New Delhi: Chief Economic Adviser (CEA) K V Subramanian on Thursday said that rationalisation of GST rate structure is on the government's agenda and it is definitely going to happen.
Further, he said that a three-rate structure is very important and there is also a need to fix inverted duty structure as far as the GST is concerned.
The Goods and Services Tax (GST), which amalgamates more than a dozen central and state levies like excise duty, service tax and VAT, was introduced in July 2017. GST currently has five rate structures — 0.25 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent.
To a question if rate structure rationalisation under GST needed, Subramanian said, "I think that's something definitely going to happen. The original plan was to have a three-rate structure. But I think what we have to be very cognizant about is that oftentimes with policymaking you don't want perfect to actually become the enemy of the excellent."
A majority of common use items have been exempted from GST, while 28 per cent tax is levied on luxury, demerit and 'sin goods'.
"The GST, the way it got created with actually five rates was basically excellent because now we are seeing the impact on GST's amounts that are coming in...the policymakers then must be given credit for actually being practical enough to say, let's get it going first," he said at a virtual event organised by industry body Assocham.
"The three-rate structure is something... definitely important and even the inverted duty structure (is) also equally important to actually fix. I think the government is definitely seized of the matter. So we should hopefully see traction on that soon," he said.
GST collection slipped below Rs 1 lakh crore in June for the first time in eight months as the second wave of the Covid pandemic and the resultant lockdowns hit businesses and the economy.
At Rs 92,849 crore, GST collection was the lowest in 10 months since August 2020, when it was Rs 86,449 crore. The GST collections in June 2021 are primarily for supplies made in May -- a month when most states were under different levels of lockdown, reducing business activity.
Highlighting the importance of the financial sector in the growth of the economy, Subramanian said India needs more global size banks.
India is the fifth largest economy of the world but the banking system is still has a lot of catching up to do, he said adding that domestically some could be large but not large enough to be included in global top 50 list.
State Bank of India (SBI) at the 55th position is the only bank in the global top 100 list. China has 18 banks while the US has 12 in the list.
Speaking on the occasion, Sebi's Whole Time Member G Mahalingam said developing a credit default swap (CDS) market could help in deepening corporate debt market.
"We have been trying our level best, but there have been a lot of constraining features as far as CDS is concerned. This is one area where we need to work which will be completely and completely sector agnostic," he said.
Mahalingam suggested the infrastructure sector deserves at least some kind of a partial credit enhancement kind of facilities and there is a need to have a look at this.
"I would still repeat a CDS is something which we need to really work through all the policymakers, putting their heads together to deepen the corporate bond market," he said.
He also said there are regulatory restrictions on insurance and pension funds for investment in corporate bonds and there is to examine the issue.
Sebi and the government has taken a number of steps to deepen the corporate bond market, he added.
Moreover, K V Subramanian said headline inflation will come down under the 6 per cent mark in July itself but will stay at an elevated level of over 5 per cent for some time.
Such an outcome will get the price rise back into the upper-end of the target band given to RBI, he said, adding that consumer price inflation had breached the mark for three consecutive quarters last fiscal because of supply side issues like challenges in movement of goods.
"With reasonable probability, I expect this month the (inflation) print to come less than 6 per cent," Subramanian told a conference organised by industry lobby Ficci.
Right after data for May showing inflation at 6.4 per cent had come out, Subramanian said he had predicted it will cool down in internal meetings and also during "deliberations with the regulator".
The sequential momentum in the number is range-bound despite the challenges posed by factors like commodity price rises, he added.
The CEA said in FY21, inflation was impacted because of the first wave of the pandemic which lasted longer, while the second wave saw distributed lockdowns and did not have a deep impact on inflation.
The RBI has been holding rates to aid growth despite the surge in inflation. However, after the recent data prints, concerns have been expressed over the price rise. The next monetary policy meeting of the central bank will be held during August 4 - 6.
On the growth front, Subramanian said the FY22 number should be within the ballpark of 10.5 per cent as estimated by the finance ministry earlier. It can be noted that the RBI had revised down its estimate to 9.5 per cent given the reverses of the second wave.
Subramanian added that the second wave lasted only for 6-8 weeks, and hence its impact on growth will not be as stark as the first wave of the pandemic which was on for 6 months, and led to a 7.3 per cent contraction in the GDP in FY21.
Subramanian insisted that when we compare the economic performance in FY21 with the one in the first quarter of this fiscal, the economy did achieve a V-shaped recovery at the macro level. However, some segments like the urban poor and small businesses did not achieve the same success as large firms, leading some to call it a K-shaped recovery which is inequitable, he said.