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

Iswarchandra Vidyasagar was a 'frustrated' reformer who turned into a conservative

By Bhaskar Sur "If someone says the Manusamhita was written by all wise Manu and the principal scripture of the land and if he asks me to throw it away, I'll say it is nothing short of atrocious audacity." -- Iswarchandra Vidyasagar

Why do I lend my support to voices protesting world class renovation of Gandhi Ashram?

By Martin Macwan* One would not expect an activist working on Dalit rights to join such a protest. Dalits carry unhealed trauma that Gandhi caused to Dr BR Ambedkar and the Dalit cause of effective political representation by using violent means of his own definition in the event of the Poona Pact. This apart, Gandhi’s ideas in general, which changed often, on caste were orthodox. I have nothing to add to the subject after the sharpest critique offered by Dr Ambedkar.

2002 riots: Gujarat assembly 'misinformed' about dereliction of duty, says ex-DGP

By Rajiv Shah  Former Gujarat topcop RB Sreekumar, an IPS officer of the 1971 batch, has alleged that the Gujarat government gave “totally false information” on the floor of the State Assembly regarding the appeal he made to the Gujarat governor for the “initiation of departmental action against those responsible for culpable negligence in maintenance of public order and investigation of genocidal crimes” during the 2002 riots.

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Odisha bauxite mining project to 'devastate' life of 2,500 Adivasi, Dalit farmers: NAPM

Counterview Desk  While the public hearing on mining in Mali hills has been cancelled due to protests by Adivasi and Dalit farmers of the Mali Parbat Surakhya Samiti, Odisha, who have been protesting against the proposed bauxite mining project, India’s top civil rights network, National Alliance of People’s Movements (NAPM) has said it is “deeply concerned” at the decision of the Government of Odisha to push the project in a Schedule-V Adivasi-belt Koraput district against the interests of the people and environment.

'Devastating impact': Rural workers suffer as Govt of India NREGA budget down by 34%

Counterview Desk  A civil rights group, the NREGA Sangharsh Morcha has sent a letter to the Prime Minister and the Minister of Rural Development and Panchayati Raj stating that 34 per cent decrease in the fiscal budget of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) for year 2021-22 has added to woes on India’s rural population, already suffering from “devastating impact” of the Covid-19 pandemic.

Economy in tatters, labour codes 'take away' workers' safety, benefits, right to form TU

By Our Representative  The four new labour codes promulgated by the Government of India came in for sharp criticism from several labour unions and civil rights groups at one-day discussion meeting organised in Ranchi (Jharkhand) on the issue of ‘changes in labour laws. Participants in the meeting asserted that under these new codes, many of the benefits and safeties accorded to labourers have been "taken away", while the right of labourers to create trade unions has been attacked.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Celebrating birthday amidst image of 'coerced, submissive' India ruled by a strong leader

Pushkar Raj*  As the weeks long birthday festivity of the leadership was being rejoiced India wide, the Covid was still raging in several parts of India. The carnival was in line with the post-Covid decisions and actions of the leadership demonstrating a pursuit of personal power and glory instead of national interest in times of disease and death.

Politically-motivated: Global NGO network on ED 'harassment' of Harsh Mander

Counterview Desk  CIVICUS , a top global alliance of civil society organisations seeking to strengthen citizen action and civil society around the world with a claimed membership of more than 10,000, objecting to the alleged harassment of IAS bureaucrat-turned-human rights activist Harsh Mander by the Government in India, has said that the the the Enforcement Directorate (ED) raid on his house and office highlights “an ongoing pattern of baseless and politically-motivated criminal charges brought by the authorities against activists across India”.