Working capital cycle may wobble on GST
Latest News »
- Stephen Hawking blames UK government for health service ‘crisis’
- Muzaffarnagar court issues non bailable warrants against 2 BJP MLAs
- After Vishal Sikka’s exit, Infosys faces recruitment headache
- Govt to strengthen bankruptcy code after studying various judgments: Arun Jaitley
- JD(U) decides to joins NDA, passes resolution at national executive meet in Patna
The rollout of the goods and services tax (GST) may affect the working capital cycle of business in the initial phase, with input credit worth Rs1 trillion locked up, India Ratings and Research (Ind-Ra) said.
Input tax credit refers to the amount of tax already paid on materials purchased, which can be used to set off tax payable on selling the finished product. Easy liquidity is essential in this period to take care of cash requirements of companies.
Ind-Ra’s analysis shows that the closing inventory as of fiscal year 2016 was around Rs11.2 trillion. Since the service tax is also to increase from 15% to 18% on some services, this may add to the strain on short-term working capital needs. It also points to the risk from litigation that may arise as tax authorities may dispute claims of input tax credit on goods purchased before the GST cut-off date.
About 85% of the blocked credit could be with companies having more than Rs500 crore of revenue. Larger companies may be in a better position to deal with the problems during transition, compared to the smaller ones, according to Ind-Ra.
Large-cap stocks on a roll in May
In May, large-cap stocks have raced ahead of mid-cap and small-cap shares. While large-caps have done better in May, they are still behind in the returns stakes in 2017.
In 2017 so far, the benchmark Sensex is up by 14.9%, the S&P BSE 100 index by 16.2%, while the S&P BSE MidCap index is up by 19.3% and the S&P BSE SmallCap index by 23.5%.
Electric vehicles to have positive impact on utilities
Electrification of the automobile industry can have a positive impact on the power and utilities sector. According to consulting firm EY, if six million electric vehicles are on Indian roads by 2020, with an average battery size of 100 kilowatt-hour, that would increase power demand and boost distribution company revenues by Rs99,000 crore. The fleet would also help absorb growing volumes of renewable energy, and improve grid stability by providing extra storage and distributed generation. “Overall, such a fleet would deliver a net positive economic impact of around Rs20,000 crore on the power and utilities sector in India by 2022,” adds the EY report.