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The nationwide goods and services tax (GST) has come into effect from July 1. In announcing the start of the GST, Finance Minister Arun Jaitley painted an upbeat message, saying it will ease inflation, make tax avoidance difficult, and boost GDP growth.
He added it will be seen as a milestone and the beginning of a new journey that will expand the country’s economic horizon. He noted that 17 state and federal taxes and 23 cesses would be subsumed in the GST. Short-term confusion and caution are likely to prevail given the massive logistics involved in the implementation, Commerzbank reported.
There will inevitably be teething problems and we could see disruptions to growth. The Reserve Bank of India (RBI) had earlier warned of a one-off spike in inflation. However, it has toned down its hawkish rhetoric of late, noting that the impact on services inflation could be muted given that the standard rate will be kept unchanged at 18 percent.
"The bigger driver for inflation in coming months is likely to come from food prices and the upcoming monsoon season which is forecasted to be favourable. For USD/INR, we see it holding within the narrow range of the past three months of 63-64 for now," the report said.
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