Rising rates not surprising, says FM Nirmala Sitharaman

Finance Minister Nirmala Sitharaman on Saturday said the interest rate hike scenario is unlikely to derail the government’s plans for a record fiscal investment of 7.5 trillion rupees over the next year. fiscal year 23 to stimulate economic growth.

The Goods and Services Tax (GST) Board, the minister said, is unlikely to consider rate rationalization at its next meeting because a report from a group of ministers (GoM), led by the Chief Minister of Karnataka, Basavaraj Bommai, on this issue is yet to be submitted. Once presented, the report will be circulated among states for input, Sitharaman said. The government and GoM are exploring how to at least “achieve the tax neutrality rate (NNR) at which the GST was introduced,” she said.

The increase in food and fertilizer subsidies in the current financial year has been somewhat taken into account during the preparation of the budget, the minister said. Global commodity prices, especially crude oil, were on the rise and supply chains were disrupted (at the time the budget was being prepared), even though “we had no idea of ​​the (Russia-Ukraine) war ),” Sitharaman said.

She said countries seem to be following a particular pattern of action to deal with the trade-off between recovery and inflation in the aftermath of the pandemic, and the latest hike in policy rates was a globally synchronized event. The Australian central bank raised rates, followed by the Reserve Bank of India (RBI) and the US Federal Reserve, to curb inflationary pressures.

Speaking at an event hosted by a media house, Sitharaman said the 40 basis point rise in the RBI’s repo rate was not surprising as many expected it following the indication from the Monetary Policy Committee (MPC) in April that it was time for it to act. However, as the move came between the two scheduled MPC meetings (in April and June), it may have come as a surprise to some. “So the act was not surprising, but maybe the timing was right for some,” Sitharaman said.

The neutral rate for GST revenue was initially estimated at 15-15.5% and the tax debuted at a slightly higher rate. A series of rate cuts since the tax was launched in July 2017, aimed at stimulating consumption in a faltering economy, has brought the weighted average GST rate down to the current level of around 11.5%, which has required rate readjustment. A reduction in the number of GST slabs – currently four – to two has been recommended by several experts, who believe this would simplify the tax and further reduce the tax cascade.

“Of course the rate rationalization (TPS) has been a point of discussion at 3-4 Council meetings. Wherever the inversion prevails, we would correct it because we cannot afford to continue giving these refunds,” the minister said. The reverse fee structure anywhere discourages investors from participating in production-related incentive schemes, she added.

The finance minister said in her recent meetings at various multilateral forums in Washington that global bodies are more concerned that cryptocurrencies, given that they remain mostly unregulated, should not be allowed to violate standards. FATF (Financial Action Task Force). These must not be allowed to be misused as a tool for money laundering or terrorist financing.

Despite pressure from Western nations, India will continue to buy Russian oil if it gets the product at cheaper rates, the minister said, while underscoring the broader effort to diversify sources of supply. At the same time, she pointed out that Western countries are increasingly understanding India’s position on the issue of oil purchases.

Asked about the possibility of increasing import duties on a wide range of products to respond to the Aatmanirbhar Bharat initiative, the minister said that taxes will only be considered on products for which there is sufficient national capacity, but that imports from certain jurisdictions still occur due to predators. pricing. The Aatmanirbhar Bharat initiative, she stressed, does not mean that India will close its doors to others; instead, it encourages greater integration with the global supply chain.

Earlier today, Sitharaman flagged the anonymity of some stakeholders as an “inherent risk” in adopting blockchain technology (cryptocurrencies, among others, are based on this technology). Addressing an NSDL event in Mumbai, she called for adequate precautions to be taken even while exploiting its potential for human well-being.

Nonetheless, she said the use of distributed ledger technology (also known as blockchain) is “absolutely imperative” and the government also supports its use. But it is anonymity that is an “inherent risk” “which we must guard against”.

The Minister hailed the growth in retail participation in stock markets, especially following the Covid-19 outbreak, which somewhat softened the blow from REIT exits. From just 4 lakh in FY20, the number of new demat accounts added each month soared to 12 lakh in FY21 and 26 lakh in FY22, it said. she stated.

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