Expert Speak India Matters
Published on Jan 29, 2018
The Economic Survey 2017-18 celebrates the GST and gives us four lessons.
Economic survey says GST works, Indian economic agents can manage disruptions

Economic Survey 2017-18 offers new windows into the Indian economy. The earlier incrementalism of data updates followed by one smart chapter has given way to a deeper and wider analyses of what makes our economy tick. From a data-based articulation of India’s ‘son preference’ to justice being the next frontier in ease of doing business, Arvind Subramanian’s Survey captures data and scholarship but keeps it contemporary and insightful. Given that it is situated just two days before the Union Budget, it is unlikely to get a greater traction. But it provides a wealth of information for future analyses into areas as diverse as reconciling fiscal federalism and transforming science and technology, while keeping to the script of economic growth, inflation and investments. This essay focuses on the most important fiscal reform since Independence — the introduction of the Goods and Services Tax (GST).

For those tracking it closely, India’s most complex and one of its greatest economic reforms has been hijacked by views rather than facts. Arvind Subramanian’s Economic Survey 2017-18 underlines the speculations of logic with hard data and the cynicisms of politics with rigorous analysis. In a line: the green shoots of GST’s success are there for all to see. As a result, endless debates about the idea of GST as one of India’s biggest structural reform that brought ideologies, political parties across the Centre and States on a single table called the GST Council should end. Incremental changes in rates and procedures, of course, will remain a work in progress.

The 50% increase in the number of indirect taxpayers is as much an achievement of politics as of technology. Politics created the legislative space for the law — one Constitutional Amendment, four Acts of Parliament and as many in each of the 29 States, with enabling notifications for all seven Union Territories — while technology through the digital GST Network on which the entire edifice stands ensured that the probability of tax leakages now trends towards zero, though not quite there. So, at the legislative and infrastructure level, most of the work has been done and going forward it would need only minor tinkering. Going granular, Maharashtra, UP, Tamil Nadu and Gujarat are the states with the greatest number of GST registrants, while Uttar Pradesh and West Bengal have seen large increases in the number of tax registrants compared to the old system.

The 50% increase in the number of indirect taxpayers is as much an achievement of politics as of technology.

Positive surprises have come from the other side too, the Survey states. The number of GST registrants stand at 9.8 million, only slightly more than the number under the old system. But dissect the data and you see that many old indirect taxpayers were registered under several indirect taxes (all told, GST has replaced 17 indirect taxes), resulting in double and triple counting. Smoothening those out, the number of GST registrants has risen by more than 50% or about 3.4 million. Even better, when we look at voluntary compliance, there are 1.7 million registrants who were below the threshold and didn’t need to register, but did so by choice. Looked at negatively, it could be out of fear or due to the initial instability as the system in the GST Council stabilised. But positively, this can be seen as doing the groundwork for growth — the Survey puts India’s GDP growth at 6.75% for FY2018 and 7-7.5% for FY2019.

Because of the digital nature of the GST system, new data has been captured, sliced and diced into insightful bits of information. On the global matrix, export concentration by firms is much lower in India than in the US, Germany, Brazil, or Mexico, the Survey states, making India a more ‘egalitarian’ exporter. The top 1% of firms accounted for 72%, 68%, 67%, and 55% of exports in Brazil, Germany, Mexico, and the US — the number is 38% in India. The top 5% of firms accounted for 91%, 86%, 91%, and 74% in those countries — the number stands at 59% in India. Finally, the top 25% of firms accounted for 99%, 98%, 99%, and 93% in those countries — the number in India is 82%. The five largest exporting states are Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Telangana, accounting for 70% of India’s exports. This data was earlier not available: “For the first time in India’s history it is possible to know the state-wise distribution of international exports of goods and services.” This leads to exciting analytical possibilities ahead.

Because of the digital nature of the GST system, new data has been captured, sliced and diced into insightful bits of information.

Further, compared to the estimated 30-50% of GDP as last year’s Survey had shown, India’s inter-state trade in goods and services is actually even higher, at about 60% of GDP. Clearly, an unforeseen benefit of India’s migration to the GST system has been greater disclosures and tracking — the number may not have been different last year but has got recorded this time. In fact, this missing chunk of GDP will contribution to GDP growth from this fiscal year onwards. The five largest exporting states are Maharashtra, Gujarat, Haryana, Tamil Nadu and Karnataka, the five largest importing states are Maharashtra, Tamil Nadu, Uttar Pradesh, Karnataka and Gujarat, while the five states with the largest internal trade surpluses are Gujarat, Haryana, Maharashtra, Odisha and Tamil Nadu.

Above all, the Survey celebrates the GST and gives us four lessons.

  • First, it puts an end to the mindless politics of reductionism — it tell us that India’s greatest economic reform is here and it is working.
  • Second, it shows how seamlessly Centre-State relations are functioning under this new tax system, bringing fiscal benefits to both, creating a platform for competitive as well as collaborative federalism.
  • Third, it presents us with possibilities of richer analysis of the Indian economy, with the currency of new data powering its integration with the world.
  • Most important, it tells us that the economic agents of India are fully capable of managing policy disruptions and emerging stronger than ever.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


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