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Tourism contributes about as much to India’s economy as the entire IT sector

India might not have much to write home about when it comes to tourist arrivals when compared to the rest of the world but the industry is nevertheless tremendously important for the country. Despite its size and the wealth of sites to visit India counted as only the 38th-most visited nation according the United Nations. Despite this data from the Ministry of Tourism suggests that the sector has a significant impact on the country’s economy.
According to estimates prepared by the National Council for Applied Economic Research tourism contributes as much as 6.77% to India’s total Gross Domestic Product through direct and indirect impact. To put this in context this is nearly as much as India’s much touted Information Technology-Business Process Outsourcing industry which contributes around 7.5% to the economy according to industry body NASSCOM.
Even if you discount the indirect impact the numbers are impressive. The NCAER study estimated a direct impact of 3.8% towards the overall GDP as compared to just 2% for India’s mining sector according to industry body FICCI.
The sector is no slacker when it comes to employment either according to the study entitled the Tourism Satellite Account. “In terms of employment this TSA showed that direct share of employment in tourism service industries is 4.4% and if indirect share is also included this goes up to 10.2%” the study reported. “This implies almost every 4th to 5th person employed in non-agricultural activities is directly or indirectly engaged in tourism activities.”
But simply because tourism is having a big impact on the economy shouldn’t be a reason to rejoice. The tourism ministry’s data also shows another much more problematic trend. Although foreign tourist arrivals in India have continued to grow for the last few years reaching nearly 6.9 million people in 2013 the relative growth has dipped sharply.
From 26% in 2004 to just 5.9% in 2013 growth of foreign tourist arrivals is a serious cause of concern. Although some of this is due to an international slowdown in tourism in the aftermath of the economic crisis of 2008 which meant India actually received 2.2% fewer tourists in 2009 as compared to the year before there are plenty of homegrown factors to blame for the plateauing.
Visa and paperwork problems as well as inadequate infrastructure are among the most serious problems that foreigners often complain about while concerns about safety have risen in the last few years.
This is made evident by a comparison with a few other smaller nations that receive far more tourists than India does. Thailand for example got four times the number of visitors in 2013 that India did — a clear suggestion that even in a bad economy India’s tourism sector is still badly underperforming.

Roadmap for big ticket reforms expected to be announced in the Union Budget

While the Narendra Modi-led BJP government is all set to present its maiden budget on July 10 the common people and industry have high expectations from the finance minister especially when it comes to fulfill the promise of `Acche Din Aane Wale Hain`.

In the forthcoming budget besides maintaining trend of fiscal consolidation it is expected that the government would lay out policy reform agenda. In this regard Zee Research Group (ZRG) lists 10 key recommendations which have a high probability of being announced in the budget.

 

On the revenue front the government would look to initiate steps which can improve the overall tax buoyancy. In the FY15 budget a definite timeline for the implementation of GST (Goods and Services Tax) and DTC (Direct Taxes Code) expected to be announced.

 

The need of the hour is to ramp up India’s tax to GDP which at 11 per cent is one of the lowest in Asia. The much needed reform will have cascading effects on boosting tax efficiency collections and overall GDP growth. As per the NCAER (National Council of Applied Economic Research) study a complete implementation of the GST could lift GDP growth by 0.9-1.7 percentage points for all future years.

 

Direct tax rates such as corporate and personal income tax are on the high side in India compared with most of its peer economies. In order to compensate citizens for high inflation and encourage savings the government might increase minimum income tax exemption limit from Rs 2 to 3 lakhs. An upward revision in the income tax exemption limit would be a step forward towards DTC. Further it may hike 80C investment limit from Rs 1 lakh to 2 lakh. Interestingly if the 80C limit is increased to Rs 2 lakh the loss of exchequer would increase to Rs 62000 crore.

 

However indirect tax such as excise duty and import duty can be changed on certain items. On one hand there could be substantial hike in excise duty on cigarettes as the health minister has shown concerns on tobacco consumption in India. The move to raise excise duty on cigarettes by Rs 2 per stick can add Rs 3800 crore to the government`s revenue.

 

On the other hand import duty on gold can be reduced by 2 per cent. Currently it stands at 10 per cent. The move is needed as local jewelers run out of inventory. However this move would make the exchequer poorer by Rs 2000 crore.

 

With regards to retrospective taxation issue the government could formulate clear policies to do away with norms such as retrospective taxation which can address the concerns of foreign investors. This will provide positive boost to the business sentiments and will make India’s tax environment transparent.

 

Another source of revenue for the government is the stake sale in PSUs. With buoyant equity markets and SEBI pushing for a minimum 25 per cent public holding in PSUs there are high chances that government would set an aggressive target for disinvestment in FY15. As per the interim budget the total proceeds from disinvestment was estimated at Rs 51925 crore. It is expected that the target would be more than Rs 60000 crore.

 

Similarly non-tax revenues would be increased by telecom coal and other mineral blocks auction.

 

On expenditure side it is expected that government would try to rationalise subsidy. Given the backdrop of poor monsoon it is unlikely that government would make changes to food and fertiliser subsidies.
Therefore the government is left with the option of rationalising fuel subsidy. In FY13-14 India spent about 2.2 per cent of GDP on food fertiliser and fuel subsidies. While subsidies on diesel have been almost phased out the focus will shift to reducing subsidies for LPG/kerosene. Currently LPG subsidies account for almost 50 per cent of total oil subsidy bill.

 

Further government may restructure welfare programs like MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) to focus on capacity creating measures and reducing wasteful expenditure. Interestingly the outgoing government announced that the number of centrally sponsored schemes (CSS) would be consolidated to 66 in FY15 from 142 in FY14 to improve monitoring and efficiency.

 

Moreover a common feature of the past few budgets has been the squeeze in capital spends. However the government is likely to increase capital expenditure with a focus on infrastructure and agriculture.

 

Kerala Vision 2030 gets Cabinet nod

The Kerala Cabinet has given sanction to Kerala Vision 2030. Expert committees will be constituted to synchronise the ideas put forward by Vision 2030 in annual as well as five-year plans and to advice the government and formulate necessary policies and institutions said chief minister Oommen Chandy. Detailed directions will be prepared to assess and observe the projects and proposals that are sanctioned in Vision 2030.

Out of these projects that can be immediately implemented would be reported to the government. This has been prepared by the State Planning Board with the help of National Council of Applied Economic Research. Vision 2030 has been prepared on the basis of environmental and social sustainability. Importance would be given to basic needs health and primary education quality of higher education development of economic sector use of scientific technologies and novel initiatives he added.

Harping on Development Mantra, Cabinet Okays Kerala Vision 2030

THIRUVANANTHAPURAM: In a major developmental initiative the Cabinet on Wednesday approved the Kerala Vision 2030 formulated by the Planning Board.

The projects and concepts proposed under the Kerala Vision 2030 would be included in the Annual and Five Year Plans of the State Government.
Announcing the Cabinet decisions on Wednesday Chief Minister Oommen Chandy said a decision has been taken to set up  expert panels to advice the government on including the concepts and ideas of Kerala Vision 2030 in Annual and Five Year Plans of the government and to formulate the necessary policies and establishments in this regard. ‘’The expert panels will review monitor and assess the projects that come under Kerala Vision 2030. They will also identify and point out projects that can be implemented soon’’ Chandy said.
The Kerala Vision 2030 was finalised after detailed discussions for more than an year and collecting opinions from the public. The Planning Board formulated the Kerala Vision 2030 with the technical assistance of  National Council of Applied Economic Research in New Delhi.  Prepared on the basis of certain parameters including environmental and social sustainability Vision 2030 would focus on basic infrastructure development health and primary education ensuring quality of higher education development of economic sector use of scientific technologies and other novel initiatives the Chief Minister said.
Cancer Centre
In a move aimed at expediting establishment of Kochi Cancer Institute and Research Centre the Cabinet decided to grant necessary funds for the project. A separate Head of Account would be created for the cancer institute.
‘’Funds necessary for the project would be sanctioned by including it under the Supplementary Demand for Grants (SDG). The budget allocation for the project is `5 crore’’ Chandy said.
Chandy said the land for the project has already been allotted in the Cooperative Medical College compound. The DPR (Detailed project Report) has been prepared and stone would be laid very soon.
New College
As part of the government’s policy to sanction arts and science colleges in all constituencies the Cabinet has decided to start an Arts and Science College at Kunnamangalam constituency in Kozhikode this year itself. There will be three courses – BCom BA Economics and BSc Geography. A special officer will also be posted for the purpose the Chief Minister said.
Assistance
The government has decided to issue financial assistance to a visually-challenged student who got admission in IIT Madras. K P Mani of Erikulam Laksham Veedu Colony at Madikkai panchayat in Kasargod will be given financial assistance of `201500 to meet the expenses of hostel fee for 10 semesters during his course at IIT.
“Mani son of Kannan and Vilasini hails from a financially backward family. He became blind at the age of 10; and he belongs to the backward community. Recently he got admission to IIT. As a goodwill gesture the IIT officials exempted him from paying the course fee. But the hostel fee would come to a huge amount. In this situation the government decided to bear the hostel expenses. The government decided to issue financial assistance by considering it as a special case’’ Chandy said.
Other Decisions
On the basis of reports of shortage of staff the Cabinet decided to create seven posts in Mananthavadi district hospital.
The posts sanctioned are five junior consultants one assistant surgeon and one laboratory technician. It was also decided to create posts of 60 women SIs and 250 women police constables.
The government has already promised to appoint women SIs and women police personnel. It’s as part of the decision that the posts were created the CM said.

Narendra Modia’s GST U-turn set to make India single market for first time

New Delhi: More than six decades after it achieved independence India has yet to have a single internal market with its economy divided up by state taxes on commerce.

That may be about to change following the reversal by one of the biggest foes of a national sales tax—Narendra Modi the Prime Minister who took office in May. After opposing a goods and services tax (GST) during his 12 years running Gujarat Modi has pulled his ruling party behind the idea and plans to enact it within eight months.

Success would mean replacing more than a dozen types of tax that increase incentives for corruption and offer the economy a boost of as much as 1.7% according to the National Council of Applied Economic Research in New Delhi. Modi who once said the levy was impossible to implement now needs the revenue to trim a federal deficit.

“This is the easiest and most important reform for the new government to push forward” Sudhir Kapadia a partner for Ernst and Young Llp in India said by phone. “There are huge leakages in the current system. With a uniform system businesses will finally be able to make decisions purely on the grounds of profit.”

Modi is under pressure to raise revenue after keeping the previous government’s fiscal deficit target of 4.1% of gross domestic product (GDP) in the year ending next March. A weak monsoon and rising oil prices threaten to inflate a subsidy bill that has risen fivefold over the past decade.

“I would not call it a flip-flop” Aman Sinha a spokesman for Modi’s Bharatiya Janata Party (BJP) said by phone of his position. “He is just executing a plan which the previous government failed to do.”

Modi mandate

The Modi administration’s parliamentary mandate—India’s largest in 30 years—raises the likelihood of success where former Prime Minister Manmohan Singh failed. Passing the tax law would require votes in both houses of parliament plus the support of 15 of the 29 states to amend the constitution.

The GST would streamline the tax administration and result in higher revenue for the central government and states finance minister Arun Jaitley said in his 10 July budget speech. Businesses selling across states face a border tax local sales tax central service tax federal excise central sales tax and other duties that often vary by state and product.

Amit Saigal owner of yarn-maker Eskay Yarntex Pvt. Ltd in New Delhi estimates a GST would allow him to double the company’s Rs.150 crore in annual sales within a year. He now sells to only seven states after halting shipments to Punjab because his trucks filled with spools of cotton yarn must pay two taxes to cross the border.

Tax ‘joke’

“Right now businesses look for ways to circumvent state taxes” Saigal 42 said by phone from Delhi. “Local politicians have made a joke of the tax system.”

Singh introduced India’s first GST Bill in 2008 and set a two-year deadline to implement it. After repeated delays Singh told reporters in 2011 that Modi’s BJP in Gujarat has taken a hostile attitude.

Modi countered that GST couldn’t be implemented without a proper computer network to support it. That’s still a concern.

The GST network has been under development since 2010 when Singh tapped Infosys Ltd’s co-founder Nandan Nilekani to lead an IT infrastructure committee. Four years later Nilekani has left and the network remains incomplete said Abdul Rahim Rather head of India’s GST committee.

“We are at it and have had so many meetings” Rather said by phone on 17 July. He didn’t offer details of the current status or say when the network would be functional.

Political hurdles

In his budget speech Jaitley said the government will garner the two-thirds majority needed to pass the GST Bill in both houses of parliament by April. While states would get part of the revenue for the new unified levy some are reluctant to surrender their right to tax he said.

“I assure all states that government will be more than fair in dealing with them” Jaitley said.

Karnataka Tamil Nadu and Kerala—hubs for manufacturing services and technology—stand to lose the most if the government bans them from collecting local taxes without offering a substitute according to the Reserve Bank of India (RBI). Madhya Pradesh may oppose the GST if alcohol and petroleum aren’t exempted said Ashwini Kumar Rai the state’s principal secretary of commercial tax.

Most of the states have welcomed it Saurabh Patel Gujarat’s finance minister said by phone of the GST. The only thing that states were looking for was the compensation and protection plan which we are confident we will get.

Consumer costs

While the government touts the benefits of a unified sales tax for businesses consumers may fare less well as producers and retailers of everything from basic staples to high-end handbags raise prices to cover the duty.

“I’ll have to pass the cost on to my customers who can barely spend Rs.50 a day on supplies” said Sandeep Batra 61 owner of Rex General Store in New Delhi which sells milk bread and eggs alongside Rs.2 sachets of soap.

The constitutional amendment would pass if Modi’s five BJP-led states are supported by the 11 states controlled by the opposition Congress Party which introduced Singh’s version of the GST Bill.

Constitutional hurdles mean the GST will probably be implemented some time in 2017 according to R. Muralidharan an executive director at PricewaterhouseCoopers India. Still even a watered-down GST would spur manufacturing and create jobs he said by phone from Mumbai.

“The early fears of GST are gone” Muralidharan said. “Everyone understands the positive impact it will have.” Bloomberg

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