 "Govt taking steps in right direction through GST, other policy reforms: UBS")
The ongoing structural reform push by the government like the Goods and Services Tax (GST) and inflation targeting will help lay the foundation for sustainable growth, says an UBS report.
According to the global financial services major, notwithstanding the "gradual pace" of recovery on the ground, the government's current measures are steps in the right direction.
"Despite the gradual and lopsided pace of recovery on the ground, we believe the ongoing structural reform push by the policymakers will help improve productivity dynamics and lay the foundation for sustainable growth," UBS said in a research note.
Some of the reform measures adopted by the government include enabling implementation of GST, adoption of inflation targeting, new bankruptcy code, financial inclusion, liberalisation of FDI, measures to curb black money and encouraging digitalisation.
Citing meetings with two senior officials at the Ministry of Finance, UBS Securities India Economist Tanvee Gupta Jain said resolution of stressed assets is a key priority for the government, but it is not keen on creating a 'bad bank' right now.
Regarding GST, Jain said the government prefers to stick to the July 1 deadline for its implementation. However, the first few months post GST implementation could be "difficult" as both the private sector and the government adjust to the new tax norms.
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"While the government agreed that consensus with various states has resulted in a slightly complicated GST structure, it is trying to fix glitches to ensure a smooth transition. The broad view was that GST will be largely non-inflationary and is a medium-term structural reform," Jain said.
Regarding foreign investment, the report noted that FDI inflows to India increased to a high of $44.5 billion in calender year 2016.
"The government expects this favourable trend to continue thanks to the policy initiatives undertaken over the past few years including liberalisation of FDI limits across various sectors and other reforms including improvements in the ease of doing business, macro stability, easier regulatory regime," Jain said citing the interaction.