aci_jan2015January 2015

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Fundamental Issues

The Government last month introduced the Constitutional Amendment Bill for Goods & Services Tax (GST) in the Lok Sabha, with intent to implement it from April 2016. It will replace a number of indirect taxes currently being levied by the Central and State Governments and is intended to remove cascading of taxes and provide a common national market for goods and services. To be levied on all transactions involving supply of goods and services except those that are exempt or kept out of the purview of GST, the new regime will have only three indirect taxes – Central GST, State GST and Integrated GST. However, imported goods will incur customs duty. While it is a welcome sign, addressing these fundamental issues faster will stabilise prices across the country and put a full stop to all the bad practices in every industry including the automotive sector.

Industrial output fell 4.2% in October 2014, the worst in three years, against growth of 2.5% in the preceding month, despite the festive season and a favourable baseeffect of October 2013, where production had fallen 1.2 %. According to official data released recently the decline in October was primarily due to a sharp 7.6% contraction in the manufacturing sector, against 2.5% expansion in the previous month. In October 2013, output in the manufacturing sector had declined by 1.3%. This drop though, for the first time this fiscal, will hamper economic growth expectations in the second half of the year. Though the government was taking measures to ease business and remove red-tapism, the key requirements are in addressing the fundamental issues. According to published expert opinions, the fall in industrial production in October, when demand was ideally high due to the festive season, could be linked to the 280% rise in gold import during the month. Based on this change one can easily conclude that people had probably invested more in gold than other items including vehicles despite fuel prices moderating for some time.

The cover story of this issue is on the impending machine tool events Imtex and Tooltech. The peculiarity of this industry is that it is the first to get affected in a slowdown or recession and the last to recover, due to its capital intensiveness. However, the forthcoming events belie this. Despite the auto industry, which contributes to over 60% of the machine tool industry’s customer base, being still in the grips of a slowdown, the event has gained momentum significantly. While considering the response to these events, one can presume that the slowdown has already faded away. Also, the events would have been a platform for more than double the number of exhibitors, had there been space available. As there was no infrastructure created by the government, the Indian Machine Tool Manufacturers’ Association has set up the Bangalore International Exhibition Centre. However, with increasing response from exhibitors, the space is not sufficient now. The same with even Pragati Maidan and others created by the government. Therefore, it is high time government takes an in-depth look at these fundamental issues.

Wish you a Happy and Prosperous 2015.

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T Murrali


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