, GST was on the agenda and so was demonetisation. The tax system will change as and when goods-and-services tax (GST) is implemented. Not much data has been released about demonetisation yet. Hence, many projections will be subject to change. Let’s run through the items mentioned above. Goods-and-services tax GST has a deadline of September 30, 2017. The entire tax structure will change and so obviously will budget projections as and when it is implemented. Importantly, political action is needed either way to implement GST or to carry on with the current system. So, assessing if it will happen is a political call. Negotiations continue between the states and the Centre. The finance minister has said proceedings are on schedule. Going by the experience in well-run nations like the European Union members, some economic chaos can be expected in the first two fiscals of GST. There will be disputes, recalculations, and renegotiations. Eventually, GST will iron out distortions, ease friction and unify India as one market. Strictly from a political angle, it may therefore make sense for the BJP to pull back from GST. An extended period of chaos could derail the chances of it getting re-elected in 2019. What’s more, India will have a very complex GST. The EU nations tend to have three rates – one rate for normal goods, one rate for services and one for ‘special items’.  India is looking at seven different rates for goods and at least one more rate for services.  That means more scope for confusion. The Economic Survey has an intriguing chapter on interstate trade. This says there’s already a surprisingly high quantum of inter-state trade. If inter-state trade is already high, maybe GST is not so urgently required.  Indian Railways Indian Railways (IR) is struggling. This is partly due to economic slowdown and partly due to many years of misguided policy and rigid internal management. IR plays three broad

This article was originally published on April 03, 2017.