Liquidity crisis hits industry post GST

CHANDIGARH: The Goods and Services Tax (GST) seems to have played havoc with Punjab’s fragile economy. Not only has the poor inflow of Integrated Goods and Services Tax (IGST) and the Central Goods and Services Tax (CGST) hit the state government, which is unable to meet its committed liabilities, it has also adversely affected the industry.

Ruchika M Khanna

Tribune News Service

Chandigarh, September 25

The Goods and Services Tax (GST) seems to have played havoc with Punjab’s fragile economy. Not only has the poor inflow of Integrated Goods and Services Tax (IGST) and the Central Goods and Services Tax (CGST) hit the state government, which is unable to meet its committed liabilities, it has also adversely affected the industry.

The industry rues that it is facing the worst liquidity crunch ever and industrial production too is slowing down like never before. With huge reserves of their money locked in GST refunds, exporters say that anything between 30 and 56 per cent of their working capital is now locked in refunds. This means that the industry has no money to purchase raw material, transport goods to customers or for shipping goods to buyers abroad.

A top auto parts manufacturer in Ludhiana told The Tribune that the credit and cash cycle was now broken. “The payment cycle in the business in Ludhiana was between two to three months wherein credit was extended to buyers. Before the GST rollout, the VAT rate was lower, thus refund was much lower. VAT had to be paid each quarter, while the GST has to be paid each month and the tax rate is higher too,” he said.

Badish Jindal, president, Federation of Punjab Small Industries Association, said the GST had come as another big blow to the industry after demonetisation. “It’s been three months since the GST rollout. Around 56 per cent of manufacturers’ working capital is stuck. Sales are under pressure and no one is building stocks. As a result, the banks too have lowered our borrowing limit,” he said.

AK Kohli, senior vice-president, Punjab Chamber of Small Exporters, said: “The government, sensing some anomaly in huge refunds sought by exporters, has initiated an audit of all cases where refund is more than Rs 1 crore. At least 30 per cent of my working capital is stuck. How do you expect me to run my business?”

Realising the economic slowdown arising with the shift in tax regime, the Punjab Excise Department has initiated its own process of releasing old VAT refunds. ‘We have realised that the industry is going through a crisis. We are in the process of releasing VAT refunds worth Rs 300 crore pending with the state government,” Excise and Taxation Commissioner Vivek Pratap Singh said.