Confederation of Indian Industry president expects to see GST bonus

Q: What is the biggest challenge for foreign companies when they proceed into the Indian market?

A: The ease of doing business, which we still struggle with. We need to change that, because foreign investors see the market, it’s just the ability to understand [the market that they are lacking].

Q: Is the long-awaited Goods and Services Tax [GST] a step in this direction?

A: The GST reform introduces a more harmonised tax system and it will help because it brings more clarity. Prior to the GST, the whole tax system was so confusing. It would take a month for a product to move past five different states and be shipped abroad, which means the manufacturer loses all the competitive advantages of cheaper manufacturing along the way. The GST reform will fundamentally make things faster.

Besides, the GST will create more of a level playing field between foreign and local companies. Only 15% of Indian companies are taxpayers; once this net widens, you have a more level playing field. That’s what companies want. Companies also want clarity of policy. With the old system, every time a single state approved a budget, tax rates changes and so on. This will all go away with the new system.

Q: However, in its final draft, the GST is more complicated that it was supposed to be as it introduces a number of different tax rates for different products…

A: This is just the beginning of the GST. The government is dealing with 29 different states, and it has taken 17 years to be approved. Its first version is not going to be the best one.

Q: Have you estimated the potential impact of the GST on India's economic activity?

A: Give it six months to settle, and for us to get it together. After that, it should bring an additional percentage point to India’s economic growth. It could have been two percentage points, but there were certain concessions that had to be made.

Q: How do you see single states adjusting their investment promotion strategies, now that their ability to pull the fiscal lever is more limited?

A: The ecosystem they can offer will start to play a bigger role. What can they offer? An industrial cluster, faster access, better infrastructure or trained manpower... all of this will become an increasingly important factor because tax incentives are not the only way for states to compete for investment.