The GST regime will cause a tectonic shift in India’s taxation history. I foresee transparency in the business chain which will enable significant value creation for the Indian economy and this works well for us at Danfoss as well. While this might require a shift in mind-sets of companies–from the way they do business, to the fact that all channels will have to be digitalized at every stage–the goal is perfection in execution to achieve transformation.
GST on Power & Renewables
When one looks GST’s impact sector-wise from the view of Danfoss, the power sector is likely to see a positive impact. This is largely because of the thermal power sector where coal has been categorized under 5% v. a previous 11.7%. Additionally, capital goods have been put under the 18% slab. This will lead to a reduction in power project development costs. However, it is important to keep in mind the adverse effects on the environment due to coal usage.
Regarding renewables, given that the tariffs are already low, the Power Minister has expressed his opinion that there is no need for lower taxes to encourage clean energy. However, the 18% that has been assigned for solar modules is likely to increase project costs by at least 10%.
There is no clear exemption prescribed to electricity under GST but the hope is that it is brought under the regime.
GST on Manufacturing
While the ‘Make in India’ initiative was started with the intention of making India as one of the top 10 manufacturing hubs in the world, there have been several hurdles that companies face in terms of cascading taxes. However, with the introduction of GST, we believe that it will help streamline the sector, creating a cooperative synergy in the country. Some positive ways in which we see the impact being felt includes reduced cost of production, supply of goods with ease where we hope to see decreased state-border checks. The other side of the coin is of course, increased compliance requirements and supply-chain restructuring that might be required from the company’s side.
Overall, the introduction of GST will have a positive impact on the Indian economy.