Hopes on GST to bring down India's fiscal deficit

Despite fall in global oil prices, India's gross fiscal deficit (GFD) is unlikely to decline for the next few years. 

In a report dated July 18, 2016, Sanjeev Prasad, Suvodeep Rakshit and Sunita Baldawa of Kotak Institutional Equities Research said, "India’s high consolidated fiscal deficit remains the single-biggest issue with the economy. While there has been some improvement from the 8-9% levels in FY2009-10 (the years following the global financial crisis), GFD has stubbornly stayed around 7%."

The trio said that the success of Goods and Services Tax (GST) is likely to help bring GFD down. 

GST has been a contentious issue for the past decade. Rajya Sabha is likely to take up a debate on the Bill in the current Monsoon Session of the parliament. The Government and opposition parties are in talks over their reservations on the Bill. However, passage of the Bill in current session is anybody's guess. 

Various reports over the past few years suggest that GST will be able to improve India's GDP by 1-2%. India's current economy is in the range of $2 trillion a year. 

They said, "In our view, further decline in GFD may be difficult until the positive benefits of GST flow through in the form of higher taxes (not before FY2019, which will coincide with likely higher government spending before the elections)."