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United States Federal Reserve believes India’s GST May Boost the GDP Growth by Up to 4.2%

India continues to be the fastest growing major economy in the world and its growth will accelerate further due to factors like the implementation of their simplified taxation system, Finance Minister Arun Jaitley said[1].

The government’s Goods and Services tax (GST) tax reform has been identified as one of most important tax reforms for India post-independence, says a report by the United States Federal Reserve. In the summer of 2016, the Indian Congress approved the tax legislation to simplify the current multilayered tax structure which taxes the Indian population at the federal, state, and local levels. The report indicates the change could boost India’s GDP growth by up to 4.2%, double the previous estimate, as lower taxes on manufactured goods will boost output and make products cheaper[2]. With these projected growth numbers, we can expect an increase in international competitiveness of Indian companies, thus helping the country expand external trade by an estimated 32%[3].

 

THE NEW TAX REFORM

The Federal Reserve of the United States believes the new and simplified tax system will unify at least 10 indirect taxes into one to be collected at state and central levels. The one tax is split into a four-tier schedule of 5, 12, 18 and 28 percent[4]. The report explains that while necessity goods will be taxed at 5 percent and luxury and consumer durable goods at 28 percent, most goods and all services will be taxed at the standard rates of either 12 or 18 percent, but the allocation to each tax rate is still uncertain. The main purpose of the new tax is to eliminate the compounding effect of the current tax system as well as the cross-state tax by fixing the final tax rate. Under the existing structure, at each point of sale, additional taxes are applied to the after-tax value of each goods and services. The new tax reform will bring down prices and costs, which should increase India’s productivity levels.

The Indian government is fully on course to implement the Goods and Services Tax by July 1, 2017[5]. The improved tax system will deliver significant externalities by way of improved tax efficiency and ease of doing business and will convert India into one common market. The United States Federal Reserve’s report expects the reform to raise overall Indian prosperity, and is projected to be an inclusive policy in that it would be fiscally positive for all Indian states.

 

WHAT THIS MEANS FOR OUR INVESTORS

We expect the implementation of this tax legislation will positively impact the overall growth trajectory and productivity levels of Indian companies. When you combine this legislative change with India’s favorable growth and the Indian government’s focus on pro growth reform policies, it becomes very apparent that India will continue to be a key destination for foreign investors. As the Canadian pioneers in Indian investing, Excel Funds is enthusiastic about India’s growth outlook and the positive investment environment it will generate for Indian corporations.

 

[1] The Times of India, India’s growth to accelerate further due to GST, April 23, 2017

[2] Board of Governors of the Federal Reserve, The Effect of GST on Indian Growth, March 24, 2017

[3] Times of India, GST to boost GDP by 4.2%, April 22, 2017

[4] Deccan Herald, GST to boost growth, make products cheaper, April 23, 2017

[5] PTI, GST will boost India’s growth, April 23, 2017  

 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”

Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects.

The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional.

Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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