Amidst a budget time, VIA Tax & corporate law forum programme “Understanding the GDP & Challenges/Expectation before Modi government evokes good response.
Without any political or coalition compulsion, the new Union Government is all set to present its first Union Budget for the year 2014-15 on 10th of July.
With such a clear mandate at the center after a period of almost 24 years, there is a huge bundle expectation from Modi Government and his team, Naresh Jakhotia said.
Rohit Agrawal, Secretary VIA expressed his feeling by mentioning that it’s a time for the new government to get down to serious business and deliver. Industries & public are anxiously waiting for the reforms measures & policies to create better administrative environment & to direct economic graph surge upward.
In the first part of the programme, CA.Abhijit Kelkar, past president of Nagpur Branch of WIRC of ICAI, very aptly elaborated about Gross Domestic Product (GDP) which is a benchmark to measure the country’ economy. He clarified various misconceptions about GDP and categorically mentioned that GDP doesn’t not reflect the Standard of Living.
Economists and governments around the world have placed considerable emphasis on two measures of economic growth –Gross National Product (GNP) and Gross Domestic Product (GDP) & he distinguished both the terms to the audience.
Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required, especially information on expenditure and production by government, he shared. Going with the history, GDP was first developed by Simon Kuznets for a US Congress report in 1934, he informed.
The international standard for measuring GDP is contained in the book System of National Accounts (1993), he shared with the audience. The simplest definition of GDP is as per encyclopedia Britannica which says “gross domestic product (GDP)is total market value of the goods and services produced by a nation’s economy during a specific period of time”, he presented. It includes all final goods and services—that is, those that are produced by the economic resources located in that nation regardless of their ownership and that are not resold in any form.
He also elaborated upon the GDP per capita and expressed that is often considered an indicator of a country’s standerd of living & GDP per capita is not a measure of personal income. He further covered all the elements involved in working out the GDP and all the 3 methods namely, Product (or output) method, income method & consumption method followed in working out the GDP. With various examples & illustrations he enable audience understand the word GDP. He further elaborated upon the terminology like nominal, historical, or current used while reporting GDP. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money – i.e., for the effects of inflation or deflation, he opined. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year, he cautioned. The GDP adjusted for changes in money value in this way is called the real or constant GDP. He went further to elaborate upon GDP Deflator, Cross-border comparison and purchasing power parity (PPP). He further correlated standard of living vis a vis GDP. The economy of India is the tenth-largest in the world by nominal GDP and third-largest by purchasing power parity(PPP), he informed. The CSO is responsible for coordination of statistical activities in the country, including National Income Accounting; conduct of Annual Survey of Industries, Economic Censuses, compilation of Index of Industrial Production, Consumer Price Indices etc. The most important indices used for compilation of GDP are Index of Industrial Production (IIP), Wholesale Price Index (WPI), and Consumer Price Indices – for Industrial Workers (CPI-IW), Agricultural Labourers (CPI-AL) and Rural Labourers (CPI-RL), he informed the audience. He also coverd various limitation and criticism attached to the GDP & its working.
In the second part of the programme “Challenges & Expectations before Modi Government” Renown CA. Dr. T.S.Rawal expressed his opinion and said Modi had strategically spoken the language of the people and played the tune they wanted to hear. He proved out to be a man who could be their leader & the same is quite obvious now. While a Capitalist-favouring budget is being anticipated with measures helping entrepreneurial pursuits grow at large, sops for middle and small-scale businesses will also help the economy. Modi’s image as a mass leader who knows what the BPL category needs in order to be freed from a life of frugality and penury will surely help him to accomplish all these and more.
Corporate India, which could be the highest benefactor from the changed business ecosystem, would be closely watching what the first budget of the new government would offer. For the first time in the last two decades, India has registered two consecutive years of sub-5 per cent GDP growth. The last few years have been extremely difficult for doing business, as the nation has been in the grips of an administration paralysis and the situation has been further aggravated due to government’s increased reliance on monetary tools to contain a stubbornly high inflation. High interest rates have not only increased the cost of doing business, but discouraged investments in infrastructure and manufacturing sectors thereby increasing input costs and widening the supply-demand gap. In this backdrop, the Union Budget 2014-15 is expected to set a policy document & aroadmap for the economy as a whole and the infrastructure sector in particular.
India’s fiscal deficit, a measure of the extent to which a government is spending beyond its means, has already hit 45.6% of the budget, he cautioned. Modi-led NDA government, which is already facing the formidable task of reviving an economy in dire straits, will find it extremely challenging to maintain the fine balance between stimulating growth and curtailing ballooning expenditure. Adding to the government’s list of worries is persistently high food inflation and oil subsidy crisis.
If bicycles, buses and BMWs share the same lane, all will crawl. Modi should scrap Essential Commodities Act, not invoke it Modi government has brought onions and potatoes under the Essential Commodities Act, 1955. The Essential Commodities Act has its origin in a pre-Independence wartime measure – the Defence of India Rules of 1939. The intention may be noble, but invoking the Essential Commodities Act is problematic. Stockholding limits do not distinguish between food processing industries and food retail chains, which need to hold large stocks for their operations. Food processing industries especially need to keep stocks for a few months at a time so that fluctuating prices don’t throw their economics out of gear. But under the Essential Commodities Act, these can become liable at least for harassment. These are corporate entities with large, earmarked storage facilities which can be easily identified. So it is easy for inspectors to go after them. But if even an otherwise natural reformist like Modi wants the Act to be retained and strengthened, looks like the country is going to have to live with an ineffective, harassment-prone law. And ordinary people will continue to suffer. It cannot have escaped anyone’s attention thatthese goods cannot be hoarded for any length of time. There are, however, markets for some food which can be hoarded. This is the market for food grain. Food grain prices have not only been rising, but in certain phases have led the overall inflation.
The subsidy system in India is wrought with inefficiencies. There is limited scope to reduce expenditure. The government should focus on subsiding the inflationary pressures in the economy, improve the supply-side economics of food, so that reducing subsidies becomes easier. Focus on eliminating leakages and corruption in the administration of such programs. The subsidy system needs to be more targeted in order to reach only the poor and needy. It is very encouraging to see the tech savy Modi have assured to use the Aadhar Card mechanism for passing on the subsidy.
It is important to remember Aadhaar is not just a number, it is an enabler. Linking the Aadhaar authentication platform to the benefits transfer programmes of the government has already yielded good results. The reduction in leakages is much greater than the cost of implementation. Direct cash transfer is the only way to have efficient help for the poor.
The Goods and Services Tax (GST) is expected to simplify and streamline the indirect tax regime. It contains all the indirect taxes levied on goods – including central and a state-level taxes. For the taxpayer, it will mean less paperwork and could actually translate into a lower tax burden, as it would remove distortions from the system. Finance Minister Arun Jaitley has already said that he will work with states to bring a broad consensus to ensure speedier implementation of the tax. The GST is an important measure for the fact that without raising the tax rate, it helps raise revenue. Apart from its advantage of being huge revenue grosser, the GST also lowers the cost of doing business. Hence it is a fruitful way of providing an impetus to the industry as a whole.
The government is drawing up an ambitious plan to sell shares in state-owned companies to raise a record amount from disinvestment this year as it looks to avert a major fiscal slippage, betting that a stock market boom and a brightening of economic outlook will lead to a blockbuster asset-sale programme. Disinvestment is like selling family Gold. The money should only be used to create more assets like roads and other infrastructure.
India was ranked 152 out of 185 countries on the ease of paying taxes in the World Bank’s “Doing Business”, he said aguishly. Tremendous time is spent by industry with the tax authorities because of ineffective tax administration i.e. delay in processing refunds, rectification orders, etc. We need a performance evaluation mechanism for officials. High-pitched assessments that get repeatedly knocked off in appeals need to have negative markings. Accountability of bureaucracy is imperative. Forcing a tax official to achieve artificially high revenue collection targets fixed by the Central Board of Direct Taxes, by making high-pitched assessments, cannot be the basis of tax administration. He further said that it is “now or never “ expectations from the Indian Government.
At the outset, floral welcome of CA Abhijeet Kelkar & CA T. S. Rawal was done by Rohit Agrawal, Hon. Secretary– VIA. Summing up and vote of thanks was given by Gaurav Sarda Joint Secretary-VIA. The programe was conducted by Naresh Jakhotia, Convener, VIA Taxation & Corporate Law Forum.
The programme was free & was open to all. Programme was followed by Questions & Answers where the participants asked many queries, which was satisfactorily answered by both the speakers.