GST may not raise revenues significantly in next few years: Fitch Ratings

The Goods and Services Tax (GST) reform, being touted as India`s biggest reform that will come into effect from July 1, may not boost revenues "significantly" in the next few years, but can work in the medium term, said global rating agency Fitch Ratings.

"We do not expect it will lead to significantly higher government revenues in the coming few years," Thomas Rookmaaker, Director, Sovereigns and Supranationals Group, Fitch Ratings, told IANS.

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He, however, pointed out that it may indirectly boost revenues in the medium term through higher GDP growth and more transparency.

Acknowledging GST as "an important reform being implemented", Rookmaaker said it will facilitate trade within India and reduce transaction costs.

Revenue Secretary Hasmukh Adhia also had said earlier that the tax buoyancy under GST is likely to take a hit immediately.

Finance Minister Arun Jaitley had also said that the revenues under GST may see an indirect increase with the widening of the tax net and less tax evasion.

Along with GST, Fitch Ratings has recognised demonetisation as a "bold step aimed at curbing the use of black money" and Insolvency and Bankruptcy Code, Aadhaar, Make in India, FDI-related measures and labour market laws as other strong reforms.

Explaining the rating review process, he said the agency compares sovereigns like India to its peers on the basis of a large number of indicators. 

"On the basis of some metrics India`s credit profile looks relatively strong, while on others it is relatively weak. India`s position in the World Bank ranking for Ease of Doing Business (EDB) illustrates how weak the business environment still is compared with peer countries," he said.

India`s EDB ranking is the lowest of all countries rated in the BBB category (like Indonesia, Morocco, Russia, Philippines). 

Elucidating that weak public finances continue to constrain India`s ratings, he said the recommendations made by the Fiscal Responsibility and Budget Management (FRBM) committee to bring down the fiscal deficit are still just recommendations and wondered to what extent the government would be committed to bring down the debt burden.

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"The FRBM committee has come up with some thoughtful recommendations which, if implemented, could significantly alter the fiscal parameters in the medium term. From a rating perspective, especially the focus on structurally bringing down the government debt burden is interesting. So far these are just committee recommendations, however, and it is unclear what the government will do with the recommendations and to what extent it will be committed to reducing the debt burden," he said.

"The general government debt burden of 67.9 per cent of GDP is high compared with the `BBB` median of 40.9 per cent. There is some consolidation at the Centre, but after including the states, which we do for all countries for comparability, the fiscal balance is still wide at 6.6 per cent of GDP (`BBB` median: -2.7 per cent), as estimated by Fitch for 2016-17," he added.