GST, Khakhra economics, babel of politics and context blindness

If it had been possible to build the Tower of Babel without climbing it, it would have been permitted
Franz Kafka

Published: 08th October 2017 04:00 AM  |   Last Updated: 08th October 2017 07:33 PM   |  A+A-

Finance Minister Arun Jaitley (centre) chairing the 22nd GST Council meeting in Delhi

If it had been possible to build the Tower of Babel without climbing it, it would have been permitted
 Franz Kafka

Kafka is visiting the discourse in the political economy. The aphorism, coined in early 1900s, is about countering piety of arguments, misconceptions of approach and the erection of the Tower of Babel. There are many towers under construction and then there is the ascent of political rhetoric without ladders of reason or logic.

The Goods and Services Tax was propounded as one nation one tax—it is yet many tax rates and too many forms. What was to be a grand bargain for stakeholders has been daunted by political compromises. The states managed to ensure compensation for any loss of revenue and also dictated the design. In effect, an architecture Kafka aficionados would term as “cage going in search of the bird”.  The promised benefits of lower prices, easier compliance and higher revenue are yet promises. It is early days yet, and hopefully it will evolve to achieve the premise and promise.

On Friday, following weeks of angst, anger and agitation, the GST Council announced changes in the rates of 27 items, and altered the design of entailed compliances to enable viability for small and medium enterprises and for exporters—who are major contributors to growth and employment in the economy.

There has been much mirth and attention over the reduction GST rates on khakhras coming as it did in the run-up to the Gujarat polls. Over the weekend, the Congress and Opposition parties indulged in satirical schadenfreude on khakhra economics. The fact is, their chief ministers were party to the decisions—in inflicting the complexity of the compliance matrix and the insensitivity of taxation on sensitive sections of society. The revision of rates and compliance structures reveals a surprising lack of application of mind—or minds, if you please!

Consider the context of blindness. Makers of khakhras (and chapattis, namkeens, sliced-diced mangoes) are prepared by home enterprises, often run by women, supplying to larger food chains creating jobs and incomes. Yet, these food items attracted 12 per cent GST. Biomass briquettes, a good concept for post-harvest waste management, were taxed at 18 per cent. India’s rural and urban habitat badly need enterprises for waste management. Taxation could be an enabler. Yet, GST on waste—including paper, rubber, plastic and e-waste—was between 28 and 18 per cent. The Prime Minister is evangelising the idea of LPG usage in rural homes and the rate on LPG stoves continues to be 18 per cent.

Take the issue of compliance—for now, upper limits for composition scheme has been relaxed and monthly returns have been replaced with quarterly returns for the bulk of tax payers. The question here is, could this not have been foreseen? The government says 90 to 95 per cent of the revenue comes from big tax payers, and it also recognises that 90 per cent of the tax payers under GST have a turnover of less than Rs 1.5 crore. Clearly, the two factoids reveal that the systemic breakdown and chaos could have been avoided with a little more application of mind. And, there are yet many questions that must be addressed—principally, why does a tax payer in a one-nation-one-tax regime need multiple registrations?

There is contextual blindness and then there is systemic autism. On Friday, a group of the country’s top bureaucrats were speaking at a panel discussion on economic growth and the role of bureaucracy. Suffice to say the discourse swung between sublime aspirations and the surreal analysis. Half-way through the conversation, the discussants reached reality station. One of the issues that came up was job creation or the lack of it. Each of them, turn by turn, in different ways stated/admitted that data on job creation was anecdotal, inadequate, poor or missing.

There was much mention of Ola, Uber, of informality of employment. Fair enough! But does the government know how many hours of wage income it creates? Typically, secretaries in government of India manage annual allocations—capital and revenue expenditure, often in five-digit figures. Technically, they should be able to spell-out man-hours of employment at least pertaining to their own sector. That was not to be. Be that as it may, what was surprising was the assertion that there was job creation and that there were no significant job losses. If there is no reliable data on job creation, how were they sure there were no job losses!

That is not all. One of the questions asked was whether there was any truth about job losses in the stressed sectors such as telecom and whether technology had led to shrinkage in jobs. The answer: no, not really, or words to that effect. Here are two factoids about the telecom sector. One telecom company known to be under stress, which employed over 21,000 permanent employees in 2007, was employing barely 7,000-plus by 2016.

Another stressed company, which had 6,247 employees in 2015, had shrunk employee size to 5,513—and as per speculation these jobs are at risk as the operations may be shut down. What about institutions doing well? One of India’s top financial institutions has trimmed its employee strength from 87,263 to 84,325 in the last one year and may do more of the same this year. And these are a few anecdotal instances from a few annual reports—IT, pharma may throw up more data. Surely, the government must know more.

It is not just the politicos or the Babudom who are contributing to the clatter. Earlier this week, the Reserve Bank of India in its monetary policy brief was hawkish on inflation, dovish on growth and neutral on action. It trimmed its growth forecast to 6.7 per cent citing “depressed state of industrial activity, particularly manufacturing”.

To buffer its forecast, it presented an array of charts showing fall in consumption, in investment, in credit growth etc. Parallel to this, the RBI put out the September 2017 Consumer Confidence Survey, which reflected “deterioration in sentiments on the employment scenario, the price level and income.” However, all this notwithstanding, RBI expects growth to pick up in the next three quarters—6.4 per cent in July-September quarter, 7.1 per cent in October-December quarter and 7.7 per cent in January-March quarter. Dare we ask how!

To paraphrase Kafka those managing the political economy seem to write differently from what they speak, speak differently from what they think, and think differently from the way they ought to think.   

Shankkar Aiyar
Author of Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India

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