How many of us know or take note of the fact that even after a year since demonetization there still remain some curbs on cash transactions. These may not affect the man on the street directly but they certainly hurt the small businessman, especially since the GST shock wave has hit the business class.
I was in conversation with a businessman friend over coffee and he told me, “Do you know that I am facing trouble over cash transactions like paying salaries and wages to my people even now?” When I asked him how, he said “As per the rules I cannot withdraw more than 2 lakhs of cash in one calendar month and cannot pay more than Rs. 10,000 per day to any one person in any one day”. He further went on to say that if he were to raise bills on his clients for goods or services, the tax component had to be deposited in time even if the payment was not received. “In my business, many workers and labourers only want their dues in cash and it has been that way for ages.”
The transition that requires huge numbers of lower rung skilled and unskilled labour classes to be educated and brought into the banking system is still a work in progress at best, so therefore the GST problem hits their paymasters hard. My friend pointed out that even though technically there was no financial loss to him to pay GST it was hurting him in the shorter term in running his business. There is no doubt that the application of GST was a disruptive economic move and that is precisely why several earlier governments, discussed, deliberated and even managed consensus on the issue but stopped short of actually unleashing it till now.
“This is a long-term structural measure which will yield us benefits over a period of time but the transition pain is immediate and short-term. It was a reform that was coveted by the country, including by businesses and economists, for the last 10 years.Is it bad to respond to difficulties being faced and make suitable changes? It's better to be flexible and give immediate relief to people. Unfortunately, the entire thing is criticised for the slightest problem. It's the same with the cricket team – it is glorified when it wins but the mood swings after just one loss. This is not the correct way to deal with it. For honest taxpayer there cannot be anything better than this because GST puts a premium on honesty. At the same time, it will make it very difficult for dishonest businessmen to evade taxes and that's why there is some opposition”, says Revenue secretary Hasmukh Adia. This after barely a few days since Yashwant Sinha put the cat among the pigeons with his Indian Express article.
Hasmukh Adhia has worked closely on the implementation of goods and service tax, which he says will deliver results in the long run. “Once there was political consensus on the Constitution Amendment Bill, the government did not lose any time in the GST Council, where the draft rules were discussed at length and all important issues were deliberated upon in detail before the framework was finalized”, He said in an interview to a popular business newspaper recently.
Early October, a report from Morgan Stanley came as a shot in the arm for the government which was under heavy fire from former FM's P. Chidambaram and Sinha among others.
Morgan Stanley expects digitisation will provide a boost of 50-75 bps to GDP growth and forecast that India will grow to a USD 6-trillion economy and achieve upper-middle income status by 2026-27.
"We expect India's real and nominal GDP growth to compound annually by 7.1 per cent and 11.2 per cent, respectively, over the coming decade," Morgan Stanley said in a research note.
Moreover, gross FDI inflows are expected to amount to $ 120 billion by 2026-27, almost double the current 12-month trailing run rate of $ 64 billion. The report noted that the impact of higher GDP growth is expected to get reflected in corporate earnings momentum. "We think India's stock market could be among the world's best performers in the next 10 years, leading to India's market cap rising from around $ 2 trillion to around $ 6 trillion," the report stated.
The debate rages on and the opposition sniffs an opportunity if the government fails to turn things around on the ground by 2019 elections. Watch this space…….
