Delayed reforms, market woes tarnish end to Modi’s first year | Reuters

A surprise delay to India’s new goods and services tax (GST) marks one of the most painful setbacks suffered by Prime Minister Narendra Modi‘s government as it nears the end of a first year in power, with markets falling and farmers braced for a poor monsoon.

Prime Minister Narendra Modi attends an event in New Delhi February 17, 2015. REUTERS/Stringer/Files

Investors had hoped that the ruling Bharatiya Janata Party‘s majority in the Lok Sabha, the lower house of parliament, would ensure Modi could push through reforms far more smoothly, but that assumption has taken a battering.

Late on Tuesday, the government submitted to strong opposition in the Rajya Sabha, the upper house, by agreeing to delay the landmark tax legislation until at least July.

The introduction of the GST would constitute India’s biggest tax reform since independence.

The delay to the bill is a blow to a government that is already dealing with rural discontent over proposed land reforms, which have also still to be sent to the upper house for approval.

The GST would replace a patchwork of levies by the central and state governments, reducing corruption, attracting investment and — according to the finance minister — add 2 percentage points to India’s growth.

Senior officials said on Wednesday they feared the delay could become yet another “sell” signal for foreign funds, already angered by the government seeking to tax them for several years of previously untaxed gains.

“A delay in parliament approval of the GST bill will send a wrong signal to investors, who are already grappling with tax notices,” said one senior government official dealing with economic policy decisions.

India was Asia’s second best performing market last year and the government has scored some successes. It has, for example, improved its finances, held successful telecoms and coal block auctions, and allowed more foreign investment into the insurance and defence sectors.

But the shine has worn off. Foreign investors sold nearly $2.2 billion in shares during the last 16 trading sessions.

via Delayed reforms, market woes tarnish end to Modi’s first year | Reuters.

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