GST will lead to higher growth in long run: Fitch

New Delhi: The passage of long-awaited Constitutional Amendment Bill for Goods and Services Tax (GST) is an important reform that will remove barriers in trade, improve economic efficiency and lead to higher growth in the long run, Fitch Ratings said today.

"In addition, Parliamentary approval sends a further positive signal of the government's ability to enact major reforms following the passage of a national bankruptcy law in May," the rating agency said in a statement.

It however said that it remains to be seen whether the introduction of a national GST will lead to a higher intake of tax revenue. "This will depend on a number of factors, such as the level at which the tax rate will be set," it said.

The rate still needs to be decided by the GST Council, which includes representatives from the Ministry of Finance and each state government. The rating agency also noted that the introduction of national GST, though positive from a longer-term economic perspective, should not have a substantive effect on the fiscal account in the short term.

It also expects the debt to reach 69.4 per cent of GDP and the deficit to fall to 6.8 per cent in the current fiscal. Passage of the Bill is an important indicator of India's ability to push through transformative structural reforms, it said.

Constitution Amendment Bill for GST was approved yesterday by the Rajya Sabha to replace a raft of different state and local taxes with a single unified value added tax system to turn the country into world's biggest single market.