World Trade recovers but India's exports suffers! Thanks to GST
TIOL - COB( WEB) - 573
SEPTEMBER 28, 2017
By Shailendra Kumar, Founder Editor
WHAT was initially thought in the corridors of power, not only at the Centre but also the States, to be a storm in the tea cup, has turned out to be a large bowl of economic woes for the economy as a whole. The GSTN minor problems have left behind by miles even the 'MAJOR' if it can be given any acceptable definition. And these MAJOR problems have come to be branded as 'teething troubles' leading to serious 'bites' not only into the purse of the Exchequer but also Exporters and a large variety of GST taxpayers. Before I discuss at length about the kinds of problems the taxpayers have been confronting at the hands of the GSTN, what may amount to a much more serious setback for India's GDP is a projected sharp decline in India's exports vis-a-vis a sudden surge in the international trade volume.
As per the WTO's latest forecasts, the growth in world merchandise trade volume is likely to be 3.6% from the earlier estimate of 2.4% in 2017. This is a substantial improvement over the lacklustre 1.3% growth in 2016. And such a projection has come from the recovery of the world GDP growth from 2.3% in 2016 to 2.8% in 2017. And the major boosters have come from China, the USA, the OECD areas and others which have recorded marked improvement in their quarter-to-quarter growth projections.
In this background, it would be highly despairing if India misses the bus of global trade recovery. A close look at India's GDP data indicates that India's exports accounted for about 7% in 1991 and rose to about 25% in 2013-14. However, the reinforced recession in the global trade cycle led to continuous decline in India's exports. It did recover in the pre-GST period and ensured double-digit growth in August. But, post-GST implementation, exports has suffered a serious blow and exporters appear to be pleading for Darwinian tricks to survive through the GST-driven hard times. What is worse for the GDP is that the share of exports has tumbled down to below 20% which is scary and a tangible sign of not only a slowdown but also erosion of millions of jobs. What a sad commentary on an economy which was globally acknowledged as one of the twin engines of world GDP recovery efforts. Nonetheless, China continues to be a reliable growth engine.
In this backdrop, exporters' meeting with the Union Finance Minister, Mr Arun Jaitley, today assumes great significance. I am sure Mr Jaitley is aware of the fast-emaciating export order book which is down by above 20% as compared to previous years. Christmas is the peak time for exporters, and with the recovery in the global trade, the order book should have been spilling over. But, exporters have genuinely suffered serious working capital crunch which was largely being feared by the industry and trade. As per some estimates, it is over 70,000 crore refund for the past few months and the Government must find a way out to disburse this amount as fast as possible. A good number of LCs stand cancelled as small exporters have communicated to their importers that they may not be able to meet the deadline. Since many of them had to borrow funds to pay IGST before they collect their refunds, the GSTN experiment has let the Govt down. I have been consistently insisting and forewarning the Government that there should be PLAN B if the GSTN fails. But, it is a case of over-reliance on commitments given by a few GSTN officials who now find that the things are beyond their control.
It is indeed heartening that the Finance Minister stands fully sensitised and has advanced the GST Council meeting through video conferencing to October 6 and a quick solution may be announced to the satisfaction of at least the exporting community. One reason for above 70% exporters now opting for the Drawback system in place of IGST is the much quicker disbursal. Let's hope the GST Council does not let down the economy which appears to be rapidly contracting for two reasons - decline in exports and mortal blow to small businesses. Even under the heading Exports, services exports calls for differential treatment as it is being subjected to additional bout of compliances slowing down its delivery. For small businesses, the the Prime Minister yesterday asked the State Chief Secretaries in his interaction through PRAGATI to hand-hold small traders and business to join the GST bandwagon so that they could take advantage of new business opportunities. But such appeals alone would not lessen the pain of small businesses which need a different set of treatments in the GST law itself.
One good indication which has come from the Bihar Deputy Chief Minister, Mr Sushil Kumar Modi, is that the GST Council is now mulling over a staggered time schedule for return-filing by different types of assessees. I had suggested in this Column that such an approach would not only help the GSTN and the Exchequers but also the taxpayers and their consultants who have the chronic habit of doing the needful only on the last day. The GSTN latest hourly figures clearly establish such a trend. It would be in the interest of the Centre and the States that different dates must be notified for large, medium and small taxpayers.
As regards the revenue mopped up in the past two months, avoidable speculation is rife that the GST may adversely impact the fiscal deficit targets of the Centre. The GST is a kind of system which would certainly garner more revenue but it has its own inherent stabilisation period. Since it is a compliance based system and also an IT-based system, it required much detailed planning and pilot tests. Since the GSTN was not given enough time for the pilot run, it conked off as expected. But what may surprise its close watchers is the very basic nature of problems faced by the taxpayers. Some of the problems are related to taxpayers' data migrated from the earlier regime; applications being stuck as pending for verification; Aadhaar validation error; PAN validation error as CBDT service was not available; GSP-related issues; Application defect and GSTR-related issues. Mr Sushil Modi-headed Task Force is closely monitoring the problem-fixing efforts and hopefully, the GSTN would be up and running by October-end. But, the GST Council necessarily needs to REVIEW the Business Processes and the invoice matching may be deferred till the time the GSTN System and applications stabilise. Given the gigantic size of the reform and billions of invoices and other data being uploaded, the GST Council needs to demonstrate much higher index of Gandhian patience to plug all the revenue leakages rather than causing prolonged disruptions in the economy.
The fact that only 37 lakh taxpayers have filed their returns in August, any revenue figure of above Rs 90,000 crore is a bumper collection. In days to come, a good number of the remaining taxpayers would be doing the needful and more revenue would come. A few lakhs returns I guess, must be stuck because a good number of taxpayers may have decided to rest with the 'Submit' button rather than the 'FILED' button. Since the GSTN applications are designed to create LOGS at every stage of return-filing (a king of safety valve), it also makes the system slow and tardy and that seems to be forcing the taxpayers to run out of patience. A little tweaking and fine-tuning with a staggered time schedule for return-filing will certainly do the trick for the Government.
Before I conclude I would like to remind the critical GST hands at the Centre and also the States that it would be desirable to re-launch the 'Master Class' to familiarise the exporters about the various IGST related and GSTN related processes and any solution which may be worked out shortly, by the GST Council. This would help not only the exporters but also GST Commissionerates in doing the needful faster. Secondly, it is also advisable for the States not to rush into the enforcement of various Rules as taxpayers who are struggling to cope with return-filing and tax payments, can always be persuaded to comply with other rules. For instance, Maharashtra has last Monday issued a Trade Circular threatening taxpayers with penalty if they fail to display their GSTIN outside their shops and offices. Such rules existed even in the past and even the Companies Act 2013 insists on displaying the CIN but there is not much awareness about it and that is why a good number of business entities do not do it. They certainly do intend to comply with such rules. But, there has to be a hierarchy of priorities and enforcement of such minor rules may wait for some time. I am hopeful that the GST rail engine would soon be back on track and all the stake-holders would be happy again by the year-end!