Gear up to mitigate cost-push inflation – The Economic Times

Synopsis

A global rally in commodity prices is upon us, as economies from the US to China take the infrastructure road to recovery from Covid-19. The pressure for cost-push inflation can be mitigated to some extent, by rationalising taxes on key inputs.

There is solid — and welcome — hardening of demand for building materials and key commodities. Notice that cement demand is projected to go up 20% this fiscal by rating agency ICRA; iron ore prices have actually grown three-fold in a year. Global oil prices are also on the rise. Recovery is good, inflation is not.

A global rally in commodity prices is upon us, as economies from the US to China take the infrastructure road to recovery from Covid-19. The pressure for cost-push inflation can be mitigated to some extent, by rationalising taxes on key inputs. There is no reason why, say, the goods and services tax (GST) on cement must remain at the peak rate of 28%. Or, why the cascading tax-on-tax regime on retail oil products like petrol and diesel should not be replaced with GST. True, oil taxes have hugely benefited the exchequer in an economy much constrained by the coronavirus. But we do need to reform and rationalise indirect levies to boost tax and operational efficiency right across the board. It is also notable that power demand has rebounded handsomely, nationally. And the way ahead, surely, is to rev up transparency in power by including electricity duty in the GST regime. The sizable duty, over ₹30,000 crore annually, currently disincentivises state governments to carry out long-pending power distribution reforms so as to stamp out routine theft and populist non-payment of reasonable user charges.

In parallel, we need revamped national project-management capability for large investments, many of which are delayed by plain, inefficient procurement processes and improperly structured contracts. And we do need to better leverage our digital ecosystem for innovative project communication and efficient decision-making.

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