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India Needs To Fully Implement GST Scheme To Avoid Tax Revenue Under-Performance: International Monetary Fund

Washington: India, which has somewhat recovered from the disruptions caused by the notes ban and the rollout of the GST needs to fully implement the new nationwide indirect tax to avoid tax revenue under-performance resulting in several cuts to capital expenditures, the IMF said today.

In a report of Fiscal Monitor, titled ‘Capitalising on Good times’, the International Monetary Fund (IMF) said that relatively buoyant revenues which were supported by base-broadening efforts and lower capital expenditures were offset by higher spending (which includes higher compensation to states for the rollout of the GST) and lower profit transfers from the Reserve Bank of India due to costs incurred during the notes ban.

Fiscal consolidation was paused in India in the fiscal year of 2017-18 at the federal level after the economy recovered from disruptions relating to the notes ban and the rollout of the GST, it said.

“In India, a return to a gradual path of growth-friendly fiscal consolidation is desirable to create fiscal space, but the full and smooth implementation of the new goods and services tax is necessary to avoid tax revenue under performance resulting in cuts to capital expenditures,” the IMF said.

As per the reports of IMF, in all the emerging markets and middle-income economies fiscal deficits fell marginally in the year 2017 for the first time after a total of four years of steady increase, which can be explained mainly by fiscal adjustment among commodity exporters.

On an average, the overall deficit came down from 4.8 per cent of GDP in 2016 to 4.4 per cent of GDP in 2017, with diverging fiscal developments across countries.

There has been a continuation of commodity exporters to push through reform to adjust to “lower for longer” oil prices.

Fiscal balances headline improved in most of the commodity exporters, and was supported by a pickup in commodity prices and also by expenditure cuts (Gulf Cooperation Council members, Mexico, and Russia).

In sharp contrast, the fiscal position was relaxed in the majority of non-commodity exporters, which includes, to provide stimulus to the economy  (China, India, Thailand), the IMF said.

Emerging market and middle-income economies have seen an average trend, and it is largely driven by rising fiscal deficits in China, which is also a bit higher when off-budget spending in also taken into account.

In sharp contrast, fiscal consolidation of Brazil continued in 2017, it further added.

According to the report published, in all the emerging market and developing economies, fiscal policy is appropriately focused on consolidation, especially in those countries that are still trying to adjust to the lower commodity prices.

However, the speed of adjustment could be very well fine-tuned and, in some cases, it can be more said to be more ambitious, it said.

“Several countries could step up the speed of their fiscal adjustment,” the IMF said, adding that given the current strength of the recovery, Brazil should quicken the pace of consolidation and front-load the fiscal effort.

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