Economy

GST hike in non-essential items ruled out

Our Bureau New Delhi | Updated on May 29, 2020 Published on May 29, 2020

Govt says ‘no’ for printing notes to bridge deficit

The government has ruled out any Goods & Services (GST) hike for non-essential goods. It has also said ‘no’ to monetisation of deficit, for now.

The GST Council, that meets once in three months, is scheduled to meet before June 14.

As both the Centre and the States are facing a severe revenue crunch, there were speculations that some rate rejig could be done, especially on non-essential items such as electronic products or even tobacco-related products. “Consumer has to decide what is essential for him/her and what is non-essential. Demand for all goods to be induced,” a senior Finance Ministry official said, while ruling out any rate revision.

Monetisation of deficit

Not just GST, other sources of revenue have also dried up. At the same time, expenditure has gone beyond what is budgeted. Given this, the deficit (difference between income and expenditure of the government) should, perhaps, be monetisd by the RBI. Simply said, the RBI should print money and lend to the government. This practice was in vogue till fiscal year 1997-98, after which the government started borrowing from the market — lenders are banks, financial institutions and even the common man.

On being asked whether the government will go for monetisation, the official said ‘no’, but did not ruled it out permanently. “Let the bridge come, we will cross then only,” the official said. Monetisation has many effects. First, it pushes the inflation rate and, second, brings down the value of the currency. However, experts feel that a one-time solution will not have much repercussions, given that global crude prices are down.

Unemployment rate

Many industries, especially micro, small and medium (MSME) enterprises, have been facing cash flow problems following the lockdown, leading to a high number of employees being retrenched. According to Centre for Monitoring Indian Economy (CMIE), the unemployment rate has risen from 8.8 per cent in March to 23.5 per cent in April and seems to have remained stable at the elevated rate of around 24 per cent in May.

When asked what the government is doing on this front, the official said the Finance Ministry is engaging with Labour Ministry over job losses and salary cuts. It has asked the Ministry to collect data on job losses during Covid-19.

Foreign investment from China

Amid the spread of Covid-19, the government amended FDI rules last month by placing investment by certain countries in the approval route. This was mainly intended to check fund flow from China. On checks on foreign portfolio investment (FPI) investment from China, the official said, “no call had been taken on restricting China through FPI route.” FPI route means investment through the stock market.

The Financial Stability & Development Council, in its meeting on Thursday, discussed the concept of bad bank; however, no decision has been taken as of now. A bad bank is a corporate structure that isolates illiquid and high-risk assets held by a bank or a financial organisation, or perhaps a group of banks or financial organisations. On actual credit flow, the official said loan has been sanctioned but there has been no disbusrsal though many enterprises have made requests.

Published on May 29, 2020
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