GST

Catching up on the Economic Agenda!

Social Media is an ongoing battlefield for the IT Cells of political parties. There, you routinely find claims and counter claims by BJP and the Congress, which get forwarded and go viral.  Among the regular updates from the BJP side, the ones which are popular are those where Narendra Modi era (Post 2014) and Manmohan Singh era (2004-2014) are compared which show how the country has progressed rapidly in the last 7 years whether it is Highways construction, Rural Electrification, Toilet construction, Clean water supply etc. etc. However, one thing on which the BJP IT cell is put on the back foot by the Congress is the Economic growth. This is a graphic which is popular among the Congress supporters and rightly so where in comparison, the Singh era shows higher average GDP growth than the Modi era, so far.

I am certain that if there is one thing Modi as a person, who likes to leave behind a legacy in whatever he does, would like to correct, it would be this. Frankly, I had high hopes from this government in its first term on its economic agenda. I thought that with a clear majority, it will pursue bold and long pending reforms with a much higher vigour than the reformist Vajpayee Government which was always bogged down by coalition pressures.  It turned out that, but for the introduction of GST (a landmark and very important reform, in my opinion) and Demonetisation (in which the costs outweighed the benefits), the 1st term was lack lustre and was more or less on “Maintenance mode” as far as pursuing a bold economic agenda was concerned.

It is my opinion that lawyers do not make good Finance ministers. P.Chidambaram, a fine lawyer, who is regarded as one of the most reformist Finance ministers the country had, always use to come up with one nit picking thing in his every budget, which cast a dark shadow on all the other good reforms he came up with. We all know what happened with Pranab Mukherjee, another Finance minister with a legal background. His retrospective taxation idea much against the wishes of even the economist Prime Minister Singh, punctured the “India Story” then and our economy went into a tailspin. So, that’s what happened with the Modi Sarkar in its first term. Arun Jaitley, another fine legal eagle was picked as the finance minister but, even during his regime the retrospective taxation was not rolled back! With no much economic traction, the 1st term of Modi ended on a disappointing low economic growth path.

In 2019, when Nirmala Sitharaman was made the Finance minister in a very surprise move (not Piyush Goyal who was touted as the favourite), expectations were quite low. But, I had mentioned that time, that she could surprise the critics at the end of the day. I felt that considering her background and her studious nature, she can be expected to meticulously follow the agenda as laid out in the manifesto. Not just that, but also follow through methodically in terms of execution.  You can see that this is what is happening now.  In her 1st budget in 2019, when corporate taxes were cut – a bold economic move to boost private investments and sentiment, it appeared that the Modi Government in its second term had got its intentions right in pursuing its economic agenda to boost growth which faltered in the 1st term.

 

The pandemic though, which hit all economies hard including India in Feb/Mar 2020 put a spoke all further bold moves. Economic management during a pandemic is a double edged sword. The government needs to focus on lives on one hand and livelihood on the other and that too when its income is crippled.  But, I thought that the team managing the economy in this government weathered the Covid storm very well and managed to tide over the crisis very well, under the circumstances.

In the midst of the pandemic last year and perhaps even now, top economists of the likes of Dr. Abhijit Banerjee, Dr. Raghuram Rajan and Dr. Kaushik Basu have been of the opinion that the Central government should not worry about fiscal deficit, agency ratings and all. Among other things like increased spending on health, they maintained that it should just do cash transfers through DBT mode to the needy. However, the government took a more cautious and calibrated approach of support by providing free ration to the needy, extending loan support to businesses etc. instead of cash transfers.  This has been a clash of ideas between the economists in the government and economists commentating from outside.  Frankly, I felt that what our government did is a better approach for a country like India.

Unlike the West, in India, people are more conservative financially. So, when a person gets free cash during a pandemic his first instincts will be to save it for spending on essential goods rather than on non-essential stuff to boost demand. Secondly, thanks to the lock down, there were supply restrictions. It is not logical that people will spend money just because they have been provided with cash support. So, the Government’s calibrated approach of providing free rations to the needy serves the purpose of protecting livelihoods during the pandemic. The salaried upper middle class and above were anyway not so affected as they were getting the salaries and even they spent only on essential stuff basically due to lockdown restrictions. So, the argument that Direct cash transfer would have boosted demand in the times of a pandemic doesn’t seem logical at all.  If not all, a few economists like Swaminathan Aiyar finally admitted that this approach worked better for India.

It is in this context of understanding the thought process of this government on handling economic issues during the pandemic that I bumped on this video. In this speech, Sanjeev Sanyal, Economist and Principal Adviser in the Ministry of Finance, articulates brilliantly the approach of the government in managing the pandemic from an economic stand point. If you haven’t watched it, please do so.  It answers quite a few questions which are routinely thrown at this government at the way it has been responding to the pandemic.  Its clear from the speech that there is a “method” in the thinking of the government while there is “madness” in the newsrooms that feed us information.  I wish that the government articulates the thinking behind their decisions more regularly for the benefit of all.

Now if you see the last few months, it is clear that the government is dead serious in reviving the economic growth. Some of the decisions since March have been bold and commendable. The rolling back finally of the retrospective taxation is one.  The Asset Monetisation program is another.  Taking a call to relieve the stress on the balance sheets of the banks by forming a “Bad Bank” is also another one.  Again, addressing sector specific long pending issues like in Telecom is yet another.  So, there has been a slew of bold decisions recently that gives a hope that in this term, with the pandemic hopefully behind us, the Modi Sarkar is pushing aggressively on its economic agenda.

As an economy, I believe we are at an interesting and crucial point. The pandemic is ebbing (or so we believe). Vaccination is progressing at a rapid pace. Economic activity is getting back to normal. These should bring the economy soon to pre-Covid levels. Now, if the bold reforms that have been unleashed this year has the desired effect, the growth only can be higher from here. For the Modi Sarkar which is finally catching up on the economic agenda, it will be a lasting legacy to demonstrate a higher average economic growth than the Singh era. And for the IT cell of the ruling party, few memes less to counter!

Debate around the Growth of the Indian Economy!

Few weeks ago, the GDP numbers for the 1st quarter of this fiscal year for India were published. As per that, the Indian economy grew by 20.1%. In the following days, there were columns, Op-Eds and Social media commentary on whether it was a good quarter or not. Since “Neutral media” is an Oxymoron, depending upon the leanings of the media, the economic performance was either branded “historic” or “pathetic”. There are no surprises here and we have now learnt to live with the media spin on all issues.

Along with the media, the tribe of “Neutral Economists” is also on the wane.  Depending upon their political affiliation, the first quarter performance was touted to be “record breaking/highest ever” or “worst/shocking” in decades by reputed economists.  Therefore for an Aam Admi, it is difficult to judge what actually the situation is. And the truth as in many situations may be somewhere in between.

I am no economist but as an ardent follower of the Indian economy, I tried to make sense of the numbers and the trends thereof and this is what I find. I would like to hear the opinion of the readers as well on my hypothesis.

In isolation, a GDP growth of 20.1% is of course very good. But, we should not forget that this is at the back of a low base of -24.4% same Quarter last year. In that sense, some of the commentary from pro Government circles that this growth is massive and is earth shattering etc. is immature.  At the same time, commentary from the opposition side comparing this with GDP rate pre-Covid and claiming that actually it is lower than what it was two years ago is equally immature. And this is why.

First, the reality is, on a trend line after a massive negative growth of 24.4% in Q1 last year and growing marginally by 1.6% in Q4, a growth of 20.1 in Q1 this year shows that the economy is indeed recovering and the recovery is V-shaped to be precise. This is certainly to be happy about.

Second, we must keep in mind that during Q1 this year, we got caught by a massive second wave which again put several curbs on the functioning of the economy, which was as such firing at much lower levels than before. So, among the eight buckets which contribute to the GDP namely Manufacturing, Construction, Agriculture/forestry & fishing, Mining & Quarrying, Electricity/Gas/ Water & other utilities, Trade/Hotels/Travel & Communication, Finance & Real Estate and Public administration, Defence & other services, it is obvious that a couple of engines are not firing at all. It is therefore natural that when you compare with the pre-Covid situation, the GDP in absolute numbers will be lower. This however does not take away the fact that with the easing of restrictions, the economy is obviously recovering.

Third, let us take a look at the monthly GST collection numbers for the past couple of years.  The average monthly GST collection figure in 2018-19 was Rs. 98,114 Cr. and the average in the 1st four months of 2021-22 is Rs.113,333 Cr. 2018-19 was pre-Covid, normal times and these four months are right in the midst of Covid. And compared to Rs. 101,818 Cr. monthly average last year. So just a cursory glance shows that the economy is on the mend clearly this year.

Here, I would like to dwell into a larger point and thereafter a question.

I would presume that GST collections represent transactional activity in the economy with respect to both goods and services. We are all aware that post the pandemic all “Contact” based sectors have been severely affected. This includes the likes of Travel, hospitality, Wining and Dining (all these for business and pleasure), impulse shopping, recreation and entertainment of all sorts and other human touch related services (salons, spas…). While the Software industry per se has not got affected due to Covid with “Work from Home” filling in well, the ecosystem around it has been significantly disrupted. This includes transportation, catering, real estate, utilities, other discretionary spending and stuff.

As common public, our shopping is mostly restricted to what is required. We travel only when it is utmost required.  The “Festival economy” which is big in India has been crippled since last April.  So my question is, when transactions around goods and services have been curtailed, how is it that the monthly GST collections have shown a growth over 2018-19? (Pre-pandemic period)

There are can be two inferences from this trend:

First, if the monthly GST collection is showing such a robust 15% growth (over 2018-19) even during the pandemic times, once we are done with the pandemic and when all the cylinders start firing, we are looking at an exponential growth in monthly GST collection figures. (Even adjusting for inflation)

Second take away is, either with whatever limited avenues left to us, we are consuming much more than average or there is a significant shift towards formalisation of the economy. I would like to believe in the latter. I don’t think we are consuming more than what is required. However, certainly our purchasing patterns have changed. Due to the pandemic imposed curbs, it is possible that our dependence on the neighbourhood mom and pop stores have come down and we have got used to the convenience of door delivery for everything.

As a personal example, pre-Covid, we used to buy vegetables and fruits from our neighbourhood bhaiya. Once lock down struck, this shifted to a vegetable vendor who was arranged by our apartment complex for door delivery. Here, payment was through G-pay/PayTm etc. Now in the past few weeks, the same vendor is now part of an E-Commerce aggregator called Bhajiwala.com! Bhajiwala.com, I am sure is within the ambit of GST and hence clearly part of the formal economy! My view therefore is, the benefits of GST implementation which we were all looking forward to is beginning to accrue and will be more visible when we are out of the pandemic.

It was widely believed that once GST is implemented, it will add 1-2% to the annual GDP. I now believe that once the pandemic is over and when economy starts firing in all cylinders like before, the bump due to GST could be in excess of 2% because of the increased formalisation of the economy is the last 2/3 years. This I am talking about even after the pent up demand effect.  That should put the naysayers of the GST to rest.

Though we cannot take the stock markets as a real indicator of the state of the economy thanks to its fickle and speculative nature, probably the markets are seeing into the future as above which others are not.  Which is why the markets have been on fire since the last few months even in the midst of the pandemic.

In conclusion, I would like to say that yes, the high growth in Q1 is due to the low base effect.  Yet, it is a significant milestone and pointer towards a robust economic recovery. It is certainly one to be cheered upon if not celebrated upon as yet.  Acche Din are around the corner!

Pic Courtesy: The Economic Times

A Tale of Two FMs!

In the last week, two Ex-Finance Ministers of India, pushed Kashmir out of the headlines and debates, though for reasons completely different. Palaniappan Chidambaram (PC), an Ex-Finance Minister in the UPA ministry hogged the headlines for being a political heavy weight who finally got close to the long arm of the law. Arun Jaitley (AJ), the other Ex-Finance Minister but of the Modi 1.0 cabinet, dominated news since yesterday when he passed away after prolonged ill health. The lives of these two successful personalities have many common strands but, what is striking is the way it is finally diverging and in this lie key lessons for aspiring politicians.

The similarities first. Both PC and AJ came from privileged backgrounds and were never the “rags to riches” type leaders. They were lawyers by profession and extremely successful at that.  If they weren’t full time politicians, they would have been among the top 10 highly paid lawyers in the country for sure. Both were extremely articulate.  Both made their first impressions through their communication skills within their parties.  And that also turned out to be the lasting impression. In the last few years, the most interesting debates in the parliament were, when PC and AJ were pitted against each other – whether it was the GST or the Aadhaar debates. Both were tailor made for TV interviews and discussions. Both came extremely prepared for interviews and were at their combative best in putting across their views. More often than not, one tended to change opinions after listening to their points of view on a subject.  PC through his weekly columns and AJ through his blogs have also been using the written medium to get across their views effectively.

Both PC and AJ with their legal backgrounds, would give key inputs in drafting of bills to their respective parties. Their opinions were always sought in all issues related to passing laws in the parliament. In spite of not having a background on economics, both got the opportunity to be Finance Ministers. Both showed alacrity in dealing with numbers.  And when the situation demanded, they were the chosen ones to step in, as In-charge for other ministries. In the wake of the 26/11 terrorist attacks in Mumbai during Manmohan Singh’s regime, it was PC who was asked to take over the reins of the Home Ministry from Shivraj Patil who was found wanting in terms of responding to the situation. In AJ’s case he was asked to handle Defence Ministry as well, till Narendra Modi could convince Manohar Parrikar to take up the job.  One point of time he was handling three key portfolios concurrently.

In spite of these strengths, both PC and AJ were never mass leaders. PC did win elections from Tamil Nadu but that didn’t make him a mass leader. AJ could not manage to win the election even amidst the “Modi wave” in 2014 when he contested from Amritsar! And I also reckon that their elitist background, their success in their profession and thereby their high net worth made them easy targets for “not fit for public life” barbs.

Now, coming to the divergence in their personalities. AJ has been more loyal to his ideological moorings. Having started as part of the ABVP, he stuck to the Sangh parivaar during his entire life. PC, though known as a Congress man, left the party in between to be part of Tamil Maanila Congress. He was rewarded with the important Finance Ministry by both Deve Gowda and I.K. Gujral.

While AJ is known to be congenial with his staff and peers, PC always came across as arrogant and rude. He was known to be firm in his views and not one to suffer mediocrity. This projected him as an aloof politician who won more enemies than friends. On the other hand, as can be seen from the obituaries since AJ’s death yesterday, his friend circle cut across professions and political parties. And this turned out to be going against AJ most of the time.  Among the hard core BJP followers or Bhakts, AJ was viewed with suspicion of protecting his friends from other parties and corporates in corruption and other charges.

The same goes with relations with media.  AJ had many among the media who are now calling him as “My friend Arun” in their obit pieces. I suspect PC has few friends in the media!

PC while in Government had many run-ins with his ministerial colleagues. His spats with Pranab Mukherjee and Jairam Ramesh are in public domain. Who will forget that “patching up” Press conference he did along with Mukherjee? With AJ, we have not heard of any spats he had with his peers.

PC was seen more of a self-centred person even within his party and there was always a question mark over his commitment and loyalty to the party and the leadership.  But here, AJ was always seen as a party man. When not in power and not a minister, AJ was handling the poll strategy and electioneering. Before the Amit Shah era, AJ was the master strategist in putting together the poll campaigns for BJP in states including Gujarat when Narendra Modi was fighting the elections. PC apart from being a member of the manifesto drafting committee he was not known to be a poll strategist or an organisational man.

It is to AJ’s credit that many of today’s senior ministers in the Modi cabinet were all at some time mentored by him. Whether it is Piyush Goyal or Nirmala Sitharaman or Dharmendra Pradhan, they have all been coached and guided by AJ in the past. Similarly most of today’s BJP spokespersons have been mentored by AJ. PC has no such reputation.

In terms of handling the Finance Ministry, I always thought that PC did a better job. He took over as FM in 2012 from Pranab Mukherjee during UPA-II, when the economy was at its lowest ebb. He quickly put in measures in place to arrest the Rupee slide and restore investor confidence by drawing a clear red line on fiscal deficit. That the mood of the country had already set in for a change that time is another matter.  But, it always seemed like he was a right person in the wrong party under a wrong leader. I personally felt that under a stronger government and a more decisive PM, PC would have relished his job better and would have made a bigger impact in governance.  AJ, though armed with the luxury of heading the Finance ministry of a majority government, showed very little appetite for getting into a “Mission mode” on the economy front.

The introduction of the landmark tax reform – GST shows who is a consensus man. The work on GST which started during the UPA era couldn’t see the light of the day during UPA. The then Finance Minister PC was not accommodative on many of the requests from the states like revenue compensation… However, during Modi 1.0, AJ could build a clean consensus and despite stiff opposition from Congress (in particular PC) on certain clauses could get GST off the ground in 2017.

Amidst all this, if there is a big divergence between PC and AJ, it is how they managed their families, which has now become PC’s Achilles heel.  The legal troubles PC is facing today all claw back to the conduct and involvement of his son Karthi Chidambaram. We wouldn’t know if PC was a wilful partner in all his son’s business misadventures.  However, the fact that he didn’t and he couldn’t reign his son from misusing the office of the Finance minister, makes PC a partner in crime. And today he is paying for the same.  On the other hand, AJ had a spotless track record. Except for pointing fingers at him for developing friendships across the board and being a gossipmonger, there is no charge of misconduct or misappropriation against AJ or his family. He had kept his family away from his political and public office.

In public domain, Chidambaram is seen most of the times in spotless white shirt and dhoti. However, his public life has not been spotless. On the other hand, Jaitley while being in a similar political boat, lived his life without a blemish. And kept his family away from tapping his political influence.

In analysing the lives and career of these two fascinating politicians, there lies a key lesson for many a politician – Control thy Son(s)!

Agenda for Modi 2.0!

Dear Mrs. Sitharaman,

First things first. Congratulations on becoming the finance minister of the country. Ever since you have taken over, there has been a flurry of unabated, unsolicited advice on what you should do and should not, in the upcoming budget. I was extremely reluctant to add to that already long list. But then your extremely gracious and earnest tweet the other day, welcoming all suggestions and inputs changed my mind.  Being from Trichy as well, I could see the “Trichy Tehzeeb” in that request!  Hence this piece, with my wish list not just from the budget but overall from the Modi Sarkar 2.0 from an economic agenda point of view.

I am not an Economist. I am just a keen and informed observer of Indian politics and a well-wisher of our country. So, my points may or may not stand the scrutiny of economists but hopefully will pass muster with the readers of this post.   I promise that I am not going to repeat a lot of stuff which has already been suggested by the erudite in their pieces.  So, here we go:

  • First up, the positive effects of implementation of GST and the kicking off of several infrastructural projects from the 1st term will start bearing fruits in the coming 2/3 years. So, I suggest that the 5 year term till May 2024 be divided into 2 parts – First 3 years till 2022 and the second 2 years till 2024. Take all the tough decisions in the 1st part and use the 2nd to stabilise things.
  • Second, in Modi 1.0, there have been quite a few hits but some misses too. In the 2nd term, on the back of a solid mandate, Team Modi should play on the front foot with confidence, while at the same time leaving alone deliveries outside the stumps and negotiating short pitched deliveries and bouncers with alacrity. In governance parlance, this means implementing even the not so populist decisions with confidence and not getting muddled in unwanted distractions.
  • Third, please request the economic ministries to come up with a list of things to be done to rev up the economy which is stuttering. Divide this list into 3.
    • 1 – Low hanging fruits which don’t need legislative backing
    • 2 – Which need bills to be amended, passed in the parliament
    • 3 – which need the states to take action

Get going on this list systematically. Have a target of 60 days to accomplish everything in the 1st list. This will give a clear message to all stake holders that this government is not the one to rest in its electoral success laurels!

  • Fourth, you are now in Japan and there is a lot we could learn from the Japanese in terms of going about things. One of the things I learnt from working in a Japanese company is “Prioritisation”! As Indians, we tend to focus on 100 things at the same time and spreading ourselves extremely thin. This was one grudge I had on Modi 1.0 which embarked upon so many projects simultaneously like Make in India, Skill India, Stand up India, Digital India, Smart City project, Ujwala programme and so on. If you closely measure the success, it is only the programmes which had focus like Ujwala, Rural electrification, Rural housing that met with success. In Modi 2.0, I would suggest that the Government takes up a maximum of 2 or 3 projects at a time, focus on the delivery with finite timelines and then move on to the next set of 2/3 ideas. This is what Japanese do.
  • Fifth, in India we have been talking of linking outcomes to outlays. But seldom has the same been acted upon. So, in the coming budget presentation on the 5th of July, please do not announce plain outlays but outlays that can be linked to quantifiable  outcomes.
  • Sixth, we usually see that in the budget, there are many outlays which are just carried forward year after year with a % increment or a % cut. For example, since 2013, money from Central Budget has been allocated to Nirbhaya fund to support initiatives towards ensuring women safety. One really doesn’t know how this fund is being utilised and after 5 years what this fund has achieved. This is just one example. In every budget, there are many sundry allocations like this. Please review item-wise outlays in the last 3 budgets,  respective outcomes achieved and allocate outlays in the coming budgets only if they make sense.
  • Seventh, considering the state of the economy, there is a need to mobilise resources to generate income and keep fiscal deficit under check. As Prime Minister Modi has been talking of “Minimum Government and Maximum Governance” one way of mobilising resources is by Government exiting many businesses that are no longer strategic in nature and monetising those assets. In Modi 1.0, in every budget, we had an item called “Proceeds from disinvestment” and this was achieved by making some PSUs like LIC pick up shares from the disinvested PSUs. During NDA-1 under Vajpayee, there was a clear focus on “Real” Disinvestment with a full-fledged ministry and a determined minister like Arun Shourie doggedly pursuing it. UPA did away with this and since then Modi 1.0 included, there has been no serious disinvestment in the country. I suggest that Modi 2.0 take this up seriously. A functional ministry named as “Monetisation of PSU Assets” (since disinvestment is seen as a bad word) should be formed. I also add that the proceeds from this monetisation be parked in a separate account and used for welfare schemes. By this, any criticism of the move can be countered by demonstrating that the proceeds of the same are being used for social welfare. A creative way needs to be found for accounting like this.
  • Eighth, in Modi 1.0, there was a big push towards infrastructure projects like highways and roads which was really commendable. The same should be continued with additional vigour. However, as admitted by Nitin Gadkari the pace of the projects could have been faster but for complex land acquisition issues. This is a big issue even today. In the 1st term, after initial belligerence, the government chickened out of the much needed amendments on the Land Acquisition bill. I remember Modi taking this up with rigour in 2014 basically because all the states identified certain provisions in the existing Land Acquisition bill as impediments for timely closure of infra projects.  Since the states are equal stake holders in this issue, please have discussions with a fresh outlook, strike a consensus and pass the amendments to the bill smoothly in both houses of the parliament. Renaming this as “Land Partnership bill” or something like that instead of the negative sounding Land Acquisition bill will help too to remove the negative connotation around this!
  • Ninth, taxation in India is still complex. GST implementation was a landmark Tax reform. I am sure there is a road map towards further simplifying the same with reduced tax slabs and simplifying procedures. Now, in this term please focus on Direct taxes. I hope that the panel working on overhaul of this will submit their recommendations quickly and your government should adopt the same ASAP. In simple terms, the mantra should be lower tax rates with no or very few genuine exemptions. Some of the exemption clauses we have are weird and defy all logic. For example the current clauses we have for LTA exemptions for salaried. Applicable for 2 years in a block of 4 that being calculated from the year 1986 and so on!!! Someone needs to do a Zero based hard look at all the existing exemptions for personal and corporate taxation and do away with most of them which don’t make sense in this day and age!
  • Tenth and the last one. On the 5th July when you leave your office for the parliament to present the budget, your team will hand over a brand new brown brief case which will have the budget speech. You and your team will pose with that brief case for the cameras and then you will read out the budget speech from the bunch of documents. And here’s what I suggest. Please, please do away with this brief case and the papers. Instead, amble along in style, pose for cameras with your hands “free” and as you rise to present the budget in the parliament hall, download the speech from the ministry’s secure server and project it in a large screen. Doing away with the rambling, long speech that would be just uber cool, while at the same time giving a push towards Prime Minister’s “Digital India” dream!

Pic Courtesy: Livemint

In #2019, no TINA but be wary of TAIL!

As 2018 winds down and we step in to 2019, for India, it is just not another new year. Mid of 2019 is when we will have the Lok Sabha polls that will determine if Narendra Modi will get another shot at being the Prime Minister. In my memory, I cannot recall of any individual who has come for so much scrutiny as an elected representative. And whose re-election is being discussed and debated so intensely in the country. First up, blame it all on the social media and its growing tentacles!

The fact that a government’s performance is coming up for such a rigorous appraisal itself, augurs well for our country. It should be like that. I only hope that this appraisal business isn’t selective and not just reserved for Modi Sarkar! If I think as to why this government has come under such a close assessment, I realise that it should blame itself for the same.

Did we have any other government in the past that

Set targets for itself on many fronts?

Which announced the targets and put them out in public domain?

Which tracked the actual delivery against the targets and presented them for everyone to see and comprehend easily that too mostly on real-time basis?

Today we know, not just what this government’s targets are for rural electrification, construction of highways, building targets, opening of bank accounts so on and so forth but also where it stands in terms of achievement. One look at the https://transformingindia.mygov.in/performance-dashboard/ site gives us an update on a real-time basis. It is not that governments in the past did not set targets for themselves. But all these targets were usually in terms of outlays announced in the Annual Budget speeches and seldom one would know what the final outcomes were. Between the outlays and outcomes, the India story remained in tatters. I guess not any more.  So, if people keep remembering the promises made and get disappointed if some of the promises have not been met fully or adequately, blame it on the Government’s efforts of putting out data in the open which makes it possible to compare achievements Vs goals easily.

In comparison to the upbeat mood in 2014 and 2015, today the mood in the country is more sombre. Even the most loyal fans of Modi have realised that probably he chewed more than what he could swallow. Five years are just not enough to turn around and solve all the ills of the country. That too when the global economy is facing one headwind after another! But then, as a country we had our own share of misses. Right when the economy was getting back on track in 2015/16 from the throes of policy paralysis and negative vibes and was poised for a leap, this government let loose the Demonetisation devil on the economy.  This set the economy back by 2 years to get back on track. That we didn’t fully collapse and managed to grow the economy at a slower pace nevertheless, would be a miracle, academicians would pore over in the years to come!

Before the effects of Demonetisation could subside, this government went ahead with the introduction of GST which according me is the biggest Tax reform in Independent India. Irrespective of the critics who take on this government on the “not so perfect” GST, I maintain that it was extremely creditable on the part of Modi Sarkar to launch the GST without further delaying, on the 1st of July 2017. In India, in aspects of meeting deadlines, we Indians follow religiously and rigorously the Theory of Elasticity which says solid materials deform under the application of external force and regain their original shape when the force is removed. So, in the quest of a perfect, ideal GST, if this government had deferred the launch, who knows, perhaps we will still be talking of “introducing the GST” in the upcoming budget!  Against that, today we already have a thriving GST which is now going to complete 2 years! The introduction of GST will remain this government’s biggest achievement when its history is written.

The short term pains inflicted by these 2 moves (Demonetisation and GST) to the small and medium businesses combined with the government’s failure to address the Banking crisis at the beginning of its term have led the BJP to the situation where it is today.  In its strong hold states like Gujarat, Madhya Pradesh, Chhattisgarh and Rajasthan, the party’s support base has been dwindling. On the contrary, the Congress which seemingly had no hope of a revival till mid-2017, has smelt blood and is hoping to deprive Modi of a second term and a shot at history.

In India today, in the main stream media and also probably social media, the obituary of Modi Sarkar is being written on a daily basis. As per me, it is too early to write off Narendra Modi in the context of 2019. In spite of his government’s misses in terms of promises and more importantly the delivery of Achhe Din, his personal credibility as a leader who is keen to deliver, is intact. I do believe that there are those who are disappointed with him. But they are still not disgusted with him. Yet.  My personal feeling is that they would like to give him another chance.  The same states which voted out the BJP recently could very well see voting for Modi in the Lok Sabha polls!

Apart from this factor of Modi’s personal charisma, there is another important factor at play. People like to call it the TINA (There Is No Alternative) factor. I don’t believe that there are no alternatives to Modi. In fact, we have many. We have the spectre of a Rahul Gandhi becoming the Prime Minister, if a Congress led UPA front emerges as the biggest. Or else it could be toss between a Mamata Banerjee or a Mayawati or a Chandrasekhar Rao or any other leader depending upon how many seats they win, as part of a coalition which will be cobbled together post the elections. In all these cases, a leader of the party with 30-40 MPs would head the coalition of 10-15 parties with each party playing the “I am indispensable” card!

This Mahagathbandan where, parties will oppose each other in one state but will come together in another state is only a Maha”cut”bandhan who want their share of power and the perks that come with it. I believe that people are smart enough to understand and realise that Modi Sarkar might have disappointed but will still probably vote for him not because of TINA but being weary of TAIL – The Alternative Is Lousy!

In the past, we saw many Accidental Prime Ministers as we didn’t sight TAIL properly! Hope 2019 is different. On that hopeful note, wishing India a momentous 2019!

Cartoon courtesy: Satish Acharya

Our Tryst with GST* – * Conditions apply!!!

GST – The Good and Simple Tax, as our acronym lover PM touted during the launch on 30th June is finally a reality after almost 11 years of intense labour. This along with FDI in retail must count among the most awaited reforms in India by India observers.

So, the advent of a single tax which subsumes, at last count, some 17 different taxes and myriad cesses certainly must count as the single largest Tax reform undertaken in India. Not to forget the application of tax only on value added in the chain. Along with this simplification, the fact that goods from one state can pass thro different states without wait, harassment and accompanying corruption portend a new beginning for trade in our country. In the pre-GST era, logistics and warehousing strategy of companies have been dictated by tax compliance rather than supply chain considerations. In the sense, the number of warehouses and their size would be driven by billing point concerns rather than geographical spread of demand. In the GST era, warehousing will depend on supply and demand equations and not taxation points. And hence like in most developed countries, companies will get to run larger, integrated and fewer of warehouses. Development of more efficient logistics hubs, warehouse consolidation and ensuing FDI will become a reality soon. This is a new dawn for retail, supply chain and logistics industry.

So with all the seemingly obvious benefits of the GST regime, why is it that there is still some cynicism and negativity from different quarters about the move? Why is P. Chidambaram once the prime mover of GST when UPA was in power, cautioning all of us to “Get Set for Turbulence”? The GST in the current form is nowhere close to the one which was originally conceived. Rolling stones probably gather no moss. But a rolling GST gathered whole lot of moss on its way from the wisdom of empowered committees to standing committees to GST council. The current version of GST is a product of what I call “co-operative federal bullying”. The result is instead of the One Nation, One Market, One Tax premise, what we have is One Nation, One Market, One Tax name, 3 Sub Tax names, Multiple Rates, Few Exceptions, Some flexibilities and with an *. * – Conditions apply.

Being part of the GST council, the states in their own wisdom, ensured that we as a country don’t get away with a simplistic tax which may throw many Chartered Accountants out of jobs. However, I understand that without having a set of different GST rates (in some cases different rates for the same category as per user segments) or without excluding items like Petrol, Alcohol, Real estate,.. consensus could never have been built in getting GST off the ground. UPA’s failure to make GST a reality during their regime stems from this. So the choice before the centre was to accept what the states demand and bring about a not so ideal GST or wait endlessly for a few more years may be decades before some major economic crisis forces all concerned to come to an agreement on the ideal GST. From that point of view I agree with the stand taken by the Govt. to bring in GST in its present form with its shortcomings, with a hope of ringing in the changes in the coming years. Kudos are in order hence.

The Congress party which at every opportunity reminded us that the seeds for GST in India were sown by the UPA, however, chose to be petulance personified and boycotted the GST launch. While rubbishing the GST in its present form its main “anGST” against GST was that it is being rushed thro and should be delayed by 3 months till September. We all in India know that in our country whatever may be the preparatory time available, things get accomplished at the last minute. If we get more time, we stretch our deadlines accordingly. That if we have more time, we will be more prepared and can do trial runs before actual roll out,.. exists only in theory. Don’t we see in our Indian weddings, folks tying up some loose ends literally till the baraat arrives and continue to do so as the wedding is in progress?  Finally when the wedding gets over, its smiles all over.  So even after the GST roll out, there will be glitches, teething problems and surprises which I am sure we will find ways and means of getting over. Pushing back by another 3 months is not going to make things any different.

It must be commended that this Govt. stuck to the date of July 1. It would have been very easy for the PM and the Govt. to throw in the towel and put off the launch by a few months. But then, there are other implications. Come Oct. it is the peak festival and hence business season in India. Does It help if the roll out happens when India is in the midst of its biggest Annual economic cycle? Will it help if GST is launched in Jan. in the final quarter of the fiscal year???

The ruling party, the BJP counts traders as its important traditional support base for the party. That the party still decided to go ahead with the tax reform which professes maximum disruptions for this group is a significantly courageous move.  In India economic reforms have always been carried out under duress; when push comes to shove. The heralding of GST must be the 1st major economic reform brought in when not under any kind of stress but just to ease up things for the future. This certainly conjures up the arrival of Acche Din for our country.

Still our penchant for complicating things comes to the fore here as well.  Though the GST collections have to be shared between the state and the centre, could it not have been done at the back using technology rather than coming up with 3 variants like SGST, CGST and IGST??? Does the Anti-profiteering clause make sense? Will not competitive economics eventually drive pricing??

GST is indeed a Good and Simple Tax. So there is nothing like a good or better time to introduce the same. But, we should not forget that this is India and we are Indians. So, conditions apply.

#GST is done, now work on GST-II

Finally the GST (Goods & Services Tax) in India is done if not dusted yet after being in the works for a decade.  From a foreign investor perspective, GST and FDI in Multi-brand retail are the initiatives that bracket India as a perennial “Work in Progress” economy.  Now is the time I believe to give a crack on another GST – “Good & Smooth Traffic” that is.

Traffic 2

Consider the situation in all the key cities of India today. In Delhi/NCR as I personally experienced last week, it just took one shower for an hour or so to bring Gurgaon oops Gurugram on its knees.  From the Delhi airport to the end of Gurugram took me 4 hours on a week day evening that too when it was supposedly against the traffic. I was lucky. The subsequent days it took more than 6 hours I was told. The CM had to do an aerial survey to understand the gravity of the jam!

In Mumbai these days you have traffic jams everywhere. In the so called freeways, Expressways, main roads, arterial roads, streets, gallis,.. everywhere.  Yes, in the air too. Flights departing out of and landing into Mumbai post 6 pm are routinely delayed due to air traffic congestion! And as I found today, even supermarkets are not spared of mammoth traffic. The space between racks are choked with oversized trolleys and sea of people that negotiating your way out is worse than Mumbai roads. I see this routinely in the neighbourhood supermarkets every weekend and sometimes on weekdays even. (Based on this, one is inclined to believe that “Achhe Din” have indeed arrived for the Great Indian Middle Class!!!).  Year after year during monsoons in Mumbai, the city resembles a Moon’s surface. May be it rains potholes!! For the Aam admi, every day it is “one small step becoming a giant leap” (as the pot holes are so big, deep and wide). For the city of Mumbai, Niantic the company behind the latest craze in town – Pokemon Go is better advised to go with a modified version “Pothole Go” which could be a runaway hit but slowed by traffic jams.

Ease of commute to work has become the single biggest hygiene factor these days for candidates when they seek a job. So much so, recently in a job interview the candidate asked me if we would anytime shift the office from current location and if yes, will it be still in the vicinity!! It is completely understandable I guess. With commuting and whatsapping sapping a lot of one’s time these days, “me time or family time” is on the shrink.

In India’s Silicon Valley and IT capital, “going live today” has a different meaning these days which is – atleast moving ahead in traffic while on the road. In peak hours it doesn’t matter where you are going and from where. Couple of hours on the road is a given. Columnist and now MP Swapan Dasgupta once tweeted “The unending journey from the airport to anywhere in Bangalore…” I would replace the words “the Airport” to “anywhere” now. The city missed a few crucial years in development when IT was on fire. Today, it is facing the heat of that miss.

In Chennai, if the Govt. spends one tenth of the money the parties spend on posters on building flyovers over key junctions, the city will be a different place to live. I am told that a 30km stretch of OMR (Old Mahalipuram Road) has only 11 signals!!.  Besides the myriad engineering college buses and IT companies transport vehicles, you will be lucky if you get some space to move your humble two wheeler.

In all these cities, the common story is of exponential growth with infrastructure not keeping pace at all. More often than not, a project planned today with certain expected growth in traffic becomes obsolete by the time it is commissioned as it usually takes 3 times longer time than planned. A very good case in point is the Chembur-Santacruz Link road in Mumbai which was opened amidst much fanfare and talk of smoother East- West connectivity and how one can reach the airport from Ghatkopar in 15 mins. 3 years after commissioning its already bursting at the seams. And in all these cities, there is very limited scope for road widening or expansion anymore. So this naturally calls of holistic planning with alternative modes of transport (like Metro) and also project conception and execution today with 25 years hence traffic in mind.

Ease of Traffic which essentially means less time on commuting has to become a National charter now. It won’t be too far when along with Bijli, Sadak, Paani and Bandwidth – Roadwidth gets into the National discourse during elections. So from a political perspective as well, focusing on less traffic on roads will become a game changer in the future. And the party which appreciates that and works on the same gets to reap the dividend. So I urge that the present Govt. to start work on “GST-II” asap. Just like how the central govt has to work jointly with the states for a smooth roll out first and then implementation of the GST reform, on the traffic also the Central Govt. must work with the states to give this a high priority work to a plan in all the key cities.  And like how “One nation, One tax” is becoming a reality considering India’s highly complicated historical tax regime, “Single nation, Smooth traffic” will soon become the need of the hour if not it is already.

I am not sure if the Minister for Road Transport and Highways Nitin Gadkari’s children are politically inclined. I would presume so. If he starts work on this idea of a GST-II bill now, most likely it would become a reality during their time!!!

Sir, a Plus budget!!!

In India, come Feb, it’s time for the release of the mother of all blockbusters – “The Union Budget”. While even the blockbusters of the Khans are just in the vicinity of few 100 crores, this one flies in the space of thousands and hundreds of thousand crores. Isn’t it interesting, that the whole nation awaits with bated breath to find out how the Govt. of the day is going to spend “it’s collective” money in the next 1 year??? So too I was yesterday, when Arun Jaitley the Finance Minister rose oops sat down to present what I would think as one of the most significant budgets in recent years for our country.

budget

Since yesterday afternoon, we have been fed with hours and hours of programming in all current affairs channels with experts dissecting the budget. After having gone through these boiler plate stuff for so many years, I get a feeling that the reactions are mostly pre-determined irrespective of the content of the budget. As in, the verdict on the budget is along expected lines. Panelists from the ruling front sing panegyric paeans on the budget while those from the opposition usually sing the “disappointing” tune rather petulantly :(. Also for experts. For those with leanings towards the Govt. of the day, it is a transformational budget and for those in the other side of the divide it is “trashformational”!!! And for CII – any budget is a 9 on 10 budget!!! This satirical piece – Budget Criticism 101 from The Unrealtimes I feel is not a satire at all but the Annual reality 🙂 🙂 . So I thought why not analyse the budget through a normal aam admi prism devoid of any ideological/political tilt?

As a responsible tax paying citizen of the country, I look for the foll. In the budget:

  • Does the budget spell out initiatives which can fuel growth in the Indian economy? Overall Economic growth brings in investments, increases jobs for all, raises salaries,…,…
  • Is there any transformational/game changing idea (or is it Big Bang) which has longer term impact for the country? – Like De-licensing, Gram Sadak Yojana, Aadhaar, GST,…,…
  • India is notorious for its archaic regulations and laws. Is the Govt. doing anything to make life simpler for doing business – local or foreign?
  • What’s in it for the poorer sections of the people – which is still significantly big in our country?
  • Finally what are the signals being sent by the Govt. of the day?

Looking at the Modi-Jaitley budget from the above perspective, my sense is that they have presented a “Smart” budget. They know very well that the expectations of all sections of the people are very high and had to do the balancing act to appease everyone. At the same time, elbow space for tough decisions is only available in 2015 and 2016. Beyond that the Govt. gets into re-election mode.  It appears to me that, from whole lot of things they need to do (which they have promised) they clearly prioritized the ones which needed to be attended to in this budget. And put off a few for the future. And I feel that’s the way to go.

  • The budget indeed brings in focus back to economic growth without being apologetic about it. Focus on infrastructure, Corporate Tax cut, Job creation,.. signal that.
  • Though there are no new transformational ideas in this budget – to be fair to Modi – he didn’t wait for the budget to announce a few. Ideas like the Jan Dhan Yojana, Swachh Bharat Abhiyan and Make in India – all transformational ideas were kicked off last year itself. This is a welcome sign. Finally GST gets a final deadline.
  • Cleaning up gets a lot of attention. Whether it is Swachh Bharat, Clean Ganga or for that matter Black money cleansing!!!
  • The Universal Social security net for all Indians is an interesting initiative. That it is through the insurance route comes as a relief. Otherwise India could end up suffering like most of the European economies with very high long term liabilities.
  • The Govt. has clearly for this year atleast prioritized on domestic investors rather than foreign if one looks at the introduction of SETU fund …and no major FDI relaxations.
  • The pandering to salaried class interests with more income tax cuts or other gimmicks have been I guess postponed for years closer to 2019!!!
  • Again things like flowing money to Smart Cities, Digital India are on hold in this budget. Means could tap the private route for these initiatives or will be taken up in the coming years when tax collections are more buoyant with better economic growth.
  • I see a lot of critiques on the increase of Service tax rate from 12.6% to 14% which will overall shrink our wallets. But I think this is a clear attempt to prepare all of us for the introduction of GST which will be at a higher rate of may be 16%!

Any budget proposal will have its share of misses. And there were a few in this too. However overall, I think it is a Smart, Working, Balanced budget which sets the tone for the economy to grow in the coming years. Taking up a few important issues and implementing them is better than announcing a slew of initiatives and outlays and messing up the outcomes. So in that sense Sir, it is a Plus budget!!! And I guess the FM scored well if not a centum!!

Budget2

India has indeed reached a sweet spot. We must now be in a hurry to change its status from #WorkinProgress to #JustArrived!!!