India is becoming more attractive to foreign firms but GST implementation will prove a challenge

By

Isabelle Crossley

Published
Jul 12, 2017

India’s recent reforms will help to increase foreign investment but their proper implementation will be difficult, especially the Goods and Services Tax (GST).

Low-cost manufacturing, including in the fashion industry, is gradually moving away from China, reports the state-run Chinese daily the Global Times. The newspaper remarked that it is “critical for India and even the world” whether or not India will step up as the “world’s factory”.

In order to unify the market in India, the government introduced the GST among other reforms in order to make India a unified common market through an indirect tax on goods and services. One result of this tax reform will be that the manufacturing cost of goods will be lower due to the subsuming of major Central and State taxes. This will make exporting goods manufactured in India more attractive. Tax rates will also be the same across the country which should reduce compliance costs.

However, the GST implementation has not been plain sailing. The implementation of the GST on July 1st has led to 10,000 phone call inquiries a day to GST Network, the company building the IT backbone for the tax reforms. Due to this high demand for assistance, the company is looking to double its call centre strength to 400 agents in two weeks. In this way, how India develops its export market may depend on how well the GST can be implemented.