India inches forward on major tax reform<br />NEW DELHI (Reuters) - The Congress-led government and the main opposition Bh...
11th july
11th july
11th july
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11th july

  1. 1. India inches forward on major tax reform<br />NEW DELHI (Reuters) - The Congress-led government and the main opposition Bharatiya Janata Party (BJP) took a small step towards forging consensus on Monday on introducing the country's first ever nationwide indirect tax, a reform seen as a major tool for faster economic growth in Asia's third largest economy.<br />The government agreed to appoint Sushil Modi, a senior member of the BJP to head a panel on implementing the tax that aims to improve India's meandering tax regime. It is the first breakthrough for the two sides in moving the stalled tax reform forward.<br />Prime Minister Manmohan Singh has been accused of running a lame duck government, though he recently won some praise from investors and analysts with some bold policy decisions, including raising fuel prices to ease the subsidy burden.<br />"It now looks as if sharp criticism has shaken them (government) out of lethargy," a research note by Macquarie Equities Research said of India's government.<br />The government has since its re-election in 2009 failed to make headway on the so-called key Goods and Services Tax (GST) due to opposition among some of the 28 states who fear that they will lose their fiscal autonomy.<br />The GST is intended to usher in a uniform market for goods and services, cut business costs and boost government revenues. At the moment, a manufacturer who wishes to move goods from one state to another has to struggle with a number of different taxes, as if taking goods across several countries.<br />The law is as much in focus for investors and the public because it shows the difficulties policymakers have in simplifying India's bureaucratic regulatory landscape, a key obstacle to economic development.<br />HURDLES AHEAD<br />The law needs to be approved by two-thirds of parliament and half of India's states, hence the need for the government to seek support from the opposition.<br />The Congress government has in the past accused the BJP of stalling the bill for political advantage. Officials have said the bill would miss its April 1, 2012 deadline.<br />"Earlier there was a stalemate between the centre and some state governments ruled by the BJP. The process will at least start with this appointment," said N.R. Bhanumurthy, a New Delhi-based analyst.<br />GST slashes through a maze of local taxes that can be raised or lowered at will by states at present, making life harder for firms navigating in a country of 1.2 billion people with notorious bureaucratic red tape.<br />Speaking after his appointment, Modi -- Bihar’s finance minister -- sought to dispel talk that the legislation had become a political football.<br />"It is not a political issue," he said. "It has nothing to do with the BJP or the Congress. Even in the BJP manifesto there is GST, but the empowered committee is concerned about states' revenues and other state issues," he added.<br />But former finance minister Yashwant Sinha, a senior BJP leader who currently heads a separate parliamentary panel on the GST, played down the significance of the appointment.<br />"No, it does not mean anything of that kind at all," he told Reuters when asked whether the new appointment indicated the opposition party could agree to the tax.<br />India's growth seen hurt by inflation, rate pressures<br />Economists have scaled down their growth expectations and raised inflation forecasts for the Indian economy, compared with their outlook just 10 weeks ago, a Reuters quarterly poll showed.<br />A poll of more than 20 economists, taken over the past week, showed the median estimate for 2011/12 GDP growth in Asia's third largest economy was down to 7.9 percent from 8.3 percent in the previous poll in May.<br />"Just two months ago we were expecting an 8.8 percent growth rate for this fiscal year but inflation is not showing signs of moderation, interest rates have surged and global uncertainty has increased so we were forced to revise it down to 8.1 percent," said Arun Singh, senior economist at Dun & Bradstreet.<br />The Indian economy grew 7.8 percent in the March-quarter from a year ago, its slowest annual pace in five quarters, as rising interest rates crimped consumption and investment.<br />Indian GDP is expected grow 7.8 percent in the June-quarter and then slow to 7.5 percent in the next quarter, but pick up after that to stay above 8 percent until at least the end of 2012, according to the poll.<br />In the previous poll, growth was seen above 8 percent in all quarters of the fiscal year ending March 2012. The outlook for GDP growth in 2012/13 dipped marginally to 8.4 percent from 8.5 percent in the last poll.<br />The Reserve Bank of India (RBI) has raised rates 10 times since March 2010, ranking it among the most aggressive central banks in the world, and is expected to raise rates again by 25 basis points at its quarterly review on July 26.<br />While the biggest snags for the euro zone and the United States are ongoing debt crises, the holdup for emerging nations is rampant inflation.<br />For India, headline inflation remains above 9 percent despite the spate of rate increases, spurring policy makers to also scale down their growth expectations.<br />"If need be we can live with slightly lower growth in order to have sustained long-run growth. So inflation needs to be controlled. There are no two ways about it," Kaushik Basu, chief economic adviser in the finance ministry, said on Thursday.<br />This has caused a marked slowdown in investment and consumption but economists believe the macro economic fundamentals of the economy are strong and growth will pick up in the second half of the fiscal year.<br />"Growth will remain subdued for two quarters, until September , but I believe once inflation subsides and there is some visibility and clarity on the growth rate of the international economy, everything should be in line," said Dun & Bradstreet's Singh.<br />INFLATION, RATES<br />Despite the predicted interest rate hike, median consensus from the latest poll also showed economists revising up their forecasts for inflation for this fiscal year and the next.<br />Their forecast for inflation, as measured with the wholesale price index, is now at 8.5 percent for 2011/12 from 7.7 percent in the previous poll, and 6.5 percent for 2012/13.<br />Rising global crude oil prices and food inflation have been the main drivers of inflation in India with the latest figure, released last week, showing wholesale prices rose 9.44 percent in June.<br />"It is going to come down extremely slowly as we go ahead. The main drivers will continue to be crude and the latent pressures that are already in the system and have to still spread out," said Sumita Kale, Chief Economist at Indicus Analytics.<br />"I think the RBI has already factored that in and will probably have another couple of rate hikes and then see how to go after September ."<br />Forecasts for the RBI's repo rate remained unchanged from a poll on June 14, with economists still expecting hikes of 25 basis points in the current quarter and next, taking the rate to 8 percent by end-2011, followed by unchanged interest rates until at least the end of December 2012.<br />What are H1B visas?<br />H-1B is a non-immigrant visa in the United States under the Immigration and Nationality Act, section 101(a)(15)(H). It allows U.S. employers to temporarily employ foreign workers in specialty occupations. If a foreign worker in H-1B status quits or is dismissed from the sponsoring employer, the worker must either apply for and be granted a change of status to another non-immigrant status, find another employer (subject to application for adjustment of status and/or change of visa), or leave the United States.<br />