Incentives for exporters, monetary easing to bolster structural reforms in India

New Delhi, Aug 19 (IANS) The government should implement fiscal incentives for exporters, monetary easing through rate cuts and structural reforms to fully leverage the upcoming GST rate revision, a report said on Tuesday.

Key priorities include fast-tracking the India-EU trade deal, slashing import tariffs on intermediary inputs, and welcoming FDI especially from China, a report from HSBC Global Investment Research suggested.

Domestically, the research firm called for "more ease-of-doing-business deregulation across states, implementing the four labour codes, and stepping up disinvestment."

Highlighting the doubt surrounding who would foot the bill of GST tax rate cuts, the report said, "We may have to wait a bit longer to ascertain whether clouds are lifting or just shifting. In the meantime, it would serve India well to have a growth plan, ranging from fiscal support (incentives for exporters) and monetary easing to structural reforms."

The Centre has announced a major GST reform of slashing rates across a variety of products by probably transferring most items from the 12 per cent and 28 per cent slabs to the 5 per cent and 18 per cent slabs.

“Immediate tax cuts could spur demand across products - food, beverages, consumer durables, autos, hotels, cement, building materials, etc.,” the research firm predicted.

"If US tariffs on India are eventually lowered, the GDP growth drag could soften too. If the growth outlook improves, it may be easier to digest the short-term disruptions associated with funding the GST rate cuts. If fiscal discipline is maintained despite GST rate cuts, the S&P projections on which India achieved a ratings upgrade, will be upheld," the report said.

US government has imposed 50 per cent duties on Indian exports, effective from August 27, with the US accounting for about 20 per cent of India's total exports. However, one-third of these shipments are exempt from tariffs.

After revising India's outlook to positive last year, S&P Global Ratings upgraded India's long term sovereign credit rating to BBB from BBB- and the short-term rating from 'A-3' to 'A-2'. "This move may not just boost sentiment, but also help lower the risk premia and borrowings costs in the economy," the HSBC report noted.

--IANS

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