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

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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.

An ex-dentist and a business graduate who is greatly influenced by American conservatism and western values. Having born and brought up in a non-western, third world country, he provides an ‘outside-in’ view on western values. As a budding writer and analyst, he is very much stoked about western culture and looks forward to expound and learn more. Mr. Malkar receives correspondence at saurabh.malkar[at]gmail.com. To read his 140-character commentary on Twitter, follow him at @saurabh_malkar

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Economy

Gender-based violence in Bangladesh: Economic Implications

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Violence against women is one of the most heinous crimes perpetrated in today’s   world. However, despite the gravity of the violence perpetrated against women, it is still the pervading reality in the world. Bangladesh is also afflicted with this malaise of violence against women which is manifested in the deluge of news across the media about the violence against women in various  form .While Bangladesh has made commendable strides in the economic front, the  perennial subjugation of the women who account  for virtually half of its population remains a hurdle. Against this backdrop, this article investigates the economic toll incurred to the economy owing to the entrenched culture of systemic violence in our country.

Women constitute nearly half of the population of Bangladesh. As such, their innate potentials have considerable bearing on the socio-economic progress of the country. Admittedly, advancement of a country in socio-cultural indicators presupposes the simultaneous improvement of  women from the subjugated position culturally attributed to them. It is impossible  to envisage a prosperous thriving economy without the contribution and participation of the women equally. Therefore, the lack of women’s participation commensurate with their capabilities   hinders the development of the country.

One of the obstacles women confront in their journey of transforming into human capital is perhaps the retrograde views that society harbor about the traditional gender role of the women which fetter their contribution to the economy and society by bestowing them only  the  circumscribed role of  looking after the domestic affairs and rearing and educating child. The pastoral as well as urban culture   perpetuate these traditional gender roles and deny women a free rein over their fate. Whenever  women   disavow the preordained and predictable roles  provided by the society, they  have  to face mounting pressure from society so as to conform to the prevailing norms .Failing to  conform to the  regressive gender role will spell grave consequences for the women .When the society fails to cower the woman with the threats that are at its disposal ,it resort to the egregious path of violence. While   violence against women is one of the most reprehensible crime one can ever commit, it however is normalized through a power dynamics that  reinforces the overbearing male role and relegate women to the subjugation. Therefore, the culture of violence against women isn’t anomalous rather is embedded in the prevailing  patriarchal power dynamics which deem chastising women for their  rebellious attitude is solicited and  invoke often contrived and distorted religious edicts in order to legitimize their deplorable crime. Moreover, the culture of violence against women which has been  aptly termed as a epidemic by the United Nations  is rooted in the prevailing socio-economic  structure of the country that  systematically condone the browbeating of women into submission to patriarchal  norms and wield violent measures when the woman stubbornly gainsay their patriarchal hegemony.

While the social, cultural and health toll of the violence perpetrated against women is undoubtedly strenuous, the economic losses incurred by the violence and the opportunities nipped in the bud owing to violence against women also need to be taken into account in order to the adequately discern the deleterious ramifications of the violence against women .However, despite profound economic toll that are inflicted due to the violence against women, it is still unaddressed in the economic literature worldwide and discussion and cognizance about this momentous issue and its economic implications still scant.

As has been mentioned earlier, women constitute the lynchpin of the economy of Bangladesh which has been adequately manifested in the participation of women in Bangladesh’s much-heralded RMG sector and other productive sectors. However, this success of the economy   overshadows the plight and perils  this working class women confront in their bid to become economically productive. The violence against women is systemically entrenched in the country and women’s engagement in the economic activities are frowned upon by the society and culture .Therefore ,the this patriarchal fetter women behind the door of their  houses  and worst women are inflicted  physical and mental violence in event of questioning the dictates of the elders and the male custodians. Therefore , the fundamental impact of violence against women on the economy of the country related to the untapped opportunities due to the constrains imposed by the patriarchal society on women under the pretext of social, religious and cultural norm. This threat alone or normalization of the gender role of the women as a care-giver hinder women in taking part in the economy on a par with their male counterparts  .

Beside the lost  opportunities that can be tapped, the violence against women has numerous other implications on the economy. Firstly, the violence against women inevitably  results in the physical damage and mental trauma of the victim which has enduring toll on her. Therefore ,violence against women translate to toll on the health of the victim and therefore the cost incurred on the victim due to medical fees  as a result of the violence is also included in the economic cost of violence against women. Secondly, the violence against women also leads to diminished productivity of the victim due to the health hazards. Therefore, violence against women has implicit economic cost on the economy as a result of the lost productivity.

Thirdly,the cycle of the violence against women negatively sensitize women in not challenging the sacrosanct patriarchal norms and therefore women fit themselves with the prevailing adverse society and they themselves reproduce and reinforce these norms .Therefore, a vicious cycle set in which prevents women to actualize their potential and stymie them in their path of realizing their goal .This result a sense of apathy in women with regards to education and other means of social mobility and they deliberately avoid the economically productive activities that are deemed taboo by the prevailing social norms and cultural ethos.

Moreover, violence against women is an egregious form of crime perpetrated by a   patriarchal agent while the society has entrenched roles, norms and ethos that condone and encourage such outrageous violence .Moreover, a vicious cycle is at play in the gender based violence. The economic repercussions of the violence committed against women is considerable. Violence against women hinder the development  of the women commensurate with their inherent potential which nip the dreams of women in the bud. Besides, gender based violence also deter women in challenging the prevailing patriarchal norms and undertaking productive economic activities that are frowned by the patriarchal society and are deemed taboo. Moreover, a widespread sensitization in societal level as well as a drastic  overhaul of the patriarchal structure is necessary in order to avert the adverse socio-economic consequences of gender-based violence and extirpate the heinous root of this deplorable crime.

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Economy

Omicron Variant: Implications on Global Economy

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The prolonged battering of the Covid-19 has been considerably hitting the world economy. While vaccination and a receding in the cases of the cases in virus transmission has provided   brief respite to   the countries that are grappling with the recurring surge of the virus, the resurfacing of another virulent   mutation termed as  Omicron sounds ominous for the future of the world economy .Against this backdrop, this article projects the plausible economic ramifications of the new strand of the virus on the global economy.

The economic downward trajectory occasioned by the Covid-19 has been unprecedented in recent global history. While the economic depression of 2007-08 proved disastrous for the world economy, the toll   emanating from Covid-19 pandemic and consequent   economic stagnation has surpassed all the previous   economic plunge .In fact, some analysts have gone to the extent of   comparing the Covid-19 induced economic depression with the great depression of the 1920s.However, whether the far reaching repercussions of the Covid-19 on the global economy will be as momentous is still remains to be seen. Nevertheless, the   profound   economic jolt triggered by the Covid-19 pandemic is poised to reverberate across the world through shaping socio-economic and political events

The scar inflicted by a protracted economic recession owing to Covid-19 is apparent in the arduous path of economic rejuvenation in the western countries and eastern countries alike. Virtually every country is grappling with the toll that Covid-19 has incurred in the economy. The western countries are finding it   difficult to retrieve the losses that Covid-19 has precipitated. Although the swift vaccination of the western countries at the expense of the developing countries has provided a fleeting lull in their battle against Covid-19,it seem however the virus has resurfaced with increasing virulence in order to offset whatever gain these embattled countries managed to garner in their fight against Covid-19.

The skyrocketing and unprecedented inflation of the western countries coupled with a plummeted consumer confidence has meant a prolonged period of stagnation of their economies. However, in the wake of vaccination induced temporary respite in the viral cases, the economies rebounded strongly from the pits of economic recession. However, these hard-earned   gains will be reversed in the event of the advent of any new strand of the virus. Already, the delta variant which originated in India had triggered a spate of Covid-19 flare-ups in the United   States and United Kingdom. Against this backdrop, the Omicron variant is set to aggravate the   economic woes of the western countries and in turn the world.

While the western countries are reeling from economic stagnation, the developing and underdeveloped countries are confronting many abysmal realities due to their prevailing economic backwardness. Their economic plight has been lingering in want of adequate vaccination due to the apathetic stance of the western countries and global governance institutions .Therefore, while the western countries has rebounded from the Covid-19 induces economic predicaments, the difficulties confronted by the developing countries has continued unabated. While the influence of advanced countries and their less advanced counterparts in world-economy is inextricably tied, the callous attitude of the developed countries to the vaccination of countries in Asia and South Asia turn out to   be sheer lack of economic prudence.

While western countries are considered as the economic hub of the world, it is however the developing countries on which the vital supply chains of the world economy hinges on. Therefore, the tardy pace of vaccination in these countries is prejudicial to the global economic stability. The economic ramification of the slow pace of vaccination is twofold for the world economy. Firstly, the slow vaccination hinders the revival of the economic activities in the developing countries thereby obstructing the supply chain of the commodities .This supply chain crisis has ripple effect in the western economies. The recent predicament of inflation and attending macroeconomic woes in countries like the United States and United Kingdom is manifestation of the supply chain crisis plaguing the world economy. Due to the paucity of commodities and raw materials, the prices of necessary goods has escalated in the western countries which has plummeted consumer confidence and triggered a vicious cycle of stagflation in the economy that is reminiscent of the 1970s when a similar crisis in oil supply has  precipitated economic downturn in the western economies.

Secondly, the slow rate of vaccination also run the risk of allowing the virus to mutating to newer and much virulent variants and due to the unfettered communication as a result of globalization the emergence of any new variant doesn’t remain in the confines of any border rather proliferate like wildfire and precipitate global crisis. Therefore, the lack of vaccination or slack pace therefore has global repercussions. Therefore, it is judicious of the developed countries to concentrate efforts in contributing to the vaccination of the less developed countries which will yield good results for their economy.

The ubiquitous mechanism in battling Covid-19 remains one of containment that entails halting economic and other activities and insulating the countries from other countries through imposing border controls, curbs on air communication and other stringent measures echoing protectionist attitude. However, these measures are antithetical to the spirit of the globalization and global trade. While lockdowns and other protectionist measures yield temporary improvement in the Covid  cases, it is not viable in the longer term. Besides, lockdowns have deleterious ramifications on the economy and further aggravate economic rebounding of the developed countries and developing countries alike. Therefore, efforts should be aimed at preventing the Covid cases rather than grappling with the Covid with a knee-jerk policy of improvisation. .

Moreover,Covid-19 has already occasioned far-reaching economic fallout in the world economy. Indications abound regarding the fact that the world economy is verging on profound and prolonged recession. Against the backdrop of ominous predictions and slackening growth and painful inflation of the world economy, the prospects of the world economy due the advent of a new variant remain mired in obscurity. It can be concluded that the economic repercussions of yet another novel variant will be momentous and will offset hard-earned growth of the countries .Unlike previous precedent of haphazard policy and knee-jerk policy solutions, this time around the countries need to undertake challenge much prudently and should concentrate all of their efforts aiming at universal vaccination of all countries so as to prevent the resurfacing of similar virulent viral strands.

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Economy

A Good Transport System Supercharges the Economic Engine

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The infrastructure bill in the U.S. has been signed into law.  At the American Society of Civil Engineers (ASCE), they are celebrating the fruition of a couple of decades, at least, of hard work publicizing the decaying infrastructure and lobbying for a fix-it bill.  Countless delegations have visited the White House and met with staff to present their case.  And something for their efforts is better than nothing. 

They also started a grading system, giving an overall grade — currently C minus, a notch above the previous one.  The bill seeks improvement in roads, bridges and transit although it falls short of the ASCE estimates for what is needed.  For example, the bill contains $39 billion for transit (ASCE grade of D minus) but there is a backlog of $176 billion that is needed.  Given Republican opposition to spending and the compromises made to pass the bill, the administration got what they could — they can always fight for more later. 

This opposition against infrastructure spending is somewhat incomprehensible because it generates jobs and grows the economy.  Too much spending, too fast has inflationary potential but that is caused by too much money chasing too few goods, usually not when there is a tangible product — improved transit, roads and bridges in this case.  And then there are also other ways of checking inflation. 

This bill is a start but still a long way from having high speed cross-country electric trains as in other major industrialized countries.  These are the least polluting and especially less than airplanes which emit six times more CO2 per passenger mile. 

Why is the U.S. so lagging in high-speed rail when compared with Europe and Japan?  Distances are one reason given although these are a function of time.  No one would have thought of commuting 30 miles each way to work in the 19th century but it is not uncommon now for some to be quite willing to sit 45 minutes each way on a train for the pleasure of living in the greenery of suburbia. 

The bill also includes $110 billion for roads and bridges.  Unfortunately the backlog of repair has left 42.7 percent of roads in sub-standard condition costing motorists an estimated $130 billion per year in extra vehicle repair and maintenance.  Some $435 billion is now needed to repair existing roads plus $125 billion for bridges, $120 billion for system expansion and $105 billion for system enhancements like increasing safety — a necessary improvement given a changing environment such as an increase in bicycle traffic.  Allowing for round-off discrepancies, the total amounts to $786 billion (in the funding and future need section of reference).  Increases in severe weather events have also had their effect, causing damage to roadways and further burdening the repair budget.  

New technologies (in the innovation section of reference) like advanced pavement monitoring on key roads, using moisture and temperature sensors embedded in the roadway, now make it possible to assess pavements quickly without impacting road users.  This leads to earlier repair and in addition new materials increase the life cycle.  Much of this requires increased investment up front to take advantage of the new innovations. 

Above all one can never afford to forget that a good transport system acts like a supercharger for the economic engine.

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