While the new GST regime has not gone down well with traders and with major states going to the polls in 2018, India Inc needs to factor in the political realities weighing on economic decisions of the government, industry chamber Assocham said on Sunday.
A day ahead of the results of the Gujarat elections, an Assocham release said that corporate India's expectations on tough reforms, like on labour laws, "should be muted" since these may not go well with the public at a time when elections are due in many states.
"Any tough reforms, like flexibilities in labour laws, may not go well with popular sentiment and thus India Inc's expectations on this front should be muted," the industry chamber said in a note based on its internal assessment.
"In the run up to the 2019 Lok Sabha elections, states including Rajasthan, Madhya Pradesh, Chhatisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters' sentiment that would be factored by the Centre and state governments in their policies," it said.
Assocham, however, also said that an important fallout of the current politico-economic environment is that the Goods and Services Tax is expected to be further streamlined and rates further rationalised on the lower side.
"The GST had not gone well with the traders, the major political force for the political parties and the issue remained in focus during Gujarat elections. Besides, the SMEs (small and medium enterprises) would also get a boost, starting from the Budget proposals.”
"Their role in creating employment in a shorter span of time is being recognised and job creation would remain a big concern for the government (ahead of) the 2019 general elections," it added.
The industry body said among the factors to be particularly watched is inflation, which would now be the top priority for the government.
"In the trade off, growth may not get as important a place as inflation and, thus, the interest rate scenario looks to be on the upside, rather than downward.”
"Monsoons in 2018 would also be a crucial variable for the rural demand while the credit growth is still some time away, as banks and companies keep repairing their balance sheets," the statement said.
Meanwhile, admitting that the return compliance burden was a legitimate issue being examined by the GST Council, Finance Minister Arun Jaitley said earlier that "federal institutions" had successfully managed to rationalise the rates for many items "in three to four months."
Earlier this month, in its penultimate bi-monthly monetary policy review of the fiscal, the Reserve Bank of India maintained status quo on its key lending rate at 6 per cent for the third time time in a row, citing concerns over the rising trajectory of inflation.