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Mint
15-07-2025
- Business
- Mint
Ajit Ranade: A progressive GST is easier to promise than achieve
This month, India's goods and services tax (GST) completed eight years. This is a milestone reform. It is a consumption tax that unifies the national economic market, getting rid of inter-state frictions and tax cascades, and is fully electronic with in-built incentives for compliance and prevention of leakage. In the five years since 2020-21, annual gross GST collections have more than doubled to ₹22 trillion. This growth has generally kept pace with that of India's nominal GDP, although its promise was of higher buoyancy. It still leaves out nearly half the economy—most notably fuels, energy and electricity—from its purview. Even among the items covered, it has too many exemptions. Perhaps that explains why its gross mop-up is still around 6.8% of GDP, although it is on a gradual upward trajectory. The number of registrations under GST rose from 0.65 million in 2017 to 15 million now. Also Read: Mint Quick Edit | India's GST peak is reassuring Even after eight years, one can't escape the feeling that GST is still a work-in-progress. Frequent changes in tax rates are unsettling and its multitude of tax slabs is a big problem. Its apex governance body, the GST Council, has met 55 times in the past eight years and has had to grapple with rate changes and item classifications on numerous occasions. A tax system should be stable and predictable, and hence such frequent tweaks are not healthy for this tax or the economy. Constant tinkering can lead to disputes in classification or interpretation, even problems of discretion and outright corruption. Legal cases are mounting. The GST Appellate Tribunal was given formal birth in 2024, but is yet to be constituted. This has led to a growing backlog of appeals, with taxpayers turning to high courts, overburdening the judiciary and disrupting the dispute resolution mechanism, a key feature of this tax. Also Read: Indian gig workers who offer mobility services deserve GST relief The major conceptual issue has been the progressivity of GST, which is an indirect tax. The tax paid does not depend on the payer's income, but only on the value of the good or service being sold. If we had a single GST rate for all goods and services, then it would be regressive. It would violate the requirement that a tax system has to be fair. The burden should be relatively higher on richer folks. Note the word 'relatively'; it means that as a fraction of their income, the rich are expected to bear a higher burden than the poor. But since the poor spend almost all their income on consumption, a consumption tax is regressive by itself. This is one of the main reasons that demands arise for exemptions and lower rates. Also Read: Simplify India's GST regime: The case for it is clear and it's time to act A recent paper by professor Sacchidananda Mukherjee of the National Institute of Public Finance and Policy (NIPFP) analyses the distributional impact of GST using the Household Consumption Expenditure Survey (HCES) of 2022-23. The survey had a sample of 261,746 households and covers 390 consumption items. His main finding is that GST is moderately progressive based on multiple indices. The tax burden in rural areas on the bottom half is only 31% and is the same on the next 30% of the households. The top 20% bear 37% of the GST burden. In urban areas, the burden shares are 29%, 30% and 41% respectively for the bottom 50%, mid 30% and top 20% of households. This progressivity is mainly because the lower fractiles, both in rural and urban areas, spend more on food that is either exempt or taxed at just 5%. Thus, raising the rates on these lightly taxed items would disproportionately hurt the poor. Even merging the 12% and 18% rate slabs, which seems in the offing, would affect the poor. Note that in this research, the progressivity of GST is assessed using consumption data and not income. Progressivity is achieved without using income targeting through differential GST rates on essential versus luxury goods and by spatial variations that catch the urban rich who consume more durables and services. Also Read: How India's GST revenues can sustain their incline India's share of indirect taxes in total taxes has drifted higher in recent years. This has raised concerns about the regressive nature of taxation overall. The NIPFP paper shows that GST is not regressive because of its design. It might be worth recalling the classic 1976 paper of Anthony Atkinson and Joseph Stiglitz on the design of a tax structure with both direct and indirect taxes. They asked whether governments should rely on indirect taxes (like VAT or GST) in addition to direct taxes (like income tax), or just stick to an optimal income tax to achieve fairness, redistribution and efficiency. Their main result was that the latter works best under some idealized conditions and there is no need for any indirect tax. This is what purists swear by. But their result has caveats relevant to the real world. For instance, if the rich and poor consume very different baskets of goods, then taxing luxury items helps redistribution. Or, if lack of information or a large informal sector makes tax implementation difficult, then indirect taxes can be more effective; they can be made progressive too. India's pending GST reforms include a reduction and rationalization of its rate slabs and the expansion of its coverage. A consumption tax can at best be mildly progressive but cannot be used for redistribution. Simplifying and reducing rate slabs, which is imperative, will make progressivity harder to achieve. Achieving it by using a basket of goods consumed as a proxy for household income is unstable. It is also paternalistic, for it punishes households that are aspiring to and adopting luxury goods. And with better means of gathering income information, surely focusing on direct taxes is a better way to pursue fairness and tax efficiency. The author is senior fellow with Pune International Centre
The Print
19-06-2025
- Business
- The Print
India's GDP estimation system needs urgent reform, economists and statisticians explain why
At the event titled GDP Base Revision: Time to Regain Confidence , held at the India International Centre, leading Indian statisticians and economists gathered to discuss concerns about the country's economic data. 'We must ensure that GDP estimates reflect economic reality. If they don't, then the policies based on them won't work either,' said Sharma. New Delhi: A group of economists and statisticians recently came together to highlight the inconsistencies in the economic data reported for different sectors and raised serious questions about the reliability of current GDP measurement methods. Their discussion underlined the urgent need for reforms to restore confidence in India's economic data. The panel featured NK Sharma, former Director General (Statistics) at the National Statistical Office, Sanjay Kumar, former Additional Director General at NSO, and Amey Sapre, associate professor at the National Institute of Public Finance and Policy. The session was moderated by Siraj Hussain, former Union Secretary in the Ministry of Agriculture. Among the audience were journalists, students, members of the UPSC, and a retired officer of the National Sample Survey. The discussion comes at a time when the Centre is preparing to shift India's GDP base year from 2011–12 to 2022–23. The revision, led by a 26-member advisory committee, is expected to be completed by 2026. The goal is to better reflect the structural changes in the economy and improve the quality of GDP estimates, aligning India's statistical framework more closely with international best practices. Where the numbers don't add up The GDP or GVA of public administration is often considered to be mainly the salaries and wages of government employees, covering public administration and defence. Sharma said that after adjusting for inflation, the data shows a surprising 77 per cent growth in the real GDP of public administration over time. This raises the question of where such growth is coming from. 'On average, with 6-6.5% or 7% growth per year, we expect steady growth, assuming employment levels remain constant. Employment itself also rises steadily, but this change (77% ) is too large,' said Sapre. Kumar added that the number of government employees has not increased since 2011-12. 'Unfortunately, official data on the number of government employees (or related details) is not fully available or reliable in economic surveys for the years after 2011-12, but it is a perception.' Sharma raised several classification and reporting issues in the data. He referenced findings from the 74th round of NSSO data, where 12 per cent of businesses surveyed were not found at their listed addresses, and 20 per cent were misclassified. 'This creates confusion and makes the estimates less dependable,' he said. Kumar highlighted a key technical flaw in how GDP figures are adjusted for inflation. He explained that constant prices–used to measure real growth—are calculated using one type of price index, while current prices reflect another. Ideally, both should move in a similar direction once inflation is accounted for. However, he pointed out that the two sets of numbers are often out of sync, raising doubts about the accuracy of the methods. 'It's very hard to imagine that constant and current price estimates behave so differently unless the methodology itself is flawed,' Kumar said. This discrepancy suggests that the way inflation is adjusted in GDP calculations may not be consistent or reliable, which could distort the real picture of the economy's performance. The panel also highlighted the anomalies in how some services were measured. For example, vehicle repair and maintenance were tied to new sales, rather than to the total number of vehicles in use. 'Repairs are based on the whole stock, not on how many vehicles were sold in a year,' Sharma said, calling the assumption questionable. A broader concern was that the statistical system may not be equipped to capture economic shocks or transitions effectively. 'If we're using indicators from the organised sector to estimate growth in the unorganised sector, we're assuming they move the same way. That's simply not true,' Sapre said. Kumar said that for trade, the unorganised part is showing a growth rate of about 10–11 per cent per year at current prices. But if we look at other indicators–like household survey data–the growth is much lower, around 7 per cent, and in some years, as low as 3 per cent. He added that when looking at own account enterprises (small businesses without hired workers), the gross value added per worker has declined over time. This doesn't align with the high growth shown in the national accounts data. 'The unorganised communication sector is shown as growing faster than the organised sector, but that's hard to believe. PCOs and internet cafés have nearly disappeared—from 2 million in 2011–12 to just 30,000 in 2023. Their share should be going down, not up.' Kumar explained the main issue: national accounts use GVA per worker from larger, formal enterprises and apply it across all enterprise types, including small, informal ones. 'The GVA per worker in big firms is almost 2.4 to 3 times higher than in small units. Using the same productivity numbers for all leads to overestimation,' he said. Also read: Virender Sangwan changed eye care in India. His methods took surgery from Rs 5 lakh to Rs 50k Fixing what's broken There was broad agreement at the session that India's GDP estimation system needs urgent reform, especially as more states set ambitious growth targets. Without reliable verification mechanisms, inflated numbers could easily pass as fact. Citing Uttar Pradesh's ambition of becoming a $1 trillion economy by 2027, Sharma said, 'If states use consultants to present higher production data to meet targets, and if MoSPI has no mechanism to verify it, we could end up accepting unreliable figures.' One major concern was the use of MCA-21—a corporate database introduced during the 2011-12 base year revision. While it aimed to improve coverage of the formal sector, speakers noted problems with classification, limited accessibility, and a lack of foundational research. 'We didn't conduct enough research before adopting MCA-21. Now we've built the system around it and are stuck with its limitations,' Sharma said. MCA-21, launched in 2006 by the Ministry of Corporate Affairs under the UPA government, is an online system that streamlines company compliance. It lets companies, professionals, and the public file documents and get corporate information easily and safely. This makes registering a company simpler and results in fewer visits to government offices. Sharma also highlighted a lack of clarity in the methods used for estimation, pointing out that the government released only a summary of changes in the source and methods document, assuming users were already familiar with the old system—a move he considers a mistake. Looking ahead, Sharma said, new annual surveys for unorganised sectors offer some hope. He emphasised that while updated methodologies or data sources can improve the accuracy of GDP and sectoral estimates, this accuracy depends critically on the correctness of the base year data. He warned that if the base year estimates or methodology are flawed or overestimated, those errors will get carried forward and persist throughout the subsequent period (usually five years), resulting in misleading or incorrect growth and sector share figures. Sharma also called for revising key indices like the Wholesale Price Index (WPI) and the Index of Industrial Production (IIP) in sync with GDP updates. 'Otherwise, the system gets out of sync, and we start seeing unusual patterns in growth data.' Rebuilding trust in the numbers, the speakers agreed, hinges on better transparency and accessibility. 'We must make the system more transparent. Methods should be explained clearly. Data should be accessible,' said Sapre. (Edited by Aamaan Alam Khan)
News18
11-06-2025
- Business
- News18
States That Sell Cheap Liquor vs Expensive: Exploring Options As Alcohol Prices Rise In Maharashtra
Under the new policy, excise duty on Indian Made Foreign Liquor (IMFL) has been increased in Maharashtra. The Maharashtra government has introduced a new liquor policy featuring significant hikes in excise duties, aiming to generate an additional ₹14,000 crore in annual revenue. As part of the revised policy, the excise duty on Indian Made Foreign Liquor (IMFL) has increased from three times the manufacturing cost to 4.5 times, capped at ₹260 per bulk litre. Meanwhile, the duty on country liquor has gone up from ₹180 to ₹205 per proof litre. As a result of the revised excise duties, liquor prices across Maharashtra are set to rise significantly. A 180 ml bottle of country liquor will now cost at least ₹80, up from the earlier range of ₹60 to ₹70. Indian Made Foreign Liquor (IMFL) will be priced at ₹205, marking a sharp jump from the previous range of ₹115 to ₹130. Premium foreign liquor will also see a steep hike, with prices expected to reach ₹360, up from ₹210 earlier. The government has also launched a new category called Maharashtra Made Liquor (MML). This includes grain-based spirits made only by local manufacturers. The goal is to encourage regional production. States Where You Can Get Cheap Liquor According to the International Spirits and Wine Association of India, Goa continues to be the most affordable state for alcohol, largely due to its modest 49% liquor tax. Delhi follows with a 62% tax, while Haryana levies just 47%. However, despite Haryana's lower tax rate, liquor prices there are often higher than in Goa due to elevated maximum retail prices (MRPs). A similar situation plays out in Delhi, where, even with a higher tax rate, alcohol remains more affordable than in several other Indian states. Among other states, Karnataka currently has the highest liquor tax in the country at 83 per cent, which makes it the most expensive place to buy alcohol. Rajasthan follows with a 69 per cent tax. Telangana imposes a tax of 68 per cent and Uttar Pradesh 66 per cent. According to a study by the National Institute of Public Finance and Policy (NIPFP), Telangana leads all Indian states in alcohol spending, with an average annual per capita expenditure of ₹1,623 on alcoholic beverages. Andhra Pradesh ranks second, with individuals spending an average of ₹1,306 per year, followed closely by Punjab, where the per capita liquor spend stands at ₹1,245. This spending metric is derived by dividing a state's total alcohol expenditure by its population, offering a clear picture of average consumption habits. No Liquor In Bihar, Gujarat: How Successful Is The Ban Bihar and Gujarat are the two Indian states where the sale and consumption of alcohol are completely prohibited. Gujarat has upheld this ban since May 1, 1960, while Bihar implemented its liquor prohibition in 2016. The primary objective behind these bans was to curb the social harms linked to alcohol, such as domestic violence, family disputes, and financial strain on households. Policymakers believed that reducing access to alcohol would enhance community well-being, especially for women and low-income families. Supporters of the bans argue that they have helped lower alcohol-related health issues and encouraged families to redirect spending toward food, education, and healthcare. However, the bans have also presented significant challenges. A thriving black market has emerged, with bootlegging operations selling alcohol at inflated prices. This has given rise to illegal drinking spots and made enforcement more difficult. An even more serious consequence is the spread of spurious liquor, which has led to fatal hooch tragedies in both states, highlighting the public health risks associated with unregulated alcohol.
DW
19-05-2025
- Business
- DW
Can India replace China for Apple's iPhones? – DW – 05/19/2025
Apple has traditionally relied heavily on Chinese factories to make its products. The tech giant is now planning to significantly boost production in India. US tech giant Apple said this month that India would play a major role in making iPhones for the US market. "A majority of iPhones sold in the US will have India as their country of origin," CEO Tim Cook said earlier in May while announcing the company's latest quarterly results. He also noted that Vietnam would be producing nearly all iPads, Macs, Apple Watches and AirPods to be sold in the US. The decision was aimed at mitigating the impact of US President Donald Trump's tariff onslaught on the tech giant's supply chains as well as sales and profit margins. Apple shifting some more of its iPhone production to India presents not only a big opportunity but also some potential challenges, said Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy. "A nuanced analysis reveals potential challenges including cost competitiveness vis-a-vis China, labor market rigidities, and supply chain vulnerabilities," she told DW. Chakraborty underscored that making iPhones in India is 5-10% more expensive, pointing to costlier parts and relatively inefficient factories. "Furthermore, the fiscal implications of this investment warrant careful consideration, particularly in terms of tax revenues, infrastructure investments, and potential subsidies," said Chakraborty, adding that a "calibrated policy approach would be essential to mitigate risks and maximize gains." India: Reviving repair culture to fight e-waste To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Apple ramps up iPhone production in India An estimated 20% of iPhones are currently being made in India. According to Bloomberg, Apple produced $22 billion worth of iPhones in India in the 12 months through March 2025, marking a 60% jump from the prior year. The US company plans to produce over 60 million iPhones annually in the South Asian country by 2026, doubling current output and significantly strengthening India's electronics manufacturing sector. In India, iPhones are assembled by three primary contract manufacturers — Foxconn, Pegatron Corp and a Tata Group company that's formerly known as Wistron. Foxconn is the largest of the three, handling the majority of iPhone production in the South Asian nation. The Indian government also recently announced a new policy aimed at strengthening the nation's electronics manufacturing ecosystem. The production shift represents a significant change for Apple, which has traditionally relied heavily on Chinese factories to make its products. But Trump's hefty duties on imports to the US, especially the tit-for-tat tariff exchanges with China, put the company in a difficult spot and forced it to rethink its strategy. The US president has since granted a temporary reprieve for tech products, including smartphones and semiconductors. Washington and Beijing also agreed over the weekend to hit a 90-day pause on their tariff dispute. Scaling capacity and de-risking supply chain To transition into a truly independent manufacturing hub for Apple, India will need to invest heavily in infrastructure, skills and technology, Shrijay Sheth, founder of a consultancy firm, told DW. "While it is a robust win for India business-wise and boosts its standing as a preferred destination for companies seeking business-friendly destinations, it adds yet another layer of complexity to the already dicey Indo-China relations," he said. How Chinese overcapacity threatens emerging economies To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Sheth believes shifting a major chunk of production away from China to India will likely face impediments in terms of technology and expertise transfer. "It is naive to hope that the Chinese expertise plus skill transfer and production machinery would be transferred with the required speed given the current geopolitical scenario and especially when China loses a significant source of manufacturing jobs," he stressed. "How it will pan out on the ground is a big question when you factor the economics, skilled labor and how the supply chain will be rebuilt." 'Persistent limitations' Nikul Shah, co-founder and CEO of IndieSemic, which specializes in semiconductor and embedded systems, believes that India has the capacity to meet all iPhone demand in the future, but the ecosystem needs to be ramped up. He stressed that increased iPhone production offers India an opportunity to increase its role in global electronics manufacturing networks. "But success will depend on addressing persistent infrastructure and policy limitations that have historically constrained its manufacturing competitiveness," Shah underlined. "While it aligns with the 'Make in India' initiative, potentially transforming the country into a global electronics manufacturing hub, it also introduces risks such as over-reliance on a single multinational company and potential geopolitical pressures." Edited by: Srinivas Mazumdaru
Mint
25-04-2025
- Business
- Mint
India faces $14-billion export losses over US tariffs, NIPFP warns
New Delhi: India could incur direct export losses of about $14 billion, or 0.38% of GDP, owing to reciprocal tariffs imposed by US President Donald Trump, according to a presentation by the National Institute of Public Finance and Policy (NIPFP) on Friday. NIPFP, an autonomous research institute under the ministry of finance, raised concerns about import surges and dumping across various sectors, fuelled by the US-China decoupling. The presentation by NIPFP economists Rudrani Bhattacharya, Radhika Pandey and Manish Gupta highlighted that while Indian exports were likely to be affected by tariffs, a trade deal could mitigate some of the effects, though at the cost of sacrificing India's trade surplus with the US. The presentation, titled 'Impact of Trump Shock on Indian Economy - An Assessment' cautioned that imports could surge as products were diverted from China, Vietnam and other countries, while rising recession and inflation risks in the US could dampen global growth, affecting India's growth prospects. While goods exports face a direct hit, the services sector—key to India's overall export growth—could suffer due to stagflation in the US. Broad sectors such as electronics, gems and jewellery, machinery, textiles, metals, and transport equipment face heightened risk because of elevated tariffs, according to the presentation. Gems and jewellery are especially vulnerable as competing countries benefit from lower tariffs, potentially eroding India's market share, it noted. NIPFP said labour-intensive industries such as footwear, garments, rubber articles, furniture and toys had the potential to capitalise on opportunities from countries with higher tariffs than India. "For example, for footwear, the major exporters to the US are China and Vietnam, but they are subject to higher tariffs. India could gain some market share but needs to scale up its manufacturing," it added. India's goods trade surplus with the US was $41.18 billion in FY25, 16.6% higher than the previous year's $35.32 billion. This growth was due to an 11.6% rise in exports to the US to $86.51 billion, while imports from the US grew 7.4% to $45.33 billion. Economists at NIPFP anticipate that the US-China decoupling could lead to dumping of key commodities such as resins, paper and rubber into India. "On account of Chinese retaliatory tariffs on the US, the dumping of agricultural products into India cannot be ruled out," they added in the presentation. The economists suggested strategies to address trade imbalances and enhance India's global trade position, such as reducing the trade surplus with the US by boosting imports of oil and other products, accelerating trade negotiations, securing sector-specific exemptions, and diversifying exports to the EU, UK, and ASEAN. They also recommend strengthening domestic manufacturing through initiatives such as Make in India, focusing on semiconductors, renewable energy and electronics, while offering targeted concessions on select US goods, expanding production-linked incentive schemes for vulnerable sectors, and improving export infrastructure and logistics. According to the presentation, India may either be able to grab trade diversification opportunities thrown up by differential tariffs, or the impact of US trade policies on global growth, including India, could be closer to the global financial crisis of 2008-09. New Delhi: India could incur direct export losses of about $14 billion, or 0.38% of GDP, due to reciprocal tariffs imposed by US President Donald Trump, raising concerns about import surges and dumping across various sectors, fueled by the US-China decoupling, according to a presentation by the National Institute of Public Finance and Policy (NIPFP) on Friday. The presentation by NIPFP economists Rudrani Bhattacharya, Radhika Pandey, and Manish Gupta highlighted that while Indian exports are likely to be impacted by tariffs, a trade deal could mitigate some of the effects, though coming at the cost of sacrificing India's trade surplus with the US. The presentation titled 'Impact of Trump Shock on Indian Economy - An Assessment' cautioned that imports could surge as products are diverted from China, Vietnam, and other countries, while rising recession and inflation risks in the US could dampen global growth, affecting India's growth prospects. Additionally, while goods exports face a direct hit, the services sector—key to India's overall export growth—could suffer due to US stagflation. Broad sectors such as electronics, gems and jewellery, machinery, textiles, metals, and transport equipment face heightened risk due to elevated tariffs, according to the presentation. Gems and jewellery, in particular, are vulnerable, as competing countries benefit from lower tariffs, potentially eroding India's market share, it noted. The presentation highlighted the potential for labour-intensive industries like footwear, garments, rubber articles, furniture, and toys to capitalize on opportunities from countries with higher tariffs than India. "For example, for footwear, the major exporters to the US are China and Vietnam but they are subject to higher tariffs. India could gain some market share but needs to scale up its manufacturing," it added. India's goods trade surplus with the United States for FY25 reached $41.18 billion, a 16.6% increase from the previous year's $35.32 billion. This growth was driven by an 11.6% rise in exports to the US, totaling $86.51 billion, while imports from the US grew 7.4% to $45.33 billion. Economists at NIPFP anticipate that, due to the US-China decoupling, key commodities such as resins, paper, and rubber could face dumping into India. "On account of Chinese retaliatory tariffs on the US, the dumping of agricultural products into India cannot be ruled out," they added in the presentation. The NIPFP economists suggested strategies to address trade imbalances and enhance India's global trade position, including reducing the trade surplus with the US by boosting imports of oil and other products, accelerating trade negotiations, securing sector-specific exemptions, and diversifying exports to the EU, UK, and ASEAN. They also recommend strengthening domestic manufacturing through initiatives like "Make in India," focusing on semiconductors, renewable energy, and electronics, while offering targeted concessions on select US goods, expanding PLI schemes for vulnerable sectors, and improving export infrastructure and logistics. According to the presentation, India could either be able to grab trade diversification opportunities due to differential tariff advantages, in the aftermath of the reciprocal tariffs, or the impact of disruptions due to US policies on global growth, including India, could be closer to the global financial crisis (2008-09). First Published: 25 Apr 2025, 06:32 PM IST
