Editorial 1 : Bridging a Gulf
Context: PM’s Kuwait visit: Delhi must deliver on West Asia promise
Background: Diplomatic and Strategic Neglect
- India’s ambivalence at violation of Kuwait’s sovereignty when it was invaded in 1990 by Saddam Hussein.
- Reasons for India’s ambivalence:
- Geopolitics of the time.
- India’s relative closeness to the erstwhile Soviet Union.
- India’s sympathy for Ba’athist governments like Saddam Hussein’s.
- Missed Opportunities
- Lack of efforts to rebuild ties post-1990.
- Despite Kuwait reopening its doors to Indian workers, bilateral relations stagnated for years.
Revival of Relations
- India’s engagement with West Asia and the Persian Gulf, particularly the moderate Arab states, has recovered and deepened considerably over the last decade.
- Prime Minister Modi’s Visit
- PM Modi held discussions with Kuwait’s leadership.
- Amir Sheikh Meshal Al-Ahmad Al-Jaber Al-Sabah
- Crown Prince Sheikh Sabah Al-Khaled Al-Hamad Al-Mubarak Al-Sabah
- Prime Minister Sheikh Ahmad Abdullah Al-Ahmad Al-Sabah
- Both countries agreed to elevate the relationship to a strategic partnership.
- They signed agreements that institutionalise defence cooperation, as well as on other areas such as renewables.
Economic Relations
- Trade and Investment
- For India, Kuwait is also a key source of investment, singly as well as the current president of the Gulf Cooperation Council (GCC).
- 89% of the total FDI from the GCC has been received in the last decade
- Bilateral trade between India and Kuwait in the last fiscal year was over $10 billion.
- Diaspora: Indians form the largest expatriate group in Kuwait.
Strategic Importance
- Geopolitical Considerations
- The Gulf is undergoing a strategic reorganisation due to the Israel-Palestine conflict and post-Assad regime instability in Syria.
- India has a stake in the success of the Abraham Accords and aims to deepen ties with moderate Arab states.
- India’s Evolving Gulf Policy
- Moving beyond viewing the Gulf through the prism of ties with Pakistan.
- Most regional players are keen on deeper bilateral engagement with India.
Conclusion and Way Forward
- India must operationalise the security agreements as they have moved far too slowly in the past.
- It is also important to create a business-friendly environment that invites and secures investments from various players in the region, not least the Sovereign Funds of the GCC countries.
It is also important for India to recognise how Kuwait has facilitated interactions with the diaspora and respected New Delhi’s sensitivities on cultural and religious matters.
Editorial 2 : An Uncertain Tax
Context: GST: Issues left unaddressed, council needs to provide resolutions
Introduction: In its 55th meeting, the GST council deferred taking a decision on several pressing issues. The Group of Ministers (GoM) looking into the contentious issue of rate rationalisation sought more time and another group looking into the matter of the compensation cess was also given an extension.
Major Pending Decisions
- Lowering GST Rates on health and life insurance and on food delivery charges by platform aggregators.
- Rate Rationalisation: Group of Ministers (GoM) sought more time to examine rate rationalisation.
- Compensation Cess: The GoM on this issue was also granted an extension.
Oddities in GST Rate Structure
- Popcorn Tax Rates
- Popcorn with salt/spices: 5%.
- Pre-packaged and labelled popcorn: 12%.
- Popcorn mixed with sugar: 18%.
- Classification Anomalies
- Tax differences between buns and cream buns.
- Distinctions in tax rates for packed/frozen parathas and rotis.
International Comparison
- Among 115 countries, only five (Ghana, India, Italy, Luxembourg and Pakistan) have four or more GST slabs.
- Majority of countries adopt simpler structures:
- 28 countries have two tax rates.
- 49 countries have a single tax rate.
- A multiple-level rate structure raises the compliance burden, increases the space for bureaucratic discretion, and goes against the desire to improve the ease of doing business in the country.
Call for Rationalisation
- Past discussion (45th GST Council Meeting in September 2021) called for need to simplify GST by reducing the number of slabs and addressing revenue neutrality.
Way Forward: Recommendations
- Resolve Pending Issues
- Decisions on rate rationalisation and compensation cess must be expedited.
- Address the anomalies in the classification of goods and services.
- Simplify the GST Structure
- Reduce the number of GST slabs to align with international best practices.
- Simplify compliance processes to enhance the ease of doing business.
- Focus on Revenue Neutrality: Any changes in GST rates should be revenue-neutral to maintain fiscal stability.
Conclusion: The issues of rate rationalisation and compensation cess should be resolved quickly. GST council, which has already taken several steps to plug the gaps in the system, must soon arrive at a consensus on these issues.
- Key Objectives of Rate Rationalisation
- Examine the classification of goods and services.
- Reduce the number of GST slabs.
- Ensure revenue neutrality.