ID :
345900
Tue, 10/28/2014 - 08:50
Auther :

GST Among The Key Reforms Needed To Boost India's Manufacturing Sector, Says World Bank

NEW DELHI, Oct 28 (Bernama) – The implementation of a national Goods and Services Tax (GST), accompanied by a dismantling of inter-state check posts, can be transformational and significantly improve the domestic and international competitiveness of Indian manufacturing firms, says the World Bank. "Implementing the GST will transform India into a common market, eliminate inefficient tax cascading, and go a long way in boosting the manufacturing sector," Senior Country Economist, World Bank, India, Denis Medvedev said. Manufacturing in India accounts for around 16 per cent of the Gross Domestic Product (GDP), a level that has remained largely unchanged in the last two decades. It is relatively low when compared with the 20-per cent plus share in countries like Brazil, China, Indonesia, Korea and Malaysia, even after controlling for differences in per capita incomes. The World Bank in the latest India Development Update released on Monday said among others, supply chain delays and uncertainty are a major, yet underappreciated, constraint to manufacturing growth and competitiveness in India. Regulatory impediments to the movement of goods across state borders raise truck transit times by as much as one quarter, and put Indian manufacturing firms at a significant disadvantage with international competitors. According to the World Bank's estimates, simply halving the delays due to road blocks, tolls and other stoppages, could cut freight times by some 20-30 per cent and logistics costs by an even higher 30-40 per cent. This alone can go a long way in boosting the competitiveness of India’s key manufacturing sectors by three to four per cent of net sales, thereby helping the country return to a high growth path and enable large scale job creation. High variability and unpredictability in shipments add to total logistics costs in the form of higher-than-optimal buffer stocks and lost sales, pushing logistics costs in India to two-three times international benchmarks. The World Bank said hence, the GST offered an unique opportunity to rationalise and re-engineer logistics networks in India, given the inherent inefficiencies with taxes based on the crossing of administrative boundaries. "The transformational impact of reform, particularly if enhanced by a systematic dismantling of inter-state check posts, can dramatically boost competitiveness and help offset both domestic and external risks to the outlook," said Denis. World Bank Country Director in India, Onno Ruhl said in the update that to realise its full potential, the country needs to continue making progress on its domestic reforms agenda and encourage investments. "The government's efforts at improving the performance of the manufacturing sector will lead to more jobs for young Indian women and men," he added. According to the World Bank, India’s longer term growth potential remains high due to favorable demographics, relatively high savings, recent policies and efforts to improve skills and education, and domestic market integration. It said India’s economic growth is expected to rise to 5.6 per cent in Financial Year 2015, followed by a further acceleration to 6.4 per cent and 7.0 per cent in Financial Years 2016 and 2017. Improved growth prospects in the United States will support India’s merchandise and services exports, while stronger remittance inflows and declining oil prices are expected to support domestic demand. The projections could, however, face risks from external shocks, including financial market disruptions arising out of changes in monetary policy in high income countries, slower global growth and higher oil prices. Domestically, the risks include challenges to energy supply and fiscal pressures from weak revenue collection in the short term, the World Bank noted. -- BERNAMA

X