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

Hindus to be 'sent' to Kashmir? Despite Israeli settlements, peace eludes the region

By Anand K Sahay*
Curfew, news and communications blackout, transportation shut-down... News reports from Kashmir are worrying. So are the views relayed through the media, especially television. Old-fashioned repression seems to be consorting comfortably with expressions of concern “for our Kashmiri brethren”. We are looking at Orwell’s 1984 in the making.

Dholera 'inundated': Gujarat govt tries selling low lying area as top smart city site

Counterview Desk
Even as the Dholera Special Investment Region Regional Development Authority (DSIRDA) of the Gujarat government was busy organising a junket for Gujarat-based journalists for the area sought to be sold as an ideal special investment region (SIR) for industrialists, well-known farmers' activist Sagar Rabari has wondered why no investor has so far agreed to put in money in an area situated in Ahmedabad district along the Gulf of Khambhat.

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.

UN experts object to GoI move to 'reinforce' trend of prosecution, eviction of tribals

Counterview Desk
In a report sent to the Government of India, three United Nations (UN) special rapporteurs, expressing "concerns" over the failure to ensure "adequate" implementation of the India Forest Rights Act (FRA), have regretted that the Government of India has not cared to reply their previous communications on this.

Modi's Gujarati mind? Why govt move to 'sell-off' defence PSUs isn't in national interest

By Sandeep Pandey*
The Standing Committee on Defence, 2017-18, of the 16th Lok Sabha highlights the idea of Buy Indian-IDDM (Indigenously Designed Developed and Manufactured). The Committee expressed concern over the import content of equipments produced and developed by Defence Research and Development Organisation (DRDO), Ordnance Factories (OFs) and defence Public Sector Undertakings (PSUs) because of the dependence it creates for military hardware on foreign suppliers.

As submergence stares Narmada valley, Patkar says: With powerful in throne, we're helpless

Counterview Desk
Well-known anti-dam organization, Narmada Bachao Andolan (NBA), plans to begin its “Resist Illegal Submergence in Narmada Valley” satyagraha on August 21 at Jantar Mantar, Delhi, amidst news that the situation in the valley is “critical”, with two persons having already died in flood-related incidents in the upstream of the Sardar Sarovar dam.

RTI Act holy cow for Govt of India? Official insists, don't ask why, when, what, where

By Pankti Jog*
The Government of India appears to have begun treating the Right to Information (RTI) Act as a holy cow. Its officials seem to believe that the Act is a sacred law, under which people shouldn't be questioning its functioning. One recalls what Prime Minister Narendra Modi said while addressing an RTI convention in 2015: “Why should government wait for people to ask information, we will have all information out in the domain, we have nothing to hide."

Can't go to court with RTI information, rule Ahmedabad authorities: Kankaria accident

By Pankti Jog*
In a shocking reply to an application filed by me, the Ahmedabad Municipal Corporation (AMC) authorities have said that the information provided under the Right to Information (RT) Act should be used in court or in a judicial process. The Act is known to be a major tool that enables citizens to seek certified copies of documents, records from any public authority of state and Central government within 30 days, as per provisions of the Act.

Strategy for united struggle against Hindutva 'fascism': Ideological silence is 'no option'

By Dr Bhabani Shankar Nayak*
Electoral alliance and opportunism of national and regional political parties, neoliberal economic marginalisation and soft secular Hindutva line pandering to Hindu majoritarianism laid the foundation of Hindutva fascism in post-colonial India.

Kashmirisation of India? Ayodhya communal harmony meet: Activists stopped, detained

Counterview Desk
In a joint statement, three civil rights organizations, Rihai Manch, National Alliance of People's Movements and Lok Rajniti Manch, and Socialist Party (India), have taken strong exception to the Uttar Pradesh government taking "preventive" steps against those seeking to hold a meeting on communal harmony at Ayodhya.