GST - Nothing was right

• GST is and was a good idea implemented in many countries with some variations.
• It has the basic principle of one tax on all goods and services across the country unless exempted.
• Chief economic adviser recommended revenue neutral GST rate of 15% with merit based lower rate and demerit based higher tax making it a 3 slab GST, apart from exempted list.
• Modi & BJP mangled it beyond recognition with exempted list and 5 tax slabs (3% to 28%) with additional cesses and sin tax on cigarettes and with real estate, petroleum products & liquor retained outside the list. 
• While they campaigned it as revenue neutral, the truth is that it is designed to increase center's revenues while state's fear erosion in their revenues.
• It has also hidden intention of bringing in retail trade under tax net despite their lower margins made them vulnerable, compelling them to migrate completely into cash segment.
• GST was deeply flawed in concept, design, rate(s), exclusions, exemption limits, information dissemination, compliance procedure, infrastructure, preparedness, training and so on. 
• Worst is that service tax, which accounts for over 60% of revenues, was hiked from 15% to GST's 18% tax slab.
• Nothing about GST rolled out on July 1, 2017 was right.
• After 4 months of hasty implementation, the consequences are clear and situation is nothing short of disaster.
• SMEs worst effected; Micro enterprises thrown out of business; Many small manufacturing units closed their operation with no prospect of returning; family operated small enterprises struggling hard to survive; Medium enterprises cutting back on production & reducing work force; Medium enterprises borrowing additional capital for paying large amounts for professional help for GST compliance; GST dealers living in constant fear of tax officials.
• The diarchic rule 'pay first and claim refund later' affected (1) export businesses tax incentives blocked and (2) SMEs faced non refund of input tax credits in time, warranting mobilisation of  additional expensive working capital.
• Ignoring industry/businesses/tax practitioners suggestions and relying of bureaucrats for GST design and implementation process resulted in innumerable flaws causing hardship to small & medium enterprises, retailers and consumers.
• It is only when 'tax problem' worsened to become 'political problem' government woke up to fix the GST problems.
• The desperation is visible with many changes and deferments announced and many more to come soon. As on Oct 31, 2017, GST rules were amended 11 times with 27 reduction of rates, 7 prescription of rates, 22 exemptions, 1 waiver, and 15 extensions of time. Most were concerning SMEs.
• Commonsense returned into the heads of rulers only after 4 months of hardships faced by businesses and consumers. While tinkering of GST is going on, the truth is that there exist no quick fixes and, complete over haul of GST is beyond the comprehension of this government.
• With GST, Modi has resorted to constitutional impropriety of hijacking states autonomy, compromising constitutional principles for economic benefits based on majoritarianism and narratives. What is worse is that introduction of GST Bill as money bill in Lok Sabha depriving Rajya Sabha its right to reject.
• While GST is only transitioning into uniform single tax regime, Modi has resorted to high pitch campaign as a solution to resolve all the ills of nation and highlighted that commodity prices would come down. GST will only give benefits after 2+ years with initial economic disruptions, that too in the form reduction of reduced business to business expenses due to saving in logistics of their products. And Indian businesses are notorious to pass on increased expenses to consumers promptly and retain any savings with themselves. Therefore GST offers no benefits to consumers. On the contrary, GST resulted in increased prices to consumers and lessened revenues to government.
• The deteriorating economy is reflected by the fact that central government has exhausted over 90% of its fiscal deficit target [3.2% of GDP for full year] in the first four months and some states choosing cut capital expenditure as a consequence of farm loan waiver expenditure. Due to low oil prices of $40-45 per barrel since 2014 continuously, central government has managed to contain its fiscal deficit but the combined deficit of the center and states has still remained at near 7%. India’s trade deficit widened due to slow down of exports while imports spiked after demonetisation.
• Now it is clear that centre underestimated impact of GST transition in terms of hit to the growth and how long the dampening effect that could last. 
• The Economist observed --  the shambolic implementation of GST is likely to make matters worse than demonetization. The BJP is not interested in policy it offers. It offers voters mainly distraction.
• The GDP growth rate declined in six quarters from 9.1% to 5.7% is a fact. Every 1% GDP growth loss means loss of 1 million jobs. Since many businesses have closed down and millions lost their jobs, improving the economy and GDP growth would be painfully slow. Unfortunately oil prices now crossed $62 per barrel and OPEC restricting production could see its price moving further northwards which impacts our GDP growth as well as job creation. 

Jobless growth of India's GDP

• Today, India is facing a peculiar situation of 'jobless growth' and 'growthless jobs' as well, mainly due to defective economic policies and gross fiscal mismanagement.
• During the past three years, public sector, government’s headcount remained stagnant. State-run banks registered a job growth of just 0.5%. Private corporations have no better figures.
• Every year, 10-12 million young Indians join the labour force, 5 million people leave agriculture to join the non-agriculture sectors. In contrast job creation is few lakhs only during the past three years which are mostly replacement recruitment.
• India's GDP growth and new jobs creation in India have not been growing at the same rate. The creation of more and better jobs and livelihoods is imperative for policymakers. Focusing only on GDP growth is a wrong approach.
• About 550 jobs are disappearing everyday, an alarmist declaration of loss of one million jobs during past five years.
• The lack of lending by the banks may very well be one contributing factor. 
• Rise in unemployment is due to agriculture and SMEs, which contributes most employment in India, are the worst affected. The organised sector contributes only 1% of jobs.
• Big multinationals in India are highly capital-intensive, while the SMEs are four times more labour intensive than the large firms. But they are one of the least productive sectors and their real wages are very low. 
• India needs to protect sectors like farming, unorganized retail, micro and small enterprises. These sectors need support from the government not regulation. 
• The agricultural sector in India does absorb more than half the workforce, but a lot of it is disguised unemployment. 
• The view of Indian villages as the economic backbone of India is flawed and will never lead to the kind of mass employment that is desired in India. At best it minimizes agriculture labour migration to urban areas.
• Urbanization creates lots of jobs in developing economies.
• 92% of enterprises that created jobs were from the informal sector, and the biggest stumbling block for these was lack of formal credit. 
• India needs to free up its labour laws which are archaic, restrictive, and convoluted which incentivizes firms to stay small and remain in the informal sector. Firms, which can achieve economies of scale, are the need of the hour to create jobs for the masses in India.
• India needs to focus on primary and secondary education and skills development. A skilled worker has a better chance at finding higher paying employment.
• At present, the business environment is the toughest for small to medium enterprises. Improvement of 'ease of doing business' to firms of all sizes, to be set up and facilitate its smooth running. 
• Focus on infrastructure and tourism, on sustainable basis, will help creation of jobs at the unorganized level. 

My View:

Modi administration, in the name of reforms is actually destroying 'informal sector' which are mostly operated by less educated people employing semi skilled people. Modi's failed demonetization and hurriedly rolled out mangled GST have destroyed informal sector, agriculture, construction and tiny industries, while achieving nothing. Winning elections is all about hammering of selective narratives rather than sound public policies. Aside improving 'ease of doing business', promoting manufacturing, preserving agriculture at profitable levels, encouraging small businesses & industries, services, infrastructure, tourism are the keys for providing employment to masses. Banks must be financially healthy and support informal sector so that our economy grows and provide employment to our aspiring youth. Trophy projects, white  elephants and icons are not the indicators of development. It is all round life style improvement of poorest people, which is called 'development'.