Impact on Working Capital Needs and Liquidity of Companies Post GST Implementation

Shortage of liquidity post GST

According to India Ratings report, introduction of GST would hurt companies’ liquidity and working capital cycle in the short-term period. The firms will face a major disruption post GST implementation which requires easy liquidity to minimise the effect of the said disruption.

The report further added that companies with a strong credit profile will not face any severe disruption to their working capital cycle however, that may not be the case for companies not having a robust credit profile.

The report evaluated 11,000 firms in its study and found that Rs. 1 lakh crore could be tied in input credit of which half i.e. Rs. 50,000 crore could be blocked for a period of two months, putting additional strain on the working capital needs of these firms.

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