India is poised to emerge as one of the key drivers of global economic growth. The confidence in the Indian economy can be gauged from the recent assertion by the IMF that "India is among the few bright spots in the global economy". Indeed, India is now the fastest growing large economy in the world, and for the first half of 2015 had the highest inflow of FDI, surpassing even traditional top performers like the US and China.
The primacy of economic development in governance and progressive reforms to facilitate investments are hallmarks of the Narendra Modi-led government. Legislative facilitation is crucial to provide further impetus to this growth momentum. The ongoing Winter Session is all the more significant because of key bills that will come up for consideration before lawmakers. Among these, legislations on Goods & Services Tax (GST), real estate regulation, MSME and labour reforms stand out for their long-term economic impact.
1. Goods & Services Tax (GST)
GST can be a game-changer for the Indian economy as it would lead to simplified indirect taxes with easier compliance norms for business. Independent studies indicate that a full implementation of GST will lead to additional 0.9-1.7% annual growth in India's GDP. With the new tax regime, tax revenues are expected to rise by 0.2%; tax liabilities will come down, which can result in 20% lower logistics costs for non-bulk goods. Domestic production of goods and services will become more cost-effective and contribute to 3.2-6.3% increase in exports.
Independent studies indicate that a full implementation of GST will lead to additional 0.9-1.7% annual growth in India's GDP.
For the economy to effectively harness the intended benefits of GST, some aspects have to be suitably addressed. Revenue Neutral Rate must be suitably determined to reduce the overall tax burden. The threshold limit for GST should be fixed so that the interests of small business are protected. To make up for the revenue shortfall of states from GST, 1% additional levy on inter-state supply of select items for a period not exceeding two years can be considered. In fact, the proposed bill can have a provision to compensate states for the initial five years.
2. Real Estate Regulation
Another significant bill, which has a nod from the Union Cabinet, is the Real Estate Bill. It will give a strong boost to the real estate sector in India. The bill proposes that a Real Estate Regulatory Authority (RERA) be created -- all housing and commercial projects will require prior registration with this regulator. The Real Estate Appellate Tribunal has been proposed to fast track settlement of disputes. This will create a uniform regulatory environment and protect the interests of buyers.
As the real estate and housing sector expands, the Real Estate Bill will ensure its orderly growth. This can provide a great economic growth multiplier for the economy.
For efficient project execution, developers would have to make mandatory public disclosure of all registered project details, and mandatorily deposit 50% of the value of the real estate project in a separate bank account within 15 days of registration.
As the real estate and housing sector expands in India, this bill will ensure its orderly growth. This can provide a great economic growth multiplier for India's economy.
3. MSME Development
Micro, small and medium enterprises (MSMEs) have a crucial role in promoting inclusive growth at the grassroots level. An upward revision in the investment limits for plants and machinery is essential to account for the inflationary trends in the economy. This will also ensure that more firms are included within the MSME fold and are able to benefit from favourable policies on taxes, bank credit etc.
The amendment to the MSME Development Act, 2006 addresses these aspects suitably. There will also be a provision to allow the government to revise these limits through notifications rather than legal amendments.
4. Labour Laws & Small Factories Bill
The existing laws have not been able to bring about enough vibrancy in the labour market to match the demands of a globalised economy. In this regard, Parliament can prioritise select legislations to redress some labour-related constraints.
[T]he perception of investors about the economy is increasingly predicated to the efficacy of our parliamentary deliberations.
The Child Labour Bill will strengthen safeguards against child labour by clear delineation of prohibited sectors of employment, as well as increased penalty for breach of the law. This is going to make India a safer workplace and a responsible investment destination in the long term.
The Small Factories Bill is expected to standardise working conditions and payment of wages in SMEs, which are one of the pillars of the Indian economy. The provisions of the bill will improve social security of workers and scope of women's employment in small firms. Moreover, the bill will rationalise 14 central labour laws for small enterprises into a single legislation and improve the ease of compliance.
The way forward
In recent times, the perception of investors about the economy is increasingly predicated on the efficacy of our parliamentary deliberations. This has a significant impact on the long-term growth prospects of India. The nation, therefore, expects a broad political consensus to ensure legislative business is conducted smoothly during the Winter Session.
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