Skip to main content

Indian economic slowdown despite reforms: World Bank blames high GST rates, NREGA subsidy, farm loan waiver

By Our Representative
In a sharp admission, the World Bank in its new report, "India Development Update", released this month, has said it is unable to solve a crucial "puzzle". Providing a graphic picture of 10 different indicators of growth, including the Gross Domestic Product (GDP), it says, the question that puzzles is, "why" India's reforms "have not yet succeeded in reversing the slowdown in investment, exports, and certain other aspects of the economy."
Insisting that if anything, "the slowdown has continued to deepen", the report shows in a comparison between three different phases 2004-08, 2004-08 and the period first quarter of financial year 2016-17 to the second quarter of 2017-18. It says, whether it is GDP, consumption, investment, exports, imports, agriculture, manufacturing, construction, services, or bank credit, India achieved the highest growth in 2004-08, which slowed down to in 2004-08 , and experienced a further slowdown in in the last phase.
Hoping that Indian economic growth would "resume gradual acceleration and converge to potential growth rate in coming years", the report, however, underlines, "The GDP growth was disrupted in the last two quarters of 2016-17 and the first quarter of 2017-18 due to demonetization and adjustment to the implementation of Goods and Services Tax (GST)."
Growth rate in selected indicators
Coming down heavily on the second "disruption", the report regrets, "The tax rates in the Indian GST system are among the highest in the world. The highest GST rate in India, while only applying to a subset of goods and services traded, is 28 percent, which is the second highest among a sample of 115 countries which have a GST (VAT) system and for which data is available."
Suggesting that the GST rates in India are among the most complex, too, the report says, "The Indian GST system currently has 4 non-zero GST rates (5, 12, 18, and 28 percent), adding, "49 countries use a single rate, 28 use two rates, and only 5 countries including India use four rates... Italy, Luxembourg, Pakistan and Ghana."
It notes, "In addition to the number of rates, the extent of exemptions and sales at a zero rate is a critical design parameter for a GST. While exemptions allow to ease the tax burden on items with a high social value, such as healthcare, they also reduce the tax base and compromise the logic of the GST..."
The impact of zero GST, the report says, has results into a situation where "an exempted good or service is an input into another taxable good or service"; it creates "incentives for vertical integration to keep the exempt status"; and raises "compliance costs by making it necessary to allocate input taxes between exempt and non-exempt output when manufactured or traded together."
Finding more flaws with GST, the report says, "The introduction of GST has been accompanied by state administrations experiencing disruptions in the initial days after GST introduction. This included a lack of clarity on discontinuation of local taxes."
The lack of clarity, says the report, resulted in Tamil Nadu imposing "an entertainment tax to local governments in order to impose it over and above a 28 percent GST", Gujarat's textile sector demanding for exemptions or lower tax rate; and Maharashtra increasing "motor vehicles tax to compensate for losses due to GST."
It adds, "There also have been reports of an increased administrative tax compliance burden on firms and a locking-up of working capital due to slow tax refund processing. High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate."
The result has been, says the report, while "collection from GST exceeded expectations initially, but has declined more recently. In the first month of taxes filed, July 2017, revenue was initially estimated at INR 922.8 billion and has since been revised upwards to INR 940 billion. Since July, estimates of revenue collection have weakened slightly, with a dip to INR 837 billion in December 2017."
Even as stressing on what the report calls on the need for completing the "unfinished structural reform agenda", the report seeks to reverse various subsidies it has been providing as one major thrust.
Thus, it says, "India’s worsening macroeconomic stability after the global financial crisis can be traced to ... an expansion of the National Rural Employment Guarantee Act", expanded "from 200 to 600 districts, waiver of farm loans, increased spending on food and fertilizer subsidies", and increasing burden of salaries to "central government employees."

Comments

TRENDING

Mystery around Gujarat PSU 'transfer' of Rs 250 crore to Canadian firm Karnalyte

By AK Luke, IAS (Retd)*
While returning from a Board meeting of the Oil India Limited (OIL) in Ahmedabad some time in 2012, two officers of the Gujarat State Fertilizers and Chemicals Ltd (GSFC), Nanavaty and Patel,  saw me off at the airport. They said they were proceeding to Canada in connection with a project GSFC had entered into with a company there. As we were running late, I hastily wished them the best.

Savarkar in Ahmedabad 'declared' two-nation theory in 1937, Jinnah followed 3 years later

By Our Representative
One of the top freedom fighters whom BJP and Prime Minister Narendra Modi revere the most, Vinayak Damodar Savarkar, was also a great supporter of the two nation theory for India, one for Hindus another for Muslims, claims a new expose on the man who is also known to be the original proponent of the concept of Hindutva.

Indians have made 119 nations their ‘karma bhumi’: US-based Hindu NGO tells Rupani

Counterview Desk
In a stinging letter to Gujarat chief minister Vijay Rupani, the US-based Hindus for Human Rights (HfHR), referring to the report citing his justification for the Citizenship Amendment Act (CAA) – that “while Muslims can choose any one of the 150 Islamic countries in the world (for residence), India is the only country for Hindus" – has said, he should remember, Hindus have made several countries, including USA, their home.

J&K continues to be haunted, as parts of India 'degenerate' into quasi-Kashmir situation

By Rajendran Narayanan*, Sandeep Pandey**
“Jab har saans mein bandook dikhe toh baccha kaise bekhauf rahe?” (How can a child be fearless when she sees a gun in every breath?) remarked Anwar, a gardener from Srinagar, when asked about the situation in Kashmir. On November 30, 2019, a walk through an iron gate in a quiet neighbourhood of Srinagar took us inside a public school. It was 11 am when typically every school is abuzz with activity. Not here though.

Tata Mundra's possible closure? Power ministry's 'pressure tactic' on consumer states

By Bharat Patel*
Tata power has announced to the Union Ministry of Power that Tata Power may be forced to stop operating  its imported coal-based Mundra Ultra-Mega Power Project (UMPP) after February, 2020. It is not only unfortunate but also criminal that irreversible damage has been caused to the fragile ecosystem of Mundra coast for a project that will have a running life of only seven years.

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam*
RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

Population control? 10% Indian couples want to delay next pregnancy, but fail

Counterview Desk
Shireen Jejeebhoy, director at Aksha Centre for Equity and Wellbeing, previously senior associate at the Population Council, India, argues that the debate on the country's population was fuelled by Prime Minister Narendra Modi’s Independence Day address to the nation, where he drew attention to “concern” about the challenges posed by this ‘exploding’ population growth, needs to centre around the promotion of rights and education, instead of the language of explosion and the threat of coercion that this term implies.

Savarkar 'opposed' Bhagat Singh's, Netaji's dream of India, supported British war efforts

By Shamsul Islam*
In a shocking development, the student wing of the RSS put the busts of martyrs Bhagat Singh and Subhash Chandra Bose with Savarkar's on one pedestal at the University of Delhi late in the night on August 20, 2019. Bhagat Singh sacrificed his life for a socialist-democratic-secular republic and Netaji raised Azad Hind Fauj (INA) consisting of people of all religions and regions for armed liberation of India.

Kerala governor turned History Congress into political arena, 'insulted' Prof Irfan Habib

Counterview Desk
In a signed statement, office bearers of the Aligarh Society of History and Archaeology (ASHA), Prof Syed Ali Nadeem Rezavi (president), Prof Jabir Raza (vice-president), Prof Manvendra Kumar Pundhir (secretary) and Prof Farhat Hasan (joint secretary), have said that Kerala governor Arif Mohammad Khan had sought to insult veteran historian Prof Irfan Habib, 88, at the 80th session of the Indian History Congress, even as turning it into his “political arena”.