TLI Opinion
In the first term of Prime Minister Narendra Modi, projected as one of the bravest and the boldest leaders India has seen in its independent history, two massive economic decisions were taken — demonetisation that outlawed Rs 500 and Rs 1,000 notes and Goods and Services Tax (GST).
Both termed as major economic reforms have completed two years and hence could be a better time to assess their effectiveness in the light of their branding and marketing by the government. Since demonetisation came first, it can be examined first. The government claimed that it will eliminate fake currency supplied by “enemy” countries, root out terror-funding and eliminate black money.
Contrary to repeated assertions, almost all the demonetised notes made their way back to banking channels. The government had first expected that almost Rs 3-5 lakh crore would not return to banks and hence would be extinguished by RBI. This in simple terms meant that notes worth Rs 3-5 lakh crore would be re-issued by the central bank and given to the government for public spending. No such thing happened.
Finding the actual result completely against its expectation, the Modi government changed the narrative. It said demonetisation would make India digital economy with most transactions happening online. In its annual report of 2018-19, the RBI last month said that bank notes in circulation in the economy increased 17% in FY19 to Rs 21.1 trillion from Rs 18.03 trillion in FY18. It’s now for everyone to see as to what and how much change has taken place since November, 2016 when in a televised address to the nation, Narendra Modi declared the two high-value notes illegal.
As far as elimination of black money is concerned, the truck loads of money spent during last general elections tell the story in short.
Now, coming to GST, the objectives of the new indirect tax regime as projected by the bold government could be analysed first. The GST Council Secretariat, Ministry of Finance, Government of India has a concept and status note on the indirect tax reform on its official website. It says the following:
“GST will help to create a unified common national market for India, giving a boost to foreign investment and Make in India campaign. It will prevent cascading of taxes and make products cheaper, thus boosting aggregate demand. It will result in harmonization of laws, procedures and rates of tax.”
The note further says that GST will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth. Further, the note says it will help in poverty eradication by generating more employment and more financial resources.
Now after two years of GST, employment generation is perhaps at its lowest, GDP growth slipped to six-year low of 5 per cent in April-June quarter of FY20, auto companies are witnessing worst crisis in two decades and uncompleted housing projects have turned into ghost complex outside the metro cities.
The situation is so bad that government has announced four economic packages to boost the economy. In the biggest ever tax bonanza, Finance Minister Nirmala Sitharaman has announced Rs 1.45 lakh crore give-away to business and industry in the form of lower corporate tax, rollback of surcharge and other fiscal measures.
Like on other two occasions, Prime Minister Modi has termed the tax concessions as historic which will attract investment and boost Make-In-India.
“The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians,” he said in a tweet before going on whirlwind trip to the US.
One can only hope to get things better here on but for now watch the mirage!
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