Mumbai: A special report published today by Fitch Ratings projects that India’s new Goods and Services Tax (GST) is likely to have a negative impact on the oil & gas, traditional retail and SME sectors.
Fitch Ratings’ latest Special Report, published today says that GST may have beneficial impact on India’s auto, cement and organised retail sectors. In contrast with these sectors that would have either positive or negative impact due to GST, the Fitch views the impact as broadly neutral for the property, electricity, telecoms, pharmaceutical and fertilizer sectors.
The negative impact on the oil and natural gas sector will be a drag on the national economy since it contributes over 15% to the Gross Domestic Product (GDP). The situation will be aggravated further by the negative impact of GST on retail and SME sectors that would rattle the economics of the vulnerable households in India especially because the SME sector is a broad sector comprising both manufacturing and service industry (Small and medium-sized enterprises). The SME sector, largely unorganised, is considered to be the growth engine of India’s economy as it contributes close to 50 per cent of the industrial output and provides employment to about 60 million people against about 30 million in the organised sector. – Newsroom24x7
The new GST regime, which came into effect on 1 July 2017 and will replace a vast array of indirect state taxes and the national service tax, is unlikely to lead to rating changes for any of Fitch’s internationally rated corporates despite being negative for certain sectors, the Fitch report goes on to assert.
The agency cautions that implementation risks will remain over the next 12 months due to the complexities of adopting the new system amid a culture of poor compliance, particularly among the traditional retail and SME sectors.