Economy
Goods and Services Tax (GST), India: A Dangerous Domino

Government loves taxation; the citizens, justifiably, loathe it with a passion. Parting with one’s hard-earned money, which will be pressed towards lofty goals and unfeasible projects, hardly gets people’s cheers.
India is infamous for its Byzantine system of multiple taxes on consumption: value-added tax (VAT), Octroi, cess, excise duties, a hefty customs duty, and sales tax. In 2017, the Modi administration undertook the task to take to consummation a long-standing endeavor to subsume different taxes into a transparent, unevadable, convenient, nationwide, single tax.
And so they did! On July 1, 2017, Indian Prime Minister, Narendra Modi, rolled out the goods and services tax (GST) to replace all existing taxes at the central (federal), state, and local level. The new tax reform, a surrender of taxation powers by the states to the center, promised to mop up leakages in the tax collection under the old system and boost government revenues through collecting taxes at the consumer end, thus, casting a wider net to cover the massive informal economy of India.
The deal was bittersweet, as it led to the states losing autonomy to design their own tax systems, while on the other hand receiving assurances of a steady allocation in the tax revenues collected at the center.
The reception of GST was a mixed bag, with the opposing coalition in the legislature boycotting the rollout ceremony, political pundits and media gurus casting doubts on its success, rumor-mongering on social media, and a state of panic and doom in the minds of the citizenry.
Predictably, Prime Minister Modi, in his usual smug demeanor and insufferably professorial manner of speaking, at the launch event talked up the GST, drawing equivalencies between the tax reform and historic events like the Declaration of Independence and installation of the Constitution. A religious reference was thrown in for good measure.
GST isn’t a panacea for India’s economic ailments. Quite the contrary, it will raise difficulties that could undercut free market principles, choke small-scale enterprises, stifle entrepreneurship, and throw cold water on industrialization in India.
GST subtly affects the feedback mechanism in the political governance of a federal republic like India. As the new tax elbows out scores of made-to-order and customizable tax systems of different states and union territories, it concentrates much of the economic decision-making in the hands of the central government, thus, widening the messaging gap between the citizens and the representatives.
It will be near impossible for the states to influence demand and consumption of goods and services through changing the tax rate. Also, a steady flow of tax revenues from the center to the states will make the latter less cognizant of people’s feedback on public goods, resulting in poor services.
It seems like India’s bureaucratic boffins threw the merits of diversity to the wind, a tenet that is peddled out every once in a while to hold together the fractious society. Diversity in taxation across state lines creates a competitive economic environment in which state heads have to work to attract businesses. For businesses, especially startups, there is a wide range of options to pick from.
States, as a result, function as laboratories where different economic policies play out and the ones that produce a business friendly environment and steady growth are duplicated elsewhere.
A single, centralized tax system undercuts the economic diversity and disables competition and free markets, something that developing nations ought to get hold of, if they are earnest about progress and growth.
Under GST, the definition of small and medium enterprises (SMEs), based on turnover, has been narrowed, thus, expelling many SMEs from the tax benefit cover. SMEs form the dominant share of most OECD economies around the world, where they are responsible for job creation, innovation, and becoming indispensable links in the supply chains of larger firms.
This cannot be any truer for an economy like India, where the informal sector makes for a substantial share of the GDP and employs a large number of semi-skilled and unskilled workers.
Despite being hailed as a transparent and streamlined tax system, the implementation of GST means that employers will have to go through a steep learning curve, trying to learn the ropes of the new system. Not only does this present an opportunity cost (a one-off), it is touted that legal compliance will cost business owners a substantial sum of money, raising overhead costs. While this tradeoff is favorable for big businesses, it is a cause for concern for SMEs.
While Narendra Modi, the darling of the educated youth of India, promised oodles of progress, prosperity, and ‘happy days’; the tax schedule of GST seems to be telling a slightly different, and perhaps, an insidious story.
According to Piruz Khambatta, Chairman at the Indian Industries’ National Committee of Food Processing, per the GST tax schedule, the tax rate on processed (canned and bottled) produce is higher than that on un-branded, loosely-sold fresh produce.
This can have a dis-incentivizing effect on mass-produced, processed food, in turn discouraging industrialization, innovation, and establishment of food hygiene standards. Also, mass produced goods tend to be uniform, cheap, and abundant. An over reliance on goods produced through a non-industrialized informal sector, despite resulting in job creation, could over time, hold back industrialization and technological advancement.
Another example of such glaring incoherency is illustrated by a comparison of tax rates on items listed under serial numbers 24 and 25 of the schedule. In an incredible move, machinery used in agriculture, horticulture, forestry, apiculture, and poultry farming is taxed at 5% and 12%, while miscellaneous items used in Hindu religious ceremonies are tax-free. It’s almost as if religious pandering has taken precedence over mechanization of key sectors of economy.
Without belaboring the above point, it merits noting that low-demand, artisanal, non-mechanized industries like ‘khadi’* are also given a tax break, while mass produced cotton goods are taxed at 5%.
This pandering to religious and anti-colonial, nationalistic sentiments, a classic example of third-world politics, flies in the face of the ‘progress, prosperity, and happy days’ narrative from Modi’s campaign trail.
In essence, unwittingly or otherwise, GST seems to be a potential quagmire, delivering questionable amounts of economically-sound nuggets, but served with generous portions of feel-good, religious nationalism.
‘Good days will surely come.’ Hunker down for turbulence and retrogression.
* a variety of home-made Indian yarn, which during colonial times, symbolized dissidence towards British effort to dump cheap, mass-produced English yarn/thread in Indian markets, while dismantling the domestic yarn industry.
Economy
Women’s mobility must be a key focus in urban policy

Historically, cities across the world have been designed to fit the needs of able-bodied men, or a neutral, often male, user. Yet, cities are experienced differently by men and women. Women and girls find their access to employment, education, care services and even leisure is constrained when urban mobility systems and public spaces are not safe and inclusive.
Across Indian cities, studies show that concerns about commuting safely during the late evening hours or beyond a particular radius are among the biggest barriers to girls and women going to school, college and work. For instance, a 2020 study in Bengaluru showed that only 2% of women commuters surveyed made journeys after 9 pm. Barriers to mobility can thus thwart women’s long-term aspirations, eroding their financial independence and agency. The threat of sexual harassment deters women from stepping out. For instance, a 2017 study in Delhi showed that women were willing to travel for 27 minutes more each day to take a route that was perceived to be safer. It will thus be important to devise strategies to prevent and penalise sexual harassment in public spaces.
Typically, women travel shorter distances at off-peak hours, and make chained trips, frequently changing between transport modes to complete multiple tasks, balancing domestic errands and employment. Systems are, therefore, needed to collect and analyse gender-disaggregated data to understand women’s mobility patterns and design public transport services accordingly.
It was after the Mumbai Railway Vikas Corporation, working with the World Bank, conducted a detailed study of mobility patterns on suburban trains, that it identified women’s safety as a key priority and devised solutions to make platforms, stations, and trains safer for women. These activities sought to do more than just introduce women-only trains — the Ladies Specials — by addressing the fundamental design of the infrastructure to make it more women-friendly.
Hiring more female staff can make travel safer. In Kochi, for instance, 80% of the metro staff are women, working as station managers, train drivers, ticket vendors, and cleaning staff. Similar initiatives can be taken by other bus and rail agencies to enhance safety.
What’s more, since deep-rooted social norms restrict women’s movement outside their homes, local communities need to be brought on board as partners to help shift the norms around women’s mobility. A number of community-based organisations have been working across cities such as Delhi, Gurugram, and Pune to sensitise communities; they also provide gender sensitisation training for frontline public transport workers.
Under the Nirbhaya Fund, the Centre provides valuable resources to states and central ministries to implement solutions for enhancing women’s safety. Since 2015, eight cities (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad and Lucknow) have used these funds to identify hotspots for crime, enhance police capacity for investigating crimes against women and establish one-stop centres for violence survivors.
Moving a step further, the Greater Chennai Corporation established a Gender and Policy Lab, which will support the government of Tamil Nadu in implementing projects under the Nirbhaya Fund to create safer public spaces in the city. An assessment to understand gender differences in mobility was carried out, alongside a safety audit, in Tondiarpet in north Chennai. Installation of CCTV cameras and panic buttons in city buses is also underway, with Chennai’s Metropolitan Transport Corporation establishing a command-and-control centre to monitor incidents of harassment.
Our experience in Chennai and Mumbai, and other cities globally, shows that addressing gender concerns in urban mobility and public spaces requires long-term commitment from multiple stakeholders, with solutions aimed at addressing deep-rooted issues.
Drawing lessons from international best practices and project experiences in India, the World Bank has developed a toolkit for the Indian context, which both government and private agencies can use to make cities safer and more inclusive of women.
The toolkit outlines a four-pillar approach: First, assess the ground situation to understand gender-disaggregated mobility patterns and undertake safety audits; second, strengthen policies with a focus on fare policies and grievance redressal for sexual harassment; third, build capacity and raise awareness both within government agencies and through partnerships with community-based organisations; and fourth, improve infrastructure and services with a special emphasis on women’s safety and inclusion.
Making cities safer can ensure that women and girls have choices — they can choose to stay longer in the office, go to better educational institutions, and even have a wider array of entrepreneurship opportunities — all of which will help increase female labour force participation and, in turn, boost economic performance in India.
This Opinion piece first appeared in Hindustan Times, via World Bank
Economy
The Persian Gulf-Black Sea Corridor: Why should India consider an alternative getaway?

Recently Armenian has suggested the creation of a corridor linking the Persian Gulf and the Black Sea to facilitate trade between India, Russia, and Europe. On March 3rd, 2023, a delegation of high-ranking officials and experts from Armenia proposed the idea of creating a corridor linking the Persian Gulf and the Black Sea while visiting India. This suggestion came from the visit of Armenia’s foreign minister Mr. Ararat Mizoyan to India; he has suggested the creation of an alternative trade Corridor that will operate alongside the International North-South Transport Corridor(INSTC) to establish a trade link between Mumbai and Bandarabas Seaport in Iran and then proceed to Armenia and further on to Europe or Russia. This alternative route’s main objective is to bypass Azerbaijan because Azerbaijan has closer ties with Turkey and Pakistan, so Armenia is asking for India’s support and financial assistance. India and Armenia both have a very cold relationship with Turkey and Pakistan. Historically, Turkey has been the closest ally of Azerbaijan and supports Azerbaijan in the Nagarno-Karabakh dispute. Azerbaijan also has close diplomatic relations with Pakistan, and Pakistan also supports Azerbaijan in the Karabakh dispute, and in return, Azerbaijan backed Pakistan’s narrative on the Kashmir Issue. Azerbaijan has entered into defense cooperation and shown interest in incorporating JF-17 Thunder fighter aircraft jointly developed by China and Pakistan. Periodically participated in joint military exercises bilaterally and multilaterally. Azerbaijan has repeatedly supported the Kashmir issue on Pakistan’s position and criticized the India-Armenia defense deal on PINAKA multi-barrel rocket launchers, anti-tank munitions, and a wide range of ammunitions and warlike stores worth US $250 million to the Armenian Forse. India has overtly positioned itself on Armenia’s side in the Nagorno-Karabakh conflict and has consequently opted to resist Azerbaijan and its supporter, including Pakistan and Turkey, over the Kashmir issue and Turkey’s imperial aim of establishing a pan-Turkic empire, governed from Ankara. These factors created a lack of warmth in India-Azerbaijan’s political relations. Thus, India and Armenia both the country have some sets of issues with Azerbaijan as well as Turkey. Armenia’s relationship with India has been growing steadily due to defense exports in recent times.
Historically Armenia shares strong political and business ties with Iran. Both countries share a 35-kilometer-long border that runs along the northern edge of Iran. Iran’s foreign policy towards South Caucasus is very pragmatist in the case of Armenia and Azerbaijan. The conflict between Muslim-majority Azerbaijan and Christian-majority Armenia is viewed differently by Iran, which supports Armenia rather than Shia-majority Azerbaijan. India also maintains a strong relationship with Iran. For India, Iran plays an important role in its connectivity projects to link Central Asia and Europe. India also invested in Iran’s Chabahar Port to develop a transit hub that will benefit Indian trade reaching Europe, bypassing Suez Canal. Chabahar Port holds strategic importance for India, mainly because it is the direct competition with Chinese operated Gwadar Port in Pakistan, situated in the Arabian Sea, which is an important part of China Pakistan Economic Corridor(CPEC).
Armenia is seeking Indian Investments for the corridor within Armenian territory in light of the ongoing Russia-Ukraine conflict. The Indian investment could also facilitate the development of other regional projects like the International North-South Transport Corridor (INSTC) and put India on the map of Central Asian transport with links to Europe and Russia. India’s trade with Russia has substantially increased through the INSTC, which provides a trade link between Mumbai and Russia via Iran and the Caspian Sea. Azerbaijan plays a vital role in the INSTC mainly because of its geographical location and connectivity links with Iran. However, Azerbaijan has been slow in developing infrastructure projects under INSTC.
With the ongoing cold war between Russia and the West, any large-scale cargo transit passing through the Russia Europe border looks too risky for international Logistics and Insurance companies. Armenia intends to initiate a discussion with India to explore the possibility of Indian companies’ involvement and funding of the Persian Gulf Black Sea Corridor project. Armenia doesn’t have direct access to the Black Sea, which means Goods have to be further transported to Georgia. Only then can reach Europe and Russia. Armenia recognizes the need for Indian traders to do business with Europe, so they have proposed this idea to the Indian government.
The proposed Persian Gulf Black Sea Corridor aligns with India’s objective of seeking new trade routes to Europe that avoid the Suez canal, significantly reducing transportation costs and time. This corridor which will link Iran and Georgia via Armenia also reduces the risk of sanctions for India moving to Europe from the West because of ongoing West and Russian hostility. It will boost the confidence of the Indian Treadres and will be beneficial for the Indian economy.
In this sense, the Persian Gulf-Black Sea project has a reasonable cause. However, the question is, why would Iran agree to launch a multimodal corridor through territories with proven issues when it can reach the Black Sea via Turkey? Iran and Turkey have a conflict of interest in this case. Their relations have been tense lately since Turkey informally blocks Iran from using its rail routes to reach Europe. The root of this problem is situated within between Armenia-Azerbaijan conflict. The cold relations between Iran and Turkey are one of the main reasons behind the stagnation of the INSTC. Iran is closer to cooperating with Armenia, while Turkey backs Azerbaijan. The conflict in Nagorno-Karabakh has the greatest impact on the issue. Turkey is a key stakeholder in the conflicts and empowers Azerbaijan to overcome Armenia and block the Iran-Armenia border. If Iran eliminates Turkey, then Iran only has two options to reach the Black Sea: pass through Armenia or Azerbaijan via Georgia. Georgia has existing railway and highway connections with both Armenian and Azerbaijan, and Azerbaijan has a railroad reaching the Iran-Azerbaijan border, but the problem is there is no direct Railway connection that connects Iran to the Black Sea via Armenia.
On the other hand, Iran and Azerbaijan also working on a 165-kilometer Railway section of the Rashtra-Astra line, which is missing a link to connect the Azerbaijani and Iranian Railways. The railway line will connect the city of Rasht, the capital of Gilan province, with the city of Astra, located on the border with Azerbaijan. This Railway link is part of the International North-South Transport Corridor, which aims to provide a more efficient trade route between India, Iran, the Caucasus, and Russia. Recently in January 2023, Russia and Iran agreed to fund the construction of this Missing Link. But the project completion is in question because of the ongoing cold war between Russia and the west.
For India, INSTC is more than enough to trade only with Russia, Iran, and the caucus region, but India also wants to trade with Europe to throw an alternative route and not via Suez Canal. Thus, the Armenian government is proposing to the Indian government. If India uses the Russian route to reach Europe via Iran through the Caspian Sea, then it has more chances of getting sanctioned from this Black Sea Corridor will reduce the chances of getting sanctioned by West. However, this alternative trade route involves two countries, Armenia and Georgia, which is calling for heavy infrastructure Investments. However, there can be several potential negative sites to investing in infrastructure projects in other countries, such as political and economic risks, cultural and Social Challenges, legal and Regulatory issues, Financial risks, and geopolitical risks, so it is going to be a tough call for India nevertheless opportunities are there, but nothing is risk-free. Currently, it is a proposal by the Armenian government, we have to see how the Indian government will respond.
Economy
The Role of Asian Infrastructure Investment Bank For Developing Countries

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank that was established in 2016 with the aim of financing infrastructure projects in Asia and promoting regional economic integration.
The idea for the AIIB was first proposed by China in 2013, as a response to what it saw as a lack of representation in existing international financial institutions such as the World Bank and the International Monetary Fund (IMF). China believed that these institutions were dominated by developed countries and did not adequately address the needs of developing countries, particularly in Asia.
To address this perceived imbalance, China initiated the creation of the AIIB, which would be open to all countries in the region and would prioritize funding for infrastructure projects. The bank was formally launched in January 2016 with 57 founding members, including many Asian countries, as well as Australia, Germany, and the United Kingdom.
One of the main advantages of the AIIB’s creation is the increased availability of funding for infrastructure projects in Asia. The bank has a capital base of $100 billion, with over 90 percent of this contributed by Asian countries. This funding can be used for a variety of projects, including transport, energy, telecommunications, and water supply.
Another advantage of the AIIB is that it offers an alternative source of financing for developing countries in the region. In the past, many of these countries have relied on loans from Western-dominated institutions like the World Bank and IMF, which have been criticized for imposing strict conditions on borrowers and for promoting policies that prioritize the interests of developed countries. The AIIB, by contrast, has promised to be more flexible and to work closely with borrowers to ensure that projects are aligned with their development priorities.
AIIB creation is considered as a major power move. Its implications should be viewed through the prism of relationship between global finance and sovereign states. Moreover, power as a goal is prevalent and traditional in the strategic thinking in the policy of communities throughout East Asia[1].
China became powerful and this means it has the capacity to direct the decisions and actions of others and implement its policy [Freeman 1997]. Chinese government showed its ability to marshal necessary resources to establish China-led international organization, which was its goal because Beijing doesn’t have enough influence in the World Bank, ADB and IMF.
According to the Comprehensive National Power (综合国力) indicator, used by the Chinese government, now China is the second strongest state in the world[2]. The creation of international financial organization has always been the hegemon’s prerogative. Thus, such China’s move reflects the tendency that global balance of power is changing not in favor of the USA.
Australian scientist and representative of the English School of International Relations Hedley Bull defined international order as ‘a pattern of activity that sustains the elementary of primary goals of the society of states, or international society’ [Bull 1987]. Institutions change the global balance of power and, in turn, influence the international order. AIIB’s appearance increases China’s impact in Asia. Therefore, growing Chinese financial power is accepted as a challenge by current status quo powers as the USA and Japan – both don’t want to change the rules of the game in Asia at the moment.
Even if, from the Chinese point of view, it is supposed to be natural. Asian international order existed long time ago and was led by China. It’s obvious that Beijing has a strong sense of entitlement to be a regional leader again. It considers the contemporary Chinese presence in the international order, established after World War Two, as not adequate to current China’s elevated position in the global economy. [门洪华 2016].
The main consequences of the AIIB’s establishment for China are its increased international influence and progress in its efforts to manage domestic economic challenges. The USA and its Asian allies are disinclined to accept AIIB as one more additional puzzle to the global financial system alongside with other MDBs, that’s why they perceive it as a threat to their current geopolitical position. However, if there had been some attempts from the Obama administration to stop or slow down the establishment of the AIIB, they didn’t succeed and this was precisely articulated by Evan Feigenbaum, a former State Department official in the George W. Bush Administration: “The U.S. attempt to halt or marginalize the AIIB failed miserably”[3].
Additionally, it should be noted that AIIB’s creation led to one more economic implication – preparing grounds for possible future internationalization of Yuan[4].
China still is in the “dollar trap”: on the one hand, it has to continue buying the US Treasury securities because USD huge reserves accumulated by China are devaluating due to the quantitative easing monetary policy conducted by the Fed (The Federal Reserve System)[5]. A violent despeciation of the USD can lead to huge losses to China. On the other hand, at the moment China can’t borrow in its own currency, therefore, it is vulnerable to the balance of payment crises [Lai 2015]. Chinese currency internationalization may be a way to deal with those hurdles.
Firstly, internationalized Yuan should improve the globalization process and this intention was stated in the 14th Five-Year Plan (2021-2025). It will hasten the trade between China and the world, reduce transactions costs and risks of cross-border exchanges, settle payments, denominate financial assets and become the reserve currency for foreign central banks. Secondly, it will give China a seigniorage – the ability to issue Yuan to other countries in exchange for real goods and to lend Chinese currency abroad at low rates. The increased international demand for Yuan for trade invoicing and settlement will keep the interest rates low. Thirdly, once Yuan is internationalized, Chinese companies will be able to borrow internationally in their own currency – this will reduce the risk of businesses’ bankruptcy amid the possible sharp depreciation of Yuan [Huang and Lynch 2013].
The economic troubles and widespread bankruptcies in Asian countries during 1997-1998 Financial Crisis were mainly caused by the currency mismatch, when the companies were unable to cover their debts issued in foreign, not domestic, currency[6].
China has been already giving loans in Yuan and using its currency for the international trade settlements, for example, partly with Russia. Beijing would like other countries to peg their currencies to Yuan. However, China sees the Yuan internationalization as a long process according to Hu Xiaolian (胡晓炼) – the Chairman of Export-Import Bank of China[7]. She stressed that Chinese currency internationalization wouldn’t be a confrontation weapon.
Nowadays AIIB provides loans in the USD, but in the near future it may lend in Yuan as well – and this will come in accordance with the national economic development blueprint.
The creation of the AIIB reflects China’s growing economic and financial power, as well as its desire to increase its influence in Asia and on the global stage. This move challenges the current status quo powers, such as the USA and Japan, who are reluctant to accept the AIIB as a new addition to the global financial system. However, the establishment of the AIIB also has economic implications, as it may pave the way for the future internationalization of the Yuan. This could help China deal with its domestic economic challenges, such as the need to borrow in its own currency and reduce its vulnerability to balance of payment crises. The internationalization of the Yuan could also improve the globalization process, give China a seigniorage, and reduce the risk of businesses’ bankruptcy. Nevertheless, Chinese officials have emphasized that the Yuan internationalization is a long process and not intended as a confrontation weapon.
The AIIB represents an important development in the international financial landscape, providing much-needed funding for infrastructure projects in Asia and offering an alternative source of financing for developing countries in the region. While concerns about the bank’s governance and China’s influence remain, the AIIB has taken steps to address these issues and has the potential to play a positive role in promoting economic development and integration in Asia.
[1] Evelyn Goh, “Great Powers and Hierarchical Order in Southeast Asia: Analyzing Regional Security Strategies”, International Security, Vol. 32, No. 3, 2008, pp. 113-157
[2] 大国兴衰与中国机遇:国家综合国力评估, 海外生活,available at: https://m.juwai.com/news/225747
[3] Evan Feigenbaum, “China and the World,” Foreign Affairs, January/February 2017
[4] Wang Da, “Chinese consideration and global significance of the AIIB”, Northeast Asia Forum, No. 03, 48–64, 2015
[5] Paul Krugman, “China’s Dollar Trap”, The New York Times, 2009, available at: https://www.nytimes.com/2009/04/03/opinion/03krugman.html
[6] Peterson Institute for International Economics, available at: https://www.piie.com/publications/chapters_preview/373/2iie3608.pdf
[7] 进出口银行胡晓炼:不能把人民币国际化当成国际对抗的武器, available at: https://finance.sina.com.cn/roll/2021-06-11/doc-ikqcfnca0417359.shtml
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