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Economic Slowdown As An Effect of GST

Economic slowdown is a situation where GDP rates slow down but does not decline. The Indian economy recorded highest growth rates of the world at 8.2% in FY16-17 & 7.2% in FY17-18[1].

Then in FY18-19, it was recorded at 6.8% After being celebrated as the fasting growing economy in the world for two years, the news of economic slowdown surprised many and was not admitted by the majority. With the growth rate falling to 4.5% in second quarter of FY20, the lowest since 2012[2], no one could deny the economic slowdown that the Indian economy is facing.

After much dogging the word the Chief Economic Advisor Krishnamurthy Subramanian admitted that the country is facing economic slowdown. The lady in charge, Nirmala Sitharaman, expressing relief it is not recession yet. The officials of the Finance ministry acknowledged the lag effects of GST[3].

GST, which finds its roots in the Vijay Kelkar Committee recommendations of 2003, is an indirect tax, came into effect on 1st July 2017 is a multi-slab pan India tax. The main advantage of the tax as promoted was its pan India nature. It resulted in unprecedented tax collections by the central government. But this benefit just proved to be a incapable veil which could not cover the disadvantages of GST.

The advice given by Raghuram Rajan to the then Finance Minister, Arun Jaitley that GST will have long-term benefits would be tremendous, if frequent changes are not made. But they were made and the GST was not allowed to stabilise. A policy which could have pioneered the growth of India became one of the main reasons for the slowdown of economy because of mismanagement and witless planning.

The first step toward doomsday was sown with the ill-timed implementation of the policy. The inflation rate increased from 1.79% to 5.11% during the period July 2017 to January 2018.The implementation of the policy in the middle of an economic year led to confusion among the business men.

t resulted in a higher unemployment rate in the period of its implementation. There was chaos as people did not know which rules to follow. The structure of GST did not help either. In the words of World Bank, The Indian Good Services Tax isamong the most complex in the world.It has one of the highest tax rates and one of the largest numbers of tax slabs.the World Bank's biannual India Development Update report mentioned 49 countries use a single rate, 28 use two rates and only five countries including India use four rates[4]It has four non zero slabs- 5%, 12%, 18% & 28%.

The complex structure and its even complicated application is a difficult task to be understood by common man. The changes made going against the advice of Raghuram Rajan, would have been worth it if, it was to make the scheme easy but no such prominent changes were made. The tax being indirect in nature is applicable on goods and services and on businessmen directly. This means that a retailer or producer collects the tax directly from people on the goods sold.

The people pay the tax by just paying more on the cost price. The number of people which comes under the purview of GST is also one of the highest figures in the world. There is a need for a well-planned drive or a specific channel which can educate people as to which tax and more importantly how applies to them. The need is still present. Even after more than two years of its enactment, a proper authorised channel to educate people is required.

India is a country with glaring economic differences. According to the Oxfam International latest reports, the top 10% of the Indian population holds 77% of the total national wealth.73% of the wealth generated in 2017 went to the richest 1%, while 67 million Indians who comprise the poorest half of the population saw only a 1% increase in their wealth.[5]

The question which these numbers and facts bring forward is whether a tax whose applicability is based not on basis on capacity on an all India level is even justified on grounds of common sense? Is it just to charge the top 10% the same as the no where near in standing 90%? By a look at the statistics one can say no. The base of economic slowdown is the fact that the overall economic activity in the country has decreased. Even if it comes back on tract according to the predictions in the fourth quarter of FY20, will these fallacies of the GST not affect the economic classes in a long period.

This unjust feature of the GST can lead to widening the gap between the classes which will not be good for the economy.

In the presence of such disadvantages, the advantages of the scheme seem less. The benefit that the scheme brings a uniform tax system in India seems just an excuse after its features and implementation process is seen. The ill-timed implementation, mismanagement and witless planning has caused rise in inflation rate, rise in unemployment rate and fall in growth rate.

The GST collection dropped to Rs.91,916 which served as an indicator of economic slowdown[6]. The economic slowdown is a direct effect of GST. That level of ill-management on a national scale has costed the nation a fortune. The point to be noted is that, it has taken place in regime of a government with an overwhelming majority mandate. The question which these facts force us to face is whether this economic slowdown is a self-inflicted would?

End-Notes:
  1. GDP growth rate for 2017-18 revised upwards to 7.2 %, THE ECONOMIC TIMES, 31 Jan, 2019
  2. GDP growth plunges to 4.5% lowest since 2012, THE HINDU,22:08 IST 29 NOVEMBER 2019
  3. Sobhana K. Nair, Chief Economic Advisor admits to economic slowdown, THE HINDU, 09 NOVEMBER 2019
  4. GST: Indian system among the most complex globally, says World Bank report, Business Standard, 16 March, 2018
  5. India: extreme inequality in numbers, Oxfam International,https://www.oxfam.org/en/india-extreme-inequality-numbers
  6. Fall in GST collection indicates economic slowdown: Congress,THE ECONOMIC TIMES, economictimes.indiatimes.com/articleshow/71863615.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

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