GST and impact in the Indian economy

Every country has own policy to define the tax, which has certain impact on the economy. Indian government has also taken a decision and on the way of implementing new tax reforms in the form of GST (Goods and Service Tax), which would replace the state VAT (Value Added Tax) and CENVAT (Central VAT) by April 1, 2010. Before putting light on it, I should put some efforts to make it familiar to every one that what is it and how is it going to impact Indian economy.

It is a single comprehensive tax levied on the goods and services consumed in the economy. However as per the Empowered Committee, which is working for its implementation, it will have dual model system in India i.e. Central and State GST. And, is likely to be between 12-16%. It is implemented in over 140 countries across the world, and most of the countries have 15-20% rate, whereas France was the first country to implement it in 1954,

Before discussing the impact of GST in India, it is evidently essential to discuss the present tax regime across the country. I believe that the almost every reader of this article must have traveled across the states via road and I assume that most of the people have seen a big traffic jam at the boarders of the respective states. Let me get you through the inside story of this incidence. In India, every state has own form requirement. E.g. UP: Form 31& 49 for incoming and outgoing, Rajasthan: Form 18A & 18 B etc. These forms are to be produced while crossing or entering the border and needless to say that checking of documents take long time and drastically increases the transit time by 50% higher compared to other countries from source to destination. And, also is the reason of big kiosk at the borders. Consequently the logistics cost in India is 11%-15% of the landed price compared to 6%-8% in developed countries. Due to it, return on investment per truck is very low in India. In India, distribution network is designed more by the tax consideration rather than the requirements of servicing customers at optimal cost. Most of the consumer goods companies operate with at least one distribution center in each state, where they sell, to avoid inter-state CST. Such companies operated with 25 to 50 warehouses all over India, which is a very high number compared to developed economies (less than 5) or even China (less than 10). If there is no tax consideration for deciding the distribution network, then the total warehouse space can be reduced by 20 -50%, and will help in reducing distribution cost.

Therefore the prime objective of tax reform should be to address the problems of the current system discussed above. It should establish a tax system that is economically efficient and neutral in its application, distributional attractive, and simple to administer. Another important objective of tax reform is simplifying the tax administration, which is somehow dependent on the following factors, the tax design, which has to be ration and neutral. And it should be classified in a such way that covers broader base of the goods, which would headed towards less disputes and less administrative expenses. It would also encourage for the tax compliance. It is also needed to be taken care that the committee enforce the maximum utilization of the information technology, while preparing the form, design, procedures, great transparency in the processes of filing the tax returns, refunds, quality of services and audits. India still has the only one major road transport system, which constitutes approximately 80% of the total transport. And it has 28 states, which is again a big task to implement the one tax system while every state has own tax structure and full keeping the control with itself. A great amount of synergy is required while implementing the new tax system, as the states definitely would have own interest and reservation about the policy, so it should not contradict the interest of the respective state too.

As per Indian Public Finance Statistics, Ministry of Finance, total taxes contributed approximately 6% in GDP in 1950-51 however it stood up by approximately 20% in 2008-09, which is a tremendous trigger for the growth in the economy and also has an incredible scope for the further improvement and efficiency. An “Empowered Committee of the State Finance Ministers” (EC), constituted by the Government of India in July 2000, which is delicately working on it and optimistic to be launched by the deadline. As per Asim Dasgupta, Chairman of the EC and the finance minister of West Bengal, it will be proved as a mile stone for Indian economy, is confident for the increment of the GDP by 2%. However, As per the working paper submitted (March 2009) to the Department of Economic Affairs, Ministry of Finance (Government of India) on GST reforms and intergovernmental considerations in India by Mr. Satya Podar and Mr. Ehtisam Ahmad, estimated that this replacement resulted in an increase in potential GDP by 1.4%, consisting of 0.9% increase in national income from higher factor productivity and 0.5% increase from a larger capital stock (due to elimination of tax cascading) However, these benefits are critically dependent on a neutral and rational design of the GST.

Therefore we can head towards the conclusion that how important is it for the Indian economy and the common man as well. It will not only enhance the Indian tax efficiency but also save a lot of cost in logistic hurdles. As per the various research and analysis it has been concluded that it would be able to enhance the GDP’s growth significantly.

Pull up the socks for the growth

Sign of green shoots is widely visible globally, especially in India, where day by day, Sensex is touching new high of last fifteen months. Customer has still faith in the market and showing the confidence in investing as India’s largest Insurance player LIC’s net profit grew by 37 percent in FY 2009 despite the tight economic situation. Corporate advance tax collections were up by 14.7% in September. Total advance tax collections in the second quarter stood at Rs 49,501.80 crore as against Rs 38,367 crore in September, 2008. And, foreign investors are showing more confidence to invest and flow the money into the market. Export signals, gradually increment in the retail sector, sales graph of auto industry showing the positive trend, According to the Society of Indian Automobile Manufacturers (SIAM), domestic auto industry posted the jump of 24 percent sale in August, which anyhow shows the signal of the appetite of the growth of the Indian economy, which can be gradually developed and maintain by looking forward for the investment in the untouched or undeveloped sector.

As per the survey India has a big potential to invest the money in infrastructure, water resources and energy sector. And Indian government has fair projection to invest the big share on these projects in coming decade. However, we have a question that how the government would manage the money for it. There is a investment projection of $ 500 bn in next five years in only in infrastructure industry.

It is a big concern that the inflation is again eating the joy of the common consumers. Prices of the all commodities have risen. And crude oil again has touched $ 71 per barrel, while it was at $ 43 per barrel six months ago. Pulses have already touched historical heights and other food grains also expected to touch same as per the poor weather condition, which would affect the production of principal corp.

We have absolutely different economic scenario as compare to the USA and European countries. Since we have a long way to go in some major and semi developed sector, so the Indian government needs to invest the money on such long term projects, which would not only fetch the larger liquidity in the market but also would be able to fetch big jobs in the country. However, we will have to project ourselves for a decade, as any project takes four to five years to complete, and by the time the project is completed. We again have to be prepared for the further demand for next coming years. For example, we need to maintain the demand of the growing population in terms energy consumption. Peak demand estimation by the end of XI Plan (2007) was 157 GW and by the end of XII Plan (2012) is 213 GW. With a targeted GDP growth rate of 7 to 8 percent, and an estimated energy elasticity of 0.80, the energy requirements of India are expected to grow at 5.6- 6.4 percent per annum over the next few years. This implies a four-fold increase in India’s energy requirement over the next 25 years and India faces significant challenges to meet this. And, undoubtedly, the sector demand billions of rupees and skill man force. India needs big development in infrastructure, energy and water supply. The government would find very hard note to manage the huge budget. As per a study, India would require more then $1.5 trillion to invest on these sectors in next 10 years.

We have a strong social structure, who believes in saving. And we have huge savings in various Indian banks. India's high savings rate has been a crucial driver of its economic boom, providing productive capital and helping to fuel a virtuous cycle of higher growth, higher income and higher savings. Since the 1990s, the gross domestic savings rate has risen steadily from an average of 23% to an estimated high of 35% in the 2006/07 fiscal year (April-March). As real GDP growth climbed and the economy opened up, many worried that increasingly prosperous Indians would spend more and save less, breaking the cultural habits of decades. Those fears turned out to be unfounded; prosperity has only increased the savings rate. One reason for this is the woeful inadequacy of India's social-security system.

All this suggests that India's large fund of household savings, which stood at Rs9.85trn (US$192bn) in 2006/07, will remain available to fuel domestic growth. Therefore government can use some percentage of the savings for the investment in the various projects wisely. However, the government needs to be very cautious while using it, as inflation creates biggest threat on it, which anyhow would hamper the money management for the projects. It’s a fact that any country would find very hard notes, if the inflation continually goes on for a long period of time. Therefore the government needs to pull up his socks to tame the adverse effect of the inflation and larger spectrum can be benefited of the trend of the growth.

Lehman’s era and the state of the Indian Economy

The process of Lehman Brothers Bankruptcy was not a sudden incident, it was the resultant of US subprime and housing bubble. The saga had been begun since 2002, when American banks and credit institution started lending the loans to the sub prime customers profusely, whose financial credentials were economically not sound.

It took almost six years to show the impact like Lehman’s. Since the major banks like Lehman succumbed to the situation such badly that the whole world started impacted. However, some Asian countries like India, China etc, manage to get least bounce as compare to European and American countries because of their own strong economic penetration in the domestic market such as agriculture, large numbers of consumer, infrastructure and traditional banking system, while issuing the credit. Being a part of the globalization, India also could not save itself to get the hit.

Pre Lehman’s collapse, India was heading towards the double digit growth. Post Lehman, which was not only impacted but also started struggling at 6%. To know, that why India too impacted, we need to understand the Indian economy as well, which can be divided into three parts in the context of GDP as Service sector, Agriculture and Industrial & Manufacturing sector, which contributed 55.7%, 26.5% and 17.8% in 2007-08 respectively. As per the department of economic affairs, in 2007-08, India’s GDP growth rate was 9.0%.

There is no doubt that the service sector is the major constituent of the GDP, which has shown tremendous growth in the last decade. IT and ITES, which is the important part of the service sector, contributed 1.2% in GDP in 1998, while it estimated 5.5 % in FY 2008, which shows the growth of 358.33% in a decade. Needless to say that the industry is completely depend on the USA and other European county, which means if aforesaid countries get any negative bounce, India too can not spared of the hit. Post Lehman, India too showed steep decline in the IT sector, Real sector, insurance and export. Associated people with the IT are one of those biggest spenders in the country. Any down turn on the industry affects the same reaction on Real Estate, Retails and consulting.


Therefore we are required to focus on the following domestic business for getting the pace of the growth, which was in the pre Lehman’s era, as infrastructure, hospitalization, agriculture & allied industries, strong monetary policy, fiscal discipline and optimum utilization of the resources.

Though the export demand shrunk in the western market, due to the large consumer based, India could manage the goods in its market. However, we have still need to focus on the export industry as well. We need to make very balancing difference on the excessive dependency and adopting the growth driven model of export. Since export demand in the western markets


squeezed badly, consequently China’s excessive dependence on exports proved to be liability, while our large domestic market proved to be beneficiary for us.

We are the second largest populated country in the world, which is continuously growing rapidly. Consequently we require more foods and grains to fulfill our own domestic demand. Therefore we rigorously need upgraded tools and technology for not only fulfilling the demand but also for export of the agricultural products. Pathetically, the growth rate of the agriculture sector squeezed by 65% in a year dramatically, as it had a growth rate of 4.9% in 2007-08, However, it was 1.7% in 2008-09. Due to the declination of the aforesaid industries in India, it poised the growth of 6.7%.in 2008-09. The average growth rate of principal corps is only 3.17% in India from 1994-95 to 2007-08. As per the Directorate of Economics and statistics (Ministry of Agriculture, India), only 42.9% agricultural area under the principal crop, in the country was irrigated in 2005-06 and 43.9% in 2006-07. It means more then half of the agricultural land is still at large to get the irrigation facility, which requires very urgent reforms to increase the share of the industry in GDP.

Apart from the industrial development, strong fiscal discipline and monetary policy is a must tool for saving the country during the odd times, as the USA had to infuse approximately $700 bn to bailout the several collapsed industries. However, the government needs to focus on the revenue taxes at the good times to overpower the odd financial situation, and allocates it appropriately, as the government has to step in, while private companies get collapsed financially. Though it was a positive sign of the strong monetary policy in country like India, where there is a second largest consumer for the goods and credits. Not even a single bank blinked its financial credentials, while in USA, it swallowed more then 100 banks and credit institutions. Consequently, we have to maintain the reformative balance between traditional and growth driven modern reforms adopted by the central bank of India.

Conclusively, we are the one of the fastest growing economy of the world, and keep one of the largest base of the consumers, are required to play a pivotal role to eradicate the economical imbalance on the international arena. We have to actively raise and participate for the growth driven reforms internationally.

Budget and Agricultural Reforms

Oh!! Ultimately the budget whirlwind seems to be over!!! Still feeling hot!! Everywhere I go, find bunch of people talking over the budget. Different people had different opinions about the budget. As I think that I am not a good orator, so let the Blog make a victim of my thoughts!! Every year we hear a lot from the Finance Minister. However, what is announced, what is implemented and what the general public get, could be a different aspect. And, it could be a subject of debate while having a sip of coffee or sitting on the lunch.

I did not have much expectation from the FM in this session. However, I was thinking that after seeing the economic atmosphere around and the whether condition, he would definitely focus on our traditional sectors like agriculture, I never could not find reason that why the agriculture industry does not attract the minister. Huh!! I have left it on its fate. Why do we always talk about the poor and do for the rich?

Can the waiver on the loans drive the permanent solution, government did not leave any opportunity to pat her back on it. How good it would be, if the government open the ears, and investigate the root cause of the farmer’s suicide and implement the basic reforms on the agriculture. I had read in my childhood in the books that Indian agriculture depends on the uncertain weather condition, lakh of hectare’s crop is vanished due to flood, every state has distinct kind of soil, we do not have concrete irrigation resources, we are far behind in the tools and technology used in the farming, every year we waste lakh of hectares in soil erosion blah blah blah ……. I do not know whether the writer was too intelligent or my finance minister does not know anything or have not got any such syllabus during his study, which talks about these problems. Some time I feel that I should carry all those books and put on the minister’s table, and then ask him to prepare the budget.

Agricultural growth stood 1.6% in 2008-09. It accounts 18.5% contribution in country’s GDP. And it’s the subject of deep concern that the average growth rate of principal corps is only 3.17% in India from 1994-95 to 2007-08. As per the Directorate of Economics and statistics (Ministry of Agriculture, India), only 42.9% agricultural area under the principal crop, in the country was irrigated in 2005-06 and 43.9% in 2006-07. It means more then half of the agricultural land is still at large to get the irrigation facility. Gross area under major crops e.g. Food grains, Cereals, Pulses, Rice squeezed by 3.13%, 2.33%, 6.88%, and 6.79% respectively during 1990-91 to 2008-09. Approximately 6.3 million hectares of crop-land destroyed due to flood in 2007 only. And, approximately same happens every year. Almost 130 million hectare of land (45% of total geographical surface area) is affected by soil erosion. India is loosing soil 30 times faster than the natural replenishment rate.

Contribution of IT/ITES industry to India’s GDP has grown from 1.2 per cent in FY 1998 to an estimated 5.5 per cent in FY 2008, which shows the growth of 358.33% in a decade. And, approximately 1.12 Million are associated with the industry. On a contrary, the agricultural industry has 65% of the total population of the country. In 1990-91, the contribution of agriculture towards country’s GDP output was at 32%, which has decreased to 18.5% by 2008-09. In other words, it was a tremendous decrease of 42.19% in 18 Years, which clearly shows the government’s focus and intention towards the agriculture.

The aforesaid data raises big question on the existence of the agricultural ministry too. What kind of development they are engaged with to uplift the industry, no one knows. It raises disappointment and concern over the government. Everyone knows that every year the government allocates billions of rupees for welfare and development of the agriculture. However, how and where is being implemented is a million rupee’s question. I believe that if the government focuses on the aforesaid concerns, it will not only improve the life of the associated people, but also play a pivotal role to increase the growth rate of the GDP of the country.

Koshyari vs. Khanduri and the BJP in Uttarakhand

Much has been written and discussed about the leaders and situation of the BJP in Uttarakhand. People mulled their head that who should have been the next CEO of the state!! Though BJP has already vetoed Bhagat Singh Koshyari for the post, and put B. C. Khanduri then Ramesh Chand Pokhariyal! The question aroused in my mind that, was it logical as per the policy. And, would it fit into the state’s public and party worker. Is it logical that someone paid very hard note to establish the party in the state and worked very closely to get the stand the party among workers. However, when the party got numbers, foisted the leader from the centre, who did not have much attachment in the state politics.

Let me stretch you nine years behind. When the state was formed and Nityanand swami was elected as the chief patron of the state, that time party not only ignored the cadre leaders but also created divested situation for the state’s party workers. When the party felt that the decision could not be proved in the Dev Bhoomi’s favour, it had to change the guard and chose Koshyari as the CM, who was widely known for the down to earth attitude, principal & ideology oriented politician. And, never likes to carry any protocol while meeting with the people. He belongs to a poor farmer family and very much aware about the day to day life & problems of the Dev Bhoomi’s people, started his innings for the public life since school days, and never looked back on an organization front, workers are still very much fond of this gentleman, as he never fiddled his finger with any kind of allegation in modern politics. However, party could not get the power in 2002 election due to lethargic decision taken by the top brass of the party at initial stage, as it was felt by the workers that Koshyari could not get the proper time to show his administrative skills. Again, party made him the state president till it comes in power. It is needless to say that he worked hard to get the party in power, and most eligible person to be in charge. Post winning the election in 2007, Party put the foundation for dividing the workers and the party in the state, as Khanduri was imposed as CM of the state. And, party throne away the koshyari as if he is of no use for the party. And, elected Bachi Singh Rawat as the state unit’s president. Both of them did not leave any stone unturned to erase the importance of Koshyari in the state. Khanduri, who was always in the commanding position in his life, which pierced in his public life too. Though he also did not have any hand in any kind of allegation and earned good rapport among the top leaders of the party as surface and transport minister in Vajpayee’s regime in the center. However, he never could be the first choice of the state’s party worker due to his own defined aura, and always liked to be maintained a decent distance from the general public and workers. And during the regime, closeness with some top brass of the party resulted as CM of the state. It could be merely just a sift decision of some top party office bearer to hand over the charge to any one, which had been done, without gone through the one’s contribution and efforts. It is evident that the decision taken by the top leaders swallowed the party from the state in Lok Sabha election in 2009.

Party even could not maintain the previous seats in the Lok Sabha election in the state, if I talk about the people. It was an obvious public opinion, people were not happy with the government. If it not had been, party at least could have won one parliamentary seat. The performance during the election posed a serious question on then CM that party performed with zero out put, while people are evident that it was not the time when the central government had done much to provide an air to sweep the election in the state. Simultaneously people equally forced that they have not given any weight on the charismatic impact of Rahul Gandhi to sweep the election, here the workers hold the views that poor organizational management, ticket distribution and unhappiness of the people ignite the anger and ouster the party in the election.

Later on, it was heard from Khanduri without naming koshyari that some people did not work for the party with full attentiveness, which was the key factor for loosing the election. If attention is paid, in other words, Khanduri unknowingly himself admitted that he does not have direct approach with the people or Koshyari has strong penetration among the party workers. Any one can be surprised that one person (Koshyari) does not work with full consideration or just blink his eye and party looses all seats. In other words! Does it not signify that how the person is dissolved among the workers? Now it’s up to you to think about the better leader for the party and state. The question is that, why should the party not provide a proper platform to Koshyari for livelihood of the party in the state? It seems to be that some leaders has closed the eye and not ready for introspection, and adherence of impartial democracy and decision in favour of the party and workers due to their personal ego and ambition. There is no doubt that attitude and modus operandi, adopted by the some party leaders to fulfill their own desire, will rapidly vanish the party from the country’s map. If the BJP wants to be survived, it has to bring internal democracy, essentially put forward the people leader and maintain the discipline !! After all it’s the party with difference, it is needless to say that the slogan is essentially to be adopted in a positive mode, not as it is presently spreading the message in a pessimistic mode.

An open letter to Timeslife (Homosexuality)

from

Narendra Singh
hide details
1:38 pm
to

Vinita.nangia@timesgroup.com

date
Jul 12, 2009 1:38 PM

subject
Disappointing an ill logical article ( Gay fantasy...)

mailed-by
gmail.com

Dear Vinita,

Greetings!!

Hope this mail finds you well.

It’s disappointing to read your article published (today, 12/07/09) on Times life. I am amazed that how some one can write anything without knowing the facts, causes and impact on the society on such issue!!
What did you want to depict!!

Just a lifestyle or a freedom to do anything which does not hurt anyone else!!

What is not a wrong with loving and being loved the way a person wishes to!! How someone can forget the person makes the society, country and the world. How anyone can detach from the personal and social responsibility. Should we not show the discipline while expressing our desire on such matter?

Tomorrow you can claim that if someone wants to marry his dog, why shouldn't he be able to? Would you support on the basis of the having a choice of the sex that a person wants with his brother or parent? What if a person wants to have 8-10 homosexual/wives? Today we are going to support homosexuality, because it does not hurt anyone. There is no surprise!! Tomorrow we have bunch of supporters of having sex on open colleges, gardens, malls and public places, because if two persons are agreed! What’s the harm!! And, why should society come in between.

Choice of sex is not an arbitrary construct which can be simply mold by the people who just claim for pleasure. It is built on moral, religious and human realities. It is based on a natural teleology on the different, complementary nature of men and women. It is the base root of the institution, which we propagate, nurture, educate and sustain our species through.

It’s not all about the lifestyle or having a selection on sex. It is about what sort of lifestyle you are heading towards, and what is the impact on our surrounding as well. I am firmed that it’s our responsibly who has to raise the curb on such endless desire and constitute a concrete sex/marriage system. Sex is the on of the constituent to build up the universe. Originally the sex was only for creation. However now it has turned into pleasure. You still can see the animal, where the discipline is still maintained. They have sex only for creation of the species. Are you aware about the causes and impact of such syndrome! Let me tell you some facts on homosexuality.

Scientists have not been able to conclude that there is any gene or combination of genes that will make someone gay. It caused by environmental factors, such as upbringing, child molestation, an absent mother or affectionate father or the impressions of the people are around. And, a scientific study has revealed that homosexual behavior significantly increases the psychiatric, mental and emotional disorders. People are prone to four times more to suffer major depression, anxiety disorder, conduct disorder and multiple disorders. It does not mean that I am a supporter of ill treater of such people, obviously they deserve harmony, cure and treatment equally. Helpful responses of a therapist treating an individual who is troubled about her or his same sex attractions include helping that person actively cope with social prejudices against homosexuality, successfully resolve issues associated with and resulting from internal conflicts, and actively lead a happy and satisfying life.

I am not surprised that most of the people, around you have the gay fantasies. However, I have almost all people around me, who are straight, even do not like such behaviours and expressions. That’s all about the surroundings you have, so I can not claim that all people have heterosexual or homosexual fantasy. However, we should encourage, what is good for us and society.

Any law has to be constituent after seeing the positive and negative impact on the society and country. Law can not be made to please one’s desire. So please be specific and do not support any such thing, which could be a cause of distorted society.


With Regards,
Narendra Singh