Indian Economy News & Discussion - Aug 26 2015

nam · Post by **nam** » 01 Apr 2017 21:17

Supratik wrote:You are right. China had a blistering growth at the 2.5 trillion mark for 10 yrs which put it beyond 10 trllion. But India is growing more modestly. If India manages 9% growth plus 4-5% inflation till 2030 it will come close to 10 trillion. But it will require political and economic stability and steady currency. What happened under UPA2 was massive devaluation of currency from around 52 to 68. Also stable currency and predictability is good for growth. Too much strengthening of currency has its own problems.

Ofcourse, we are not going be on equal pace as the Chinese to hit the 10 trillion mark. We are probably going to take 3-5 years more.

What I find fascinating is we are 2.5t having currency rate of 65, where Chinese did 2.1t at 16. We have reached the 2.5 mark using a currency which is 4 time weaker compared to Chinese yuan. Our population size is almost the same. Given the fudging of currency Chicom were doing, I wondered why it was 16, why not 60?.

They obviously wanted to reach the GDP milestone as soon as possible for H&D purpose using top down investment and currency fudging.

The size of our market will help us in mitigating to some extend, the Japanese problem of trying to keep the yen extremely low to drive exports.

We are now in a sweet spot where we need to tremendously scale up our manufacturing and be the alternate to the Chinese.

Once we get the scale, why would anyone get it from the Chinese at four times the price?

Suraj · Post by **Suraj** » 01 Apr 2017 21:40

The exchange rate unit of currency doesn't mean anything about 'stronger' . That sort of logic would imply that the Yen is twice as weak as Rupee because it's Y120 to the dollar (at least it was in January when I was there) . Or that the Korean won is many times 'weaker' because it's W1110 / $.

The Chinese grew by dramatically scaling up their total factor productivity and expanding their labor force into manufacturing. We'll have to do the same, and we'll have to dramatically expand formal economic sector by orders of magnitude instead of the informal trade activity that dominates right now.

nam · Post by **nam** » 01 Apr 2017 21:56

Suraj wrote:The exchange rate unit of currency doesn't mean anything about 'stronger' . That sort of logic would imply that the Yen is twice as weak as Rupee because it's Y120 to the dollar (at least it was in January when I was there) . Or that the Korean won is many times 'weaker' because it's W1110 / $.

The Chinese grew by dramatically scaling up their total factor productivity and expanding their labor force into manufacturing. We'll have to do the same, and we'll have to dramatically expand formal economic sector by orders of magnitude instead of the informal trade activity that dominates right now.

Ofcourse, I understand that aspect. My point was given that market drives our currency value, it would be in the interest of markets to prevent it from getting stronger, compared to the Chinese who fudge it.

If we scale up, we can be very competitive compared to the Chinese, with the currency differences helping a lot.

We need to be an alternative to the Chinese, as fundamentally they have held the world hostage due to their scale of production.

Suraj · Post by **Suraj** » 01 Apr 2017 23:55

Exchange rate weakness or stability helps with merchandise trade competitiveness. A volatile currency adds to trade hedging costs. The Chinese simply demonstrated a very good understanding of what all trade-offs it takes to maximize the gains from their economic policy,and went about executing it efficiently. It's not necessarily fair, but it's effective. For example, no right to strike or organize at Chinese SEZs . It doesn't have to be the most smartest approach - at this scale and level, efficiency of execution counts for more than smart policy backed by weak execution.

That's where I like our current government. They're not about big policy, as much as they are about executing well. Maybe it's something as simple as 'open a bank account for (almost) everyone'. That was supposed to be done after the bank nationalization in 1971, but it wasn't done until PMJDY in the last 2 years.

There's nothing unique about the Chinese miracle. It's the same set piece the Japanese developed and all of E/SE Asia copied. Their primary differentiator is scale. It's all about efficiently executing a set of policy actions efficiently for a continuous period of time.

A_Gupta · Post by **A_Gupta** » 02 Apr 2017 00:23

Bloomberg editorial on GST:
Making the Most of India's Big Tax Reform
https://www.bloomberg.com/view/articles ... tax-reform

Given the usual speed of economic reform in India, it’s remarkable that the biggest change in years might actually start on schedule. “Start,” though, is the operative word.
...
..
Unfortunately, the GST in prospect is further from perfect than the government had hoped. Delhi needs the support of individual states to implement the new tax. To gain it, officials have settled on a complex structure with at least four different brackets (five if you include zero-rated staples), as well as an additional levy on sin and luxury goods.

Resorting to multiple rates sacrifices some of the GST’s economic benefit. It would have been better to follow the example of many other countries around the world, which collect a tax of the same kind -- a so-called value-added tax -- using a single rate applied to a virtually all goods.

The added complications will weigh especially heavily on India. They’ll be gamed by firms and consumers used to navigating bureaucratic mazes. That will make it harder, in turn, to thin the bureaucrats’ teeming ranks, which ought to have been a high priority. The burden of compliance will be lightened, but less than it could have been.

So once the GST is in place, the government should keep working toward its original goal of having only one or two rates, with as few exemptions and as little paperwork as possible. To make the reform stick, and to build support for other initiatives, India needs to see the benefits of the GST as clearly and as quickly as possible. A simpler system would yield better results in short order, and serve over time as a more powerful spur to economic growth.

achoudhury · Post by **achoudhury** » 03 Apr 2017 04:59

While everyone has been counting gains from GST, I am not sure if we have good critique on downside of GST. Yes, it is given that overall it will be major +ve for India by creating a single market as well as it will greatly minimize indirect tax leakage. But, I am little bit worried about its impact on economically backward states of India, esp Gangetic belt and NE. What I mean is that without flexibility of setting tax rates, these state govt will not be able to attract Industries. In GST, as the selling price of good will be same all over the india, Industries will gravitate towards areas where cost of manufacturing will be lowest. In other words, areas which will provide good infrastructure with good sea, land and air connectivity as well as availability of skilled and semi skilled labor will greatly benefit under this regime. In other words, I see these backwards states sliding even more backward in future and they will be wholly dependent on center's largesse for any projects. Continued backwardness of these states are already having debilitating impact on population as well as migration to more developed states.

M_Joshi · Post by **M_Joshi** » 03 Apr 2017 06:14

achoudhury wrote:While everyone has been counting gains from GST, I am not sure if we have good critique on downside of GST. Yes, it is given that overall it will be major +ve for India by creating a single market as well as it will greatly minimize indirect tax leakage. But, I am little bit worried about its impact on economically backward states of India, esp Gangetic belt and NE. What I mean is that without flexibility of setting tax rates, these state govt will not be able to attract Industries. In GST, as the selling price of good will be same all over the india, Industries will gravitate towards areas where cost of manufacturing will be lowest. In other words, areas which will provide good infrastructure with good sea, land and air connectivity as well as availability of skilled and semi skilled labor will greatly benefit under this regime. In other words, I see these backwards states sliding even more backward in future and they will be wholly dependent on center's largesse for any projects. Continued backwardness of these states are already having debilitating impact on population as well as migration to more developed states.

Though technically your point is right it also means that the states will have to provide better infrastructure to attract industries rather than just dole out tax concessions. Case in point, HP. The state was Excise exempt for 10 years & Industries flocked here & made Baddi Nalagarh largest Pharma manufacturing hub in Asia. But state provided no infrastructure improvement. Today also there's no rail connectivity despite it being only 20 kms away from the Chandigarh Kalka line & only a 2 lane highway with average condition. There's no zonal industrial area. You can literally start a pharma company inside the town if you manage to get standard permissions. But with GST states would have no option but to provide better infrastructure to attract investment. I'll consider it a positive not a negative.

Another big positive in GST is the 6 months payment clause. The purchaser if fails to make the payment to the supplier within 6 months from the date of invoice then the purchaser will have to shell out penalty & the input tax credit claimed by him on that invoice will be nullified unless the supplier payment is made. The penalty will have to be paid regardless. This will ensure 1) proper & timely payments to supplies 2) payment security 3) will increase the fund circulation in the system 4) decrease credit dependance of an industry since the payment cycle will be maintained. What remains to be seen how it's implemented & how compliance is ensured.

Suraj · Post by **Suraj** » 03 Apr 2017 06:32

achoudhury wrote:While everyone has been counting gains from GST, I am not sure if we have good critique on downside of GST. Yes, it is given that overall it will be major +ve for India by creating a single market as well as it will greatly minimize indirect tax leakage. But, I am little bit worried about its impact on economically backward states of India, esp Gangetic belt and NE. What I mean is that without flexibility of setting tax rates, these state govt will not be able to attract Industries.

How about the argument the other way around ? All this while those states had the ability to set rates. What did they gain with that capability ?

achoudhury · Post by **achoudhury** » 03 Apr 2017 07:16

Suraj wrote:
achoudhury wrote:While everyone has been counting gains from GST, I am not sure if we have good critique on downside of GST. Yes, it is given that overall it will be major +ve for India by creating a single market as well as it will greatly minimize indirect tax leakage. But, I am little bit worried about its impact on economically backward states of India, esp Gangetic belt and NE. What I mean is that without flexibility of setting tax rates, these state govt will not be able to attract Industries.
How about the argument the other way around ? All this while those states had the ability to set rates. What did they gain with that capability ?

Yes they gained nothing in past and their is nothing to argue as their backwardness is testimony to that. But my point is that now even their future looks bleak. Now even if they fix governance deficit and let's also assume that they manage to provide decent infrastructure in next 5 years (esp UP as lot is riding on Yogi), why will anyone invest in these hinterlands without any additional benefit as there is no additional benefit compared to coastal states which have natural advantage in connectivity.

Having said that, I must add that, Bihar and UP are so far behind that there are way too many low hanging fruits just in agri and allied sector as well as tourism which will be sufficient for them to grow decently in near future. Hopefully, policy will evolve by then to accommodate these areas.

Suraj · Post by **Suraj** » 03 Apr 2017 11:13

Sometimes you actually need to be forced into a corner in order to perform. After all, freedom to set state taxes didn't really help them. So in effect that freedom was an invariant. On the other hand, history has shown several time that adversity drove enterprise. GST isn't an 'adversity' as such. But it takes away the coccoon of octroi and other rent seeking tax barriers in a weak state, forcing them to be productive rather than lose their best and brightest, and even the not so best people, to other states.

GST is a net positive for India. It's for each state to make the best of it.

chetak · Post by **chetak** » 03 Apr 2017 11:56

M_Joshi wrote:
achoudhury wrote:While everyone has been counting gains from GST, I am not sure if we have good critique on downside of GST. Yes, it is given that overall it will be major +ve for India by creating a single market as well as it will greatly minimize indirect tax leakage. But, I am little bit worried about its impact on economically backward states of India, esp Gangetic belt and NE. What I mean is that without flexibility of setting tax rates, these state govt will not be able to attract Industries. In GST, as the selling price of good will be same all over the india, Industries will gravitate towards areas where cost of manufacturing will be lowest. In other words, areas which will provide good infrastructure with good sea, land and air connectivity as well as availability of skilled and semi skilled labor will greatly benefit under this regime. In other words, I see these backwards states sliding even more backward in future and they will be wholly dependent on center's largesse for any projects. Continued backwardness of these states are already having debilitating impact on population as well as migration to more developed states.
Though technically your point is right it also means that the states will have to provide better infrastructure to attract industries rather than just dole out tax concessions. Case in point, HP. The state was Excise exempt for 10 years & Industries flocked here & made Baddi Nalagarh largest Pharma manufacturing hub in Asia. But state provided no infrastructure improvement. Today also there's no rail connectivity despite it being only 20 kms away from the Chandigarh Kalka line & only a 2 lane highway with average condition. There's no zonal industrial area. You can literally start a pharma company inside the town if you manage to get standard permissions. But with GST states would have no option but to provide better infrastructure to attract investment. I'll consider it a positive not a negative.

Another big positive in GST is the 6 months payment clause. The purchaser if fails to make the payment to the supplier within 6 months from the date of invoice then the purchaser will have to shell out penalty & the input tax credit claimed by him on that invoice will be nullified unless the supplier payment is made. The penalty will have to be paid regardless. This will ensure 1) proper & timely payments to supplies 2) payment security 3) will increase the fund circulation in the system 4) decrease credit dependance of an industry since the payment cycle will be maintained. What remains to be seen how it's implemented & how compliance is ensured.

the aam jantha will find a jugaad against this also. It will involve an insatiable tax man/baboo(n) standing at the gates with their greedy paws stretched out and a gluttonous politico in the shadows behind him/her.

Any law made in India will have a purpose built loophole, backdoor that benefits the powers that be. This cunning drafting takes more skill than the actual drafting of the law itself.

A_Gupta · Post by **A_Gupta** » 03 Apr 2017 17:34

N-SIPI 2016
(PDF file) http://www.ncaer.org/uploads/photo-gall ... 202016.pdf

The NCAER’s State Investment Potential Index (N-SIPI) is uniquely poised to address these
informational asymmetries by providing a single composite investment score that gives a comprehensive measure of how the 29 states and the Union Territory of Delhi in this Index are positioned to encourage and attract investment. N-SIPI assesses the factors creating investment opportunities and driving investment decisions as measured by certain specific parameters. these parameters include a state’s factors of production, its efficiency in the use of these factors of production, the growth prospects in this state and industries’ perception of investment opportunities in that state. N-SIPI is envisaged to be a go-to Index for policy-makers and investors, and is planned to be rolled out every year in the month of March.

I'm unable to find N-SIPI 2017.

Gus · Post by **Gus** » 03 Apr 2017 18:26

Suraj wrote:Sometimes you actually need to be forced into a corner in order to perform. After all, freedom to set state taxes didn't really help them. So in effect that freedom was an invariant. On the other hand, history has shown several time that adversity drove enterprise. GST isn't an 'adversity' as such. But it takes away the coccoon of octroi and other rent seeking tax barriers in a weak state, forcing them to be productive rather than lose their best and brightest, and even the not so best people, to other states.

GST is a net positive for India. It's for each state to make the best of it.

I am making a dark prediction here that TN will slide further because of this. Right now they are being compensated for their loss in the shift, but there is no stable authority, awareness and vision and policy making chops, and political will to execute etc to formulate the post GST way of doing things. The state has been on a decline (or slower growth than its capability) for more than a decade now and it is showing.

Supratik · Post by **Supratik** » 03 Apr 2017 20:54

It will be exactly opposite. Poorer states who cannot give major tax sops will have a level playing field. All they now have to do is to provide bijli, sadak, pani to industry.

Suraj · Post by **Suraj** » 03 Apr 2017 21:31

Gus wrote:I am making a dark prediction here that TN will slide further because of this. Right now they are being compensated for their loss in the shift, but there is no stable authority, awareness and vision and policy making chops, and political will to execute etc to formulate the post GST way of doing things. The state has been on a decline (or slower growth than its capability) for more than a decade now and it is showing.

I can agree with the slide further part, but not necessarily the 'because of this' part. TN's problem is its current political vacuum, more than anything else, and that is outside of the scope of this thread. TN in general is a very enterprising state, whose obit has been prematurely written multiple times before when some major political player was gone, but has continued its rise.

srin · Post by **srin** » 03 Apr 2017 22:53

It is time the industry weans itself off the tax sops. Competing on tax deductions is a race to the bottom, paid with public money (that doesn't come in).
It is better for states to compete on infrastructure - power, roads for transportation etc - than on tax holidays.

Suraj · Post by **Suraj** » 04 Apr 2017 00:57

Factory activity at 5-month high in March on strong demand: PMI

The Nikkei Manufacturing Purchasing Managers' Index, compiled by IHS Markit, rose to 52.5 in March, from 50.7 in February. This is the third month in a row that it has been above the 50 mark that separates growth from contraction.

Output and new orders sub-indexes rose to their highest since October 2016, suggesting the world's fastest growing major economy has largely recovered from Prime Minister Narendra Modi's shock decision in November to ban high-value currency notes.

Remember that story in June 2014 showing just how many economic projects had been stalled during UPA2 ? Well:
Faster clearances, monitoring help infra projects stay on course in Q4

The Centre has finally managed to break the chokehold of stalled infrastructure projects, by giving faster clearances and ensuring close monitoring of these at the highest level.

According to Centre for Monitoring Indian Economy (CMIE) data released on Monday, only 24 projects under implementation were stalled as of March. The total investment in these projects was Rs 25,700 crore — the lowest in any quarter since December 2008. In the March 2016 quarter, it was Rs 92,000 crore.

The previous United Progressive Alliance government had been haunted by the piling up of stalled projects.

“The March 2017 quarter capex aggregates results also show a substantial fall in projects getting abandoned, shelved or stalled,” CMIE said.

The value of dead projects fell from Rs 1,12,000 crore in the March quarter of 2016 to Rs 32,000 crore in the March quarter this year.

What was the corresponding number in June 2014 ? Rs.16 lakh crore worth of stalled projects. It's recorded right here in an older thread June 2014 post. From 16 lakh crore to 25.7K crore is significant progress.
Govt releases highest ever LPG connections in 2016-17

Pushed by the Bharatiya Janata Party (BJP) -led government's flagship programme Pradhan Mantri Ujjwala Yojana (PMUY), oil marketing companies released the highest ever number of liquefied petroleum gas (LPG) connections in 2016-17, adding 32.5 million connections in the year.

The connections released includes 20 million under PMUY scheme, while 12.5 million connections were released outside PMUY. Under PMUY, women of BPL families especially residing in rural areas have been given LPG connections. This increase in connections resulted in a jump in the LPG coverage and as of April 1 this year, the national LPG coverage is estimated to be 72.8 per cent with 198.8 million active consumers.

The scheme was launched on May 1 at Ballia in Uttar Pradesh, with a target of providing connections to 50-million below-poverty-line families in three years, with government support of Rs 1,600 per connection. For the three years, the government had allocated Rs 8,000 crore; the connections are issued in the name of the women in those families.

achoudhury · Post by **achoudhury** » 04 Apr 2017 07:20

Someone read my mind

..There is an article in today's livemint which pretty much details what I was apprehensive about the effect of GST on the backward states.
http://www.livemint.com/Opinion/qoID41y ... e-tax.html

More and more that I think I am realizing that well governed coastal states will be a major beneficiaries of GST. In fact, if Gujrat and Odisha were stocks , they will qualify as value stocks of next decade. Mah and Karnataka will benefit too. I would definitely short TN , Waste Bengal and Communistan. Also, it will mean that Bihar and East UP will keep churning most of new Indians at very high rate who will then show up in all the major towns of India creating major fault lines. NCR may still do well due to to excellent infra being built as well as proximity to markets.

Antidotes to this could be distributive largesse from larger pie of indirect tax due to higher GDP growth , accelerated formalization of economy and less leakage, which then can be spent in powering hearths of hinterland.

Kashi · Post by **Kashi** » 04 Apr 2017 08:27

achoudhury wrote:http://www.livemint.com/Opinion/qoID41y ... e-tax.html

Some very strange premises in this article. Sample a few

A smartphone may be considered a luxury product in Bihar but perhaps a necessity in Tamil Nadu.

Eh??

This restricts the abilities of regional political parties to govern the state in accordance with the needs of the people of that state alone.

So it's not about GST at all, but more about losing political leverage.

But then it gets even more confusing

Under GST, regional political parties will, for the first time, continue to have full political powers to govern their states bereft of full fiscal powers of taxation. Unlike national parties with a high-command culture, regional parties cannot easily be coerced into a “national” narrative at the risk of alienating their specific voter base.

So the author's argue that it's all about vote base and vote banks?

This is more of a political piece rather than economic one. Hope the authors had provided a few concrete and specific examples.

“One nation, one tax”, “One nation, one language”, “One nation, one election”, “One nation, one curriculum”—a “one nation” construct seems to be the cornerstone of many of the policy initiatives of the Union government

GST leads to all of that?

Suraj · Post by **Suraj** » 04 Apr 2017 08:35

achoudhury wrote:Someone read my mind ..There is an article in today's livemint which pretty much details what I was apprehensive about the effect of GST on the backward states.
http://www.livemint.com/Opinion/qoID41y ... e-tax.html

More and more that I think I am realizing that well governed coastal states will be a major beneficiaries of GST. In fact, if Gujrat and Odisha were stocks , they will qualify as value stocks of next decade. Mah and Karnataka will benefit too. I would definitely short TN , Waste Bengal and Communistan. Also, it will mean that Bihar and East UP will keep churning most of new Indians at very high rate who will then show up in all the major towns of India creating major fault lines. NCR may still do well due to to excellent infra being built as well as proximity to markets.

Antidotes to this could be distributive largesse from larger pie of indirect tax due to higher GDP growth , accelerated formalization of economy and less leakage, which then can be spent in powering hearths of hinterland.

The current finance commission devolution of tax revenues to the states *is* redistributive. The likes of Gujarat and TN get back less of what they generate in taxes, while UP or Bihar get more. A two week old article:
Devolution of Central funds singes Tamil Nadu

So it's really not as simple as ''GST will hurt UP and BH'. Those same states gain a lot in the Finance Commission devolution rules, at the expense of the more dynamic states.

As for urban migration to more dynamic regions, that is normal everywhere in the world. People migrate to SF , LA and NYC, not to Alabama and Mississippi. Or to London instead of the rural midlands.

arshyam · Post by **arshyam** » 04 Apr 2017 11:05

achoudhury wrote: NCR may still do well due to to excellent infra being built as well as proximity to markets.

Isn't UP also proximate to NCR, with places like Noida actually being a part of NCR? Why cannot more parts of UP take advantage of this fact?

Places like Coimbatore or Rajkot are not proximate to any large economic engine, but still do well thanks to good connectivity. Same could work for UP. The Kanpur-Lucknow belt is also a large agglomeration, no reason it cannot become a mid-sized economic engine. Only needs the right policies and some focus by the UP govt.

Prasad · Post by **Prasad** » 04 Apr 2017 12:24

Suraj wrote:The current finance commission devolution of tax revenues to the states *is* redistributive. The likes of Gujarat and TN get back less of what they generate in taxes, while UP or Bihar get more. A two week old article:

So what is the justification and sweetener for such states to agree to GST and what is the way forward to not penalise them? This is communist type redistribution. So how does this get set right? This isn't going to magically stabilise by UP/Bihar type states immediately generating massive tax revenue from tomorrow. One would expect these states to start pulling their weight in 4-5 years or so. Until then other states miss out on their revenue. Will they be told to 'swalpa adjusht madi?'

SaraLax · Post by **SaraLax** » 04 Apr 2017 13:45

Kashi wrote:
achoudhury wrote:http://www.livemint.com/Opinion/qoID41y ... e-tax.html
Some very strange premises in this article. Sample a few
A smartphone may be considered a luxury product in Bihar but perhaps a necessity in Tamil Nadu.
Eh??
This restricts the abilities of regional political parties to govern the state in accordance with the needs of the people of that state alone.
So it's not about GST at all, but more about losing political leverage.
But then it gets even more confusing
Under GST, regional political parties will, for the first time, continue to have full political powers to govern their states bereft of full fiscal powers of taxation. Unlike national parties with a high-command culture, regional parties cannot easily be coerced into a “national” narrative at the risk of alienating their specific voter base.
So the author's argue that it's all about vote base and vote banks?
This is more of a political piece rather than economic one. Hope the authors had provided a few concrete and specific examples.
“One nation, one tax”, “One nation, one language”, “One nation, one election”, “One nation, one curriculum”—a “one nation” construct seems to be the cornerstone of many of the policy initiatives of the Union government
GST leads to all of that?

Many people here would know that as one of the very few states in India that harped on federalism for a long time... TN has always fought for more powers to be devolved to the states from the federal government and irrespective of whether it was JJ of ADMK or leaders of DMK - the need for a more federalistic political structure in India was always championed by these TN specific parties. So this quoted article is also along that same line .. indicating that having one set of GST & taxation rules across the entire nation will not be a suitable solution or the best solution for each state in India (which have their own unique aspects ... whether by geography or economy or social conditions or human skills & capabilities or law & order ).

As they indicate in the article - a state can no longer levy any additional tax to fund some special scheme for its own people (like how MGR did for mid-day meal scheme some 3 decades before in TN). In fact this was already indicated a few months before by Chief Economist of the Aditya Birla group. States will instead have to go to the centre with bowls in their hand for any special grant or to financial markets to obtain loans - to fund a specific state-level scheme. So this may not be a suitable solution when it comes to funding social schemes.

FYI - One of the authors - Mr.Palanivel Thiagarajan - of this article is a DMK MLA from Madurai in TN. He is a well educated person (engineering, doctorate, MBA & etc) who has been a 'wallstreet' banker for nearly 2 decades (Lehmann brothers, Standard Chartered & etc) and held high positions around the world. He quit his job and came to contest elections for his 'Father's party' and won in 2016 AS elections from Madurai city. So he does know what he is talking about. He is one guy who went ahead and told people that he wont give even a single rupee to people to purchase their votes for himself and asked his campaigners to also stop such practices in his area during campaigning (where as it was happening in nearby constituencies). After getting elected - he raised many valid queries in TN State Assembly on the heavy debts that TN govt is taking on and employing much of it for pure consumption type usage rather than for productive purposes and that the future generations of Tamils will pay for these follies by having to fund the heavy interest outgo of the state government. In response - the then Finance Minister O Panneerselvam of ADMK accepted that the debt levels need to be controlled in TN. OT - Palanivel Thiagarajan is a pucca Hindu too and never had any issues in showing it off inspite of being in DMK. He is touted as a future Finance Minister of TN - if & when DMK comes back to power in TN.

BTW - i am linking his twitter account here ( @ptrmadurai ). Twitter users can probably seek his opinions/answers for some of their queries.

Suraj · Post by **Suraj** » 04 Apr 2017 20:27

Prasad wrote:
Suraj wrote:The current finance commission devolution of tax revenues to the states *is* redistributive. The likes of Gujarat and TN get back less of what they generate in taxes, while UP or Bihar get more. A two week old article:
So what is the justification and sweetener for such states to agree to GST and what is the way forward to not penalise them? This is communist type redistribution. So how does this get set right? This isn't going to magically stabilise by UP/Bihar type states immediately generating massive tax revenue from tomorrow. One would expect these states to start pulling their weight in 4-5 years or so. Until then other states miss out on their revenue. Will they be told to 'swalpa adjusht madi?'

They get more of the share of tax revenues in absolute terms, while the center gets less. They just don't get proportionately exactly as much as they contribute to generation of revenues. Box 10.1 of the 2014-15 Economic Survey covers the topic in general. The problem is that the formula emphasizes things like population and income disparity, where UP and BH win out over those who are doing a better job of controlling population and growing fast and uniformly, like TN.

achoudhury · Post by **achoudhury** » 04 Apr 2017 21:01

Kashi wrote:
achoudhury wrote:http://www.livemint.com/Opinion/qoID41y ... e-tax.html
Some very strange premises in this article. Sample a few

This restricts the abilities of regional political parties to govern the state in accordance with the needs of the people of that state alone.
So it's not about GST at all, but more about losing political leverage.

But then it gets even more confusing

Under GST, regional political parties will, for the first time, continue to have full political powers to govern their states bereft of full fiscal powers of taxation. Unlike national parties with a high-command culture, regional parties cannot easily be coerced into a “national” narrative at the risk of alienating their specific voter base.
So the author's argue that it's all about vote base and vote banks?

This is more of a political piece rather than economic one. Hope the authors had provided a few concrete and specific examples.

GST is not just an economic legislation and there will be profound and long term impact on both polity and economic. What the author is indicating here is that National Parties have presence across state, and as such they are more or less, insulated due to winners and losers created from GST. State Parties do not have that cushion. They will most likely sink due to curtailing of fiscal autonomy and will be forever dependent at center with a begging bowl. But frankly, I am least bothered about what happens to likes of Jehadi Didi and Communist goons of Kerala.

“One nation, one tax”, “One nation, one language”, “One nation, one election”, “One nation, one curriculum”—a “one nation” construct seems to be the cornerstone of many of the policy initiatives of the Union government
GST leads to all of that?

GST does not lead to all that, but Article is apprehensive of the thought process that is leading to them. While India definitely benefits with concept of One-ness in certain areas like "One nation, one election" and to a certain extent with “One nation, one tax”, there is reason why our polity is federal and framers of constitution devolved certain powers to state. It seems that those powers are being centralized now and that is definitely cause of worry.

Also for me the key take away from the articles were

Four states (Gujarat, Maharashtra, Tamil Nadu and Karnataka) account for as much inter-state trade as the other 25 states combined. One-fifth of all passenger cars and two-wheelers are sold in just two states—Maharashtra and Tamil Nadu. The average Tamilian earns Rs1.4 lakh per year, four times more than the average Bihari’s annual income of Rs35,000.

This fact punctures the argument about Manufacturing and Consuming states and hypothesis that consuming states will benefit more from GST. Reality is that most of the manufacturing states are also most consuming states and will continue being so. After all industry creates jobs, jobs creates income and income creates consumption. States like UP and Bihar which are dependent on money orders can only increase their consumption so much.

The average Tamilian is 31 years old and a matriculate while the average Bihari is 19 and a primary-school dropout.

This is a stark statistics and in one sentence shows the gulf between these states and the massive ramifications for future with respect to demographics and migration. In other words, apart from Islamic fundamentalism, backwardness of Gangetic belt is a strategic danger for India.

Basically, the near term challenge of Indian polity will be to come up with some creative solutions to get this area of darkness to path of progress.

achoudhury · Post by **achoudhury** » 04 Apr 2017 21:26

Suraj wrote: So it's really not as simple as ''GST will hurt UP and BH'. Those same states gain a lot in the Finance Commission devolution rules, at the expense of the more dynamic states.

While I concede that UP and Bihar will gain in more revenue from Finance Commission devolution rules, the problem is that we are condemning a large section of population just on the state's redistributive capacity. First of all, I am very skeptical of state being able to allocate these revenue in efficient manner but larger cause of worry is structural. Unless, GDP of these states increase, at least, in line with India's overall GDP, how will these states develop. And how will GDP increase in absence of private investment and consumption growing apace?

As for urban migration to more dynamic regions, that is normal everywhere in the world. People migrate to SF , LA and NYC, not to Alabama and Mississippi. Or to London instead of the rural midlands.

Internal migration in a large country like India is very desirable when it is not lop-sided and structural in nature. What the issue here is that One third population of India which lives between UP, Bihar and Bengal is structurally dependent on migration and on top of that their population growth is also much more then anyone else. What it will do is that within 25-50 years, they will swarm other areas creating major and irreparable fault lines.

Prasad · Post by **Prasad** » 04 Apr 2017 21:27

Suraj wrote: They get more of the share of tax revenues in absolute terms, while the center gets less. They just don't get proportionately exactly as much as they contribute to generation of revenues. Box 10.1 of the 2014-15 Economic Survey covers the topic in general. The problem is that the formula emphasizes things like population and income disparity, where UP and BH win out over those who are doing a better job of controlling population and growing fast and uniformly, like TN.

Sooo short end of the stick, pretty much?

Suraj · Post by **Suraj** » 05 Apr 2017 00:06

I think the situation is way more nuanced than that. Some states benefit from some policies and others benefit from others. An effort to create a one size fits all solution that's equally beneficial to all, is IMHO an unobtanium hunt.

A_Gupta · Post by **A_Gupta** » 05 Apr 2017 02:05

Under the pre-GST system, nothing prevented the states from piling on debt.
This story is from November 2015:
http://www.indiaspend.com/cover-story/m ... test-73343

The debt for all major states has increased 66% over the past five years from Rs 16,48,650 crore ($358 billion) in 2010 to Rs 27,33,630 crore ($414 billion) in 2015.

Maharashtra with the highest outstanding liabilities is followed by Uttar Pradesh with Rs 2,93,620 crore ($44 billion) and West Bengal with Rs 2,80,440 crore ($42 billion).

Tamil Nadu has borrowed money at the quickest annual pace, 92%, followed by Karnataka with 85% and Andhra Pradesh with 78%.

Did the states go begging bowl in hand to the Center to be allowed to go into debt?
I kind of doubt it, but perhaps guru here can clarify.

The ability of the states to service their debt will depend on their revenues, and now they can't raise some ad hoc levy on their inhabitants to make up for fiscal profligacy.

vijayk · Post by **vijayk** » 05 Apr 2017 02:05

http://www.firstpost.com/business/govts ... 66800.html

The tax collections for 2016-17 include the taxes collected under the Prime Minister's Garib Kalyan Yojana, which stand at Rs 2,300 crore, according to a report on CNBC-TV18. The government saw Rs 4,600 crore worth declarations under the scheme, said the report.

The government had launched the scheme after the demonetisation of Rs 500 and Rs 1,000 notes in order to encourage black money holders to deposit the banned notes and come clean.

Under the scheme, which opened on 17 December and closed on 31 March, persons with undisclosed income in the form of cash or deposit in an account maintained with a specified entity (which includes banks and post office) could declare such income and pay tax, surcharge and penalty totaling in all to 49.9 percent of such amount.

Besides this, the scheme provides that a mandatory deposit of not less than 25 percent of such income shall be made in the zero-interest bearing Pradhan Mantri Garib Kalyan Deposit Scheme, 2016, for four years.

Meanwhile, PTI reported that the government has exceeded the tax collection estimates for 2016-17 at Rs 17.10 lakh crore. The revised estimates (RE) provided in Budget on 1 February had projected tax collections of Rs 16.97 lakh crore.

The Finance Ministry in a statement said that tax collection of Rs 17.10 lakh crore is a growth of around 18 percent compared to last year.

Revenue Secretary Hasmukh Adhia said, "Total net tax revenue grows at 18 percent to Rs 17.10 lakh crore, highest in last 6 years."

While direct tax mop up during the April-March period grew 14.2 percent at Rs 8.47 lakh crore, indirect tax kitty swelled by 22 percent over last year to Rs 8.63 lakh crore. Net direct tax collections at Rs 8.47 lakh crore shows 100 percent achievement for RE of 2016-17.

Indirect tax collection till March 2017 is 101.35 percent of the RE for 2016-17 fiscal. The RE was pegged at Rs 8.5 lakh crore.

In terms of gross revenue collections, the growth rate in corporate tax was 13.1 percent while that of personal income tax was 18.4 percent.

However, after adjusting for refunds, the net growth in corporate tax collections is 6.7 percent while that of personal I-T collections is 21 percent.

Refunds amounting to Rs 1.62 lakh crore have been issued during April 2016-March 2017, which is 32.6 percent higher than the refunds issued during FY 2015-16, the statement added.

As regard indirect taxes,Central Excise collections grew 33.9 percent to Rs 3.83 lakh crore during 2016-17. Service tax mop up rose 20.2 percent to Rs 2.54 lakh crore, while customs collections grew 7.4 percent to Rs 2.26 lakh crore.

A_Gupta · Post by **A_Gupta** » 05 Apr 2017 02:14

Further, for five years, states will be compensated for revenue loss, I believe
https://www.bna.com/india-compensate-st ... 982084150/

States will be compensated the difference between their annual revenue and the all-India state revenue average in base fiscal year 2015-2016, plus 14 percent of fiscal year 2015-2016 revenue average to make up for assumed growth rate on tax collection. Since GST isn’t expected to be implemented until July 1, the amount of compensation for the current year will be prorated.

The rate of 14 percent is the average assumed growth rate on tax collection for all Indian states.

A_Gupta · Post by **A_Gupta** » 05 Apr 2017 02:20

SaraLax wrote: As they indicate in the article - a state can no longer levy any additional tax to fund some special scheme for its own people (like how MGR did for mid-day meal scheme some 3 decades before in TN).

It is difficult to find articles from 3 decades ago, but it appears MGR did not levy any new taxes but rather resorted to some creative financing for the mid-day meal scheme.
http://indiatoday.intoday.in/story/mgr- ... 92281.html

MGR was determined to dish out his sappadda, and turned heaven and earth to find the money for it. Incredibly, the state contingency fund is providing most of the money - the fund was upgraded from Rs 50 crore to Rs 100 crore through a bill passed in September 1981. A Chief Minister's Nutritious Noon Meal Programme Fund (CNNPF) was created and donations to it were exempted from income tax.

Although the response was lukewarm, MGR raised another Rs 10 crore by way of one day's salary from government employees, one month's salary from ruling party MLA's and MP's and one show's takings at cinema theatres. The Finance Department is also considering a weekly Rs 10 lakh raffle: the winner gets only the interest on the sum and pays 2 per cent of that to the CNNPF.

The state Government had to resort to these means because with a deficit of Rs 300 crore, it dares not impose fresh taxes. As it is, the scheme entails an expenditure of Rs 50 lakh a day, a far cry from an earlier and limited scheme for which only Rs 5.63 crore was provided

PS: later on - not sure how long after the start of the mid-day meals program in 1982 - the cost was split between the Center and State on a 75:25 basis.

Suraj · Post by **Suraj** » 05 Apr 2017 03:20

States may no longer be able to levy additional taxes, but they are now open to issue bonds that foreign buyers can purchase. News, also from late 2015:
India's states to compete for foreign cash as bond market opens up

India's states are gearing up to sell up to $7.6 billion in debt to foreign investors for the first time, stepping up competition for funds that could force the country's spendthrift provinces to clean up their books and tighten spending controls.

India's states pay the second-highest government yields in Asian emerging markets after Indonesia: around 8.16 percent for a 10-year bond, much higher than central government debt and nearly two and three times the yield on Philippines and Thai paper.

That is expected to be a big draw for overseas funds, which have already poured nearly $8 billion into Indian central government debt so far this year, attracted to economic fundamentals that have been relatively better than emerging market peers.

The arrival of foreigners could force a major change in the state government bond market, where yields vary little across the states despite different fiscal positions, and put governments under pressure to curb wasteful spending.

Some states are prone to expensive pre-election giveaways: everything from spice grinders and fans to laptops and subsidised or free rice and vegetables.

The Reserve Bank of India (RBI) has told investors that all states benefit from identical sovereign guarantees. But foreign investors, unlike domestic investors who tend to treat state debt equally, say some states will be more appealing than others, at least in the short term.

"There are so many states in India and each state is pretty much a country of its own," said Leong Lin Jing, a Singapore-based investment manager on Aberdeen Asset Management's Asian local rates and currency team.

A_Gupta · Post by **A_Gupta** » 05 Apr 2017 17:43

Usha Ananthasubramanian, managing director and chief executive officer of Punjab National Bank:

Banks have a concern over the requirement to have multiple registration under GST. What is your take?

That is a concern because there are over 30 states and UTs and it is going to be very cumbersome. There was a representation made for single registration. Multiple registration will have its own complexities. You may be a resident of Delhi, but your card is issued in Mumbai and you use it in Shillong, so who will get how much. We will need clarity on these counts.

http://www.business-standard.com/articl ... 050_1.html

Gus · Post by **Gus** » 06 Apr 2017 19:47

bill passes both houses..no changes

http://economictimes.indiatimes.com/new ... 049144.cms

http://timesofindia.indiatimes.com/indi ... 050146.cms

http://www.hindustantimes.com/business- ... hgSzI.html

Allegations were also levelled against BJP trying to steal all credit of implementing this landmark tax reform.

Suraj · Post by **Suraj** » 07 Apr 2017 02:03

Both services and manufacturing PMI are strong in March, the former at 51.5 and the latter even higher at 52.x .
Services growth at 5-month high: PMI

The services sector expanded for a second consecutive month in March, indicating that the predominant sector of the economy has recovered from the demonetisation setback, a private survey released on Thursday has shown.

The widely tracked Nikkei Services Purchasing Managers’ Index (PMI) for services rose to a five-month high of 51.5 points in March, compared to 50.3 in the previous month. A reading above 50 signifies expansion, while one below that shows contraction.

Nitin Gadkari keen to achieve 40 km a day road construction target

Union Transport Minister Nitin Gadkari on Wednesday said that efforts are being made to further improve the road construction target to 40 km a day from the current 23 km per day.

The minister said that 8,144 km of roads were constructed last financial year. His ministry, Gadkari said, on an average has recorded road construction of 23 km a day as against two km a day when the UPA government was in power.

The minister further said he intends to complete infrastructure work worth Rs 25 lakh crore in five years.

A GST Primer:
GST to be soon be a reality: Five things to know about the tax reform

Prasad · Post by **Prasad** » 07 Apr 2017 10:48

23 km/day seems on the shorter side. And this after nearly 3 years.

Suraj · Post by **Suraj** » 07 Apr 2017 11:47

Infrastructure companies were among the most heavily indebted during the UPA-II era stagnation times. The problem is that many companies went on a HUGE investment binge after the 2009 elections, expecting significant reform action, but UPA-II basically imploded as far as any reform effort was concerned. I wrote about this two years ago. This referenced article from that post describes just how indebted many infra companies became. Posting those charts again for reference:

The problem with going into debt is that you end up paying more and more to service debt, which keeps accumulating, i.e. a debt trap. Those companies took until 2016-17 just to turn around. Here's debt levels for 2015:

Karthik S · Post by **Karthik S** » 07 Apr 2017 12:11

That's more than 7 Lakh Crore debt. The govt and banks need to monitor that the value of assets doesn't go below total liabilities. Or we will have 2008 redux.

Austin · Post by **Austin** » 07 Apr 2017 12:26

How much is 7 lakh crore in USD ?

BTW these are Private Debt and this is not GOI responsibility AFAIK , Banks can always sell the mortgage and get their loans