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India’s Goods and Services Tax Bill – A Critical Evaluation

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By Siddhartha Thyagarajan & Kabir Narang 

The original blueprint of the Goods and Services Tax (GST) bill was first introduced in 2001. It aims to adopt a value added tax (VAT) model, and replace the current national-level central excise duty and state-level sales tax model. Heated debates in parliament has hindered the passage of the bill, which has been modified several times.

India’s current tax system is complex and multi-layered. Cross-border compliance, compounding of taxes on domestically produced goods and services, in addition to several central and state taxes, exacerbate the complexity of the system. This is why the government has realized the need for an efficient, transparent, and simple method of indirect taxation in the form of the GST bill. The bill indicates that the GST will be a tax on the final consumption or the actual supply of goods and services. The basic provision of the tax is that economic activity at each stage of production is taxed at the same rate, preventing further fragmentation. The GST will comprise of three main taxes: CGST (Central), SGST (State), and IGST (Inter-State). This article critically evaluates the bill. The first section looks at the benefits of the GST, the second section addresses the drawbacks of the GST, and the final section looks at how the GST will affect the landscape of the Indian economy.

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City Spotlight: Investing in India’s Coimbatore

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By Dezan Shira & Associates
Editor: Kabir Narang

Coimbatore is a city located in the southern Indian state of Tamil Nadu. The highest revenue-yielding district after the state’s capital city, Chennai, its massive productive potential makes it one of India’s fastest growing metros. Coimbatore also enjoys the nickname ‘Manchester of South India’ as it is surrounded by cotton fields that feed into a flourishing textile industry. Yet, the city has a diversified economy, catering to the IT industry through a skilled labor pool and special economic zones (SEZs) that have attracted leading IT companies and technology service providers.

Additionally, Coimbatore is an important and renowned manufacturing center, producing specialized products intrinsic to the region, such as wet grinders. The city also produces auto components and manufactured the first diesel engine in the country. At least half of India’s motors and pumps come from the region lending it the name, the ‘Pump City’. Apart from being a major exporter of its manufactures, Coimbatore also exports jewelry, poultry, and software. Important trade associations such as the Coimbatore District Small Scale Industries Association (CODISSIA), Coimbatore Industrial Infrastructure Association (COINDIA), South India Textile Research Association (SITRA), and Coimbatore Jewelry Manufacturers’ Association (COJEWEL) regularly organize trade fairs and ensure their representative industries comply with the established standards.

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India Market Watch: Auto Sales to Increase, Hiring Rates Decline in IT, and Ikea Benefits from Less Regulations

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Strong Passenger Vehicle Sales Expected in 2016-2017

The passenger vehicle (PV) industry’s domestic volumes could grow by 8.5 to 9.5 percent, as per a report by the research and rating agency, ICRA. The projection is due to “the return of first-time buyers and replacement demand”. The optimistic outlook is further supported by the recent economic upturn, a favorable monsoon prediction, and the impact of the Seventh Pay Commission.

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City Spotlight: Pune

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By: Dezan Shira & Associates
Editor: Kabir Narang

Pune is the second largest city in the state of Maharashtra after the capital, Mumbai. It is also the ninth most populous city in India. Home to several educational institutes and universities that contribute to a skilled labor force, it also has a strong industrial belt dominated by manufacturing (process control equipment) and automotive plants. 

Pune fares well for both real estate developers and builders. According to the National Housing Bank (NHB) residex, a housing index that measures indirect wealth creation via movement of prices in the residential housing segment, Pune showed the highest growth in home prices in the January-March quarter of 2015, indicating healthy demand. The city has a rich cultural history, having once been the seat of the once-dominant Maratha Empire and a vibrant biodiversity, making it a popular tourist destination. It is also well connected to other parts of Maharashtra and India by road, rail, and air.

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India Market Watch: India’s Fuel Demand Jumps, New Solar Policy Expected, and E-Trading to Aid Farmers

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India’s Fuel Demand Grows in 2015-2016

Data released by the Ministry of Petroleum & Natural Gas shows India’s fuel consumption rose by 10.9 percent, from 165.5 million tons to 183.5 million tons, in the 2015-2016 financial year ending March 31. Breaking down the data, diesel consumption jumped 7.5 percent to reach 74.6 million tons and petrol sales increased by 14.5 percent to 21.8 million tons. Projections for 2016-2017 remain equally robust.

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Factors Shaping India’s Positive Economic Outlook

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By Kabir Narang

Amidst the declining optimism towards emerging economies, India’s economic outlook remains positive. This is due to the Bharatiya Janata Party (BJP) led government’s dual focus on economic reforms and maintaining fiscal discipline, and a strong monetary policy directed by the Reserve Bank of India (RBI). In the context of the global commodity slowdown, it helps that India is not an export-dependent nation. These factors underline the World Bank’s positive projection that India’s gross domestic product (GDP) will grow at 7.5 percent in 2016 and 7.7 percent in 2017.

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India Regulatory Brief: States to Regulate Taxi Aggregators, Key Land Reform Bills Passed in Rajasthan

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State Governments Seek to Regulate Taxi Aggregators

Last week Karnataka became the first state to introduce state-prescribed fares for taxi aggregators. In addition to set fares, taxis will have to fix digital meters with printers and register themselves with local transport authorities. Maharashtra, with two of the largest taxi hailing markets – Mumbai and Pune – is set to follow this example. According to a source in the Maharashtra state government, their proposed rules go beyond the scope of Karnataka’s. These will include fare determination based on the cost of the vehicle and its engine capacity; regulation of taxi numbers through an induction schedule, which could adversely impact the employment of driver partners of taxi aggregators; and the ability to cancel licenses for non-compliance.

Different states have responded differently to the entry of transport aggregators. For instance, both Uber and Ola have capitalized on the Delhi government’s call for car sharing as the city struggles to combat its high pollution. Ride sharing services were introduced in Delhi in January with no government resistance, unlike in Karnataka.

The taxi hailing market in India was US $1 billion in annual gross booking value in February 2016 according to RedSeer Management Consulting. This is why Uber and Ola have so far focused on undercutting each other’s pricing to build their respective customer bases. Strict regulation of taxi prices will hurt their business strategies, though benefiting customers in the long run.

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Labor Unrest At The Maruti Suzuki India Plant In Manesar

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By Dezan Shira and Associates
Editor: Melissa Cyrill

A troubled history of labor unrest at the Maruti Suzuki India (MSI) factory in the industrial town of Manesar has damaged the region’s reputation as an investment destination. The Gurgaon – Manesar belt in the state of Haryana is a premier manufacturing area in North India, and is the country’s largest manufacturer of automobiles. Yet, recent labor unrest has caused manufacturing managers to muscle up their HR and security practices, forcing workers and labor unions to be more direct.

A comprehensive review of the region’s labor unrest shows that mismanagement and miscommunication are the leading causes of these highly damaging and preventable incidents. Businesses that understand local conditions, comply with regulations, and adopt best practices significantly reduce the potential for labor troubles and increase the productivity of their workforce.

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