Author: Najib Shah

View | Challenging times ahead for India despite rosy numbers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Tax revenues in 2021-22 have exceeded the Union Budget estimates by as much as Rs 5 lakh crore. The tax revenue was estimated at Rs 22.17 lakh crore against the revised estimates of Rs 19 lakh crore with a growth of 17 percent.

As against this, the revenue collections are Rs.27.07 lakh crore – almost Rs 5 lakh crore above the budget estimates. This is a growth of 34 percent over the collection of last year. Growth of almost 49 percent has been registered in direct taxes. The growth in indirect taxes being of the magnitude of 20 percent.

The tax to GDP ratio is 11.7 percent. Direct tax to GDP ratio at 6.1 percent and indirect tax to GDP ratio at 5.6 percent being the highest in some time. Tax buoyancy is at a healthy 1.9; 2.8 for direct taxes and 1.1 for indirect.

Also Read | No feedback sought from states on hiking GST rates: Finance Ministry

Merchandise exports touched an all-time high of USD 417.81 billion in FY 2021-22 -an increase of a phenomenal 43.18 percent over USD 291.81 billion of the previous fiscal.

The foreign exchange reserves are 21.5 percent of the GDP. While this is entirely dependent on external factors it is still remarkably good.

So, the parameters do suggest that all is indeed well. Or is it?

CPI inflation touched a 17-month high of 6.95 percent in March 2022. There has been an increase in inflation across most categories and specifically a sharp rise in food inflation. The average annual CPI inflation for FY22 came in at 5.51 percent, higher than RBI’s projection of 5.30 percent. Paradoxically, inflation has helped boost GST revenues since taxes are at ad-valorem rates.

There is a real possibility of inflation exceeding 7 percent. And when this happens the RBI will in terms of the RBI Act (when the breach of 6 percent takes place for three quarters in a row) will have to give a written explanation to the Government to describe steps it is taking to control inflation. That would be interesting.

As has been pointed, WPI inflation is a good indicator on what is happening on the producer’s side as it is broadly speaking a producer’s price index. This index is dominated by manufactured products which have a weight of 64 percent in the index. They are influenced by global factors to a significant extent, especially in the current context.

Also Read | GST detects Rs 10 crore cash, turnover of Rs 1,764 crore in toilet-sized office

WPI in March has come in at 14.5 percent, which is higher than last month. All three sub-heads, primary (15.5 percent), manufacturing (10.7 percent) and fuel (34.5 percent witnessed an increase. Fuel and power inflation in March’22 rose to 34.5 percent from 31.5 percent in February’22.

While foreign exchange reserves are good, we should juxtapose this with the fact of portfolio outflows steadily increasing. They have crossed the USD 20 billion mark in the last few months.

And while the increase in exports is a cause for celebration, we should not forget to acknowledge that imports have also increased. India’s merchandise imports touched USD 610.22 billion in April 2021-March 2022. This is an increase of 54.71 percent.

The supply disruptions and shipping delays due to the ongoing Russia-Ukraine conflict have had severe consequences. Food, edible oils, fertilisers and crude oil prices are at very high levels in the international markets. There is no end to the war in sight. With India’s high import dependency on these items, the outlook for domestic inflation remains uncertain.

If high global commodity prices persist, India’s Current Account Deficit (CAD) could well be above USD 100 bn in FY23. This will be almost equal to 3 percent of GDP. Such a deficit level would be a record in absolute terms.

The IMD has predicted a normal monsoon last week which has brought some cheer. The arrival, progress, spread and withdrawal of the monsoon are important. We will have to wait and see how this pans out.

Also Read | GST Council considers doing away with 5% rate; looks to move items to 3%, 8% slabs

Fertiliser shortage ahead of the Kharif sowing season beginning in June could be detrimental to the farm sector. This could lead to further food inflation. This will more than offset the prediction of a normal monsoon. Further, there will be a huge impact of increased global oil prices on the transport sector. This will indirectly affect the prices of other commodities.

The Centre for Monitoring Indian Economy (CMIE) has pointed out that more than 20 million jobs have been lost in the last few years .15 million jobs are estimated to have been lost in manufacturing alone. Given the high inflation and global challenges, it seems unlikely that the situation will improve.

There are newspaper reports that there is a proposal to moving some items from the 5 percent GST rate to a new rate of 7-8 percent. While an increase in rate will definitely increase revenue-it will definitely also contribute to inflation. This will also mean yet another GST slab.

How the Government reacts to these challenges will be key. The effectiveness of the PLI schemes and Gati Shakti, the spend on infrastructure will determine how quickly the economy gets revitalised. Cutting excise duty on petroleum products is a measure which should reduce inflation across sectors -but will hurt revenues.

All in all, we have challenging times ahead. We will have to manoeuvre the path ahead carefully. The dangers of not doing so are grave.

— The author is chairman (retired) of the Central Board of Indirect Taxes and Customs. Read his other pieces here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View | Scrutiny of returns the key to ensuring accountability

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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All modern tax administrations, both direct and indirect, rely on the tax payer to self-assess their liability and pay taxes accordingly. The emphasis is on trusting the tax payer. Having said that, the tax administration has to be made aware of the fact of correct tax liability having been discharged.

Every legal entity that partakes any activity that is liable to be taxed has to register. Having registered itself, a legal entity has to file returns. Returns are in effect honest declarations by the tax payer of liability with details of how that liability has arisen. It also provides details of how the liability is being discharged.

Returns thus are key to enable risk-based audit and controls. Ideally these controls should be technology-driven. This is more so in a credit-based tax system like the Goods and Services Tax (GST) that operates on the system of ensuring that there is no tax on tax. Credit of tax paid at earlier stages of the value-add chain being available for discharge of liability at a later stage.

Also read: View: GST revenue – Ending the year with a bang!

This is GST’s USP–hence to the extent of credit availed there is lesser revenue for the government. It is nobody’s case that such credit should be denied. It also cannot be anybody’s case that credit not due is wrongly availed with a criminal intent to defraud exchequer.

It should not be forgotten that value added tax system is a tax system which requires the government to not only collect substantial money but also pay much of it back to the same people in the form of credit. A return accompanied by an invoice provides the government a mechanism to verify the details of supply has taken place, to whom and at what value. Returns thus are key documents.

A return and an invoice constitute a potential claim on public funds Hence it is the GST law as it stood provided for matching of returns as a method of verifying that the claims made are correct. Unfortunately matching of returns–the suppliers with the recipients, universally accepted as being an essential tool to check evasion, never took off. Technological support needed to effectively implement it was lacking.

Also read: The misconceived aura of smuggling

The Union Budget 2022-23 at Clause 106 did away with Sections 42, 43 and 43A Act of the CGST Act, in effect doing away with the two-way communication process in return filing. A key provision which would have catapulted India to the most technologically advanced tax administration had an unsung and unfortunate demise. The Budget proposed to auto-generate a statement of inward supplies which would hopefully take care of any possible attempted mischief. This has not yet happened.

Returns once filed cannot sit in the systems of the department. They have to be scrutinised to confirm veracity of the claims made. The GST law (section 61 of the CGST Act) provides for scrutiny of returns and other particulars furnished by the registered person.

It is against this backdrop that we have to view the latest instructions–No. 02/2022-GST dated March 22, 2022–issued by the Central Board of Indirect Taxes and Customs (CBIC). These provide a Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and 2018-19. This SOP is said to be an interim measure till technology provides solutions.

The SOP seeks to ensure uniformity in selection/ identification of returns for scrutiny, methodology of scrutiny of such returns and other related procedures. Given the sheer number of registrants and returns available, the SOP seeks to sensibly make the process of selection of returns for scrutiny risk drive. The Directorate General of Analytics and Risk Management (DGARM) has been assigned the task to select the GSTINs registered with Central tax authorities, whose returns are to be scrutinized and inform the field formations accordingly.

Also read: View: MV Lal Bahadur Shastri and herald of new era for India’s North-East

The SOP makes it clear that the officer is expected to rely only upon the information available with him or with the department. The instruction states that there should be minimal interface between the officer and the registered person. This is good and necessary. Scrutiny should not become a fishing exercise.

The present SOP is for scrutiny of returns filed in 2017-18 and 2018-19. It has to be done urgently in a time bound manner. There is danger of the process getting barred by time limitation. The statutory limit for issue of notice is three years from the date of filing the annual return in cases other than those of fraud -and five, in cases of fraud.

Thus, the present drive for scrutiny of returns is a welcome measure. Having said that, the rampant evasion as evidenced by the cases detected by the department is a cause for serious concern. Timsy Jaipuria of CNBC-TV18 has estimated the detections of such cases of fraud to be in the region of a humongous Rs 52,000 crore.  Scrutiny is the first step to check such evasion. Regular Audit and intelligence driven enforcement should go hand in hand. And hopefully, our tax payers will realize the importance of paying taxes due -and the folly of trying to evade taxes.

— The author is chairman (retired) of the Central Board of Indirect Taxes and Customs. Read his other pieces here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: GST revenue – Ending the year with a bang!

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The financial year 2021-22 has ended with a bang as far as far revenue collection from taxes goes. This is remarkable given the fact that this has been a challenging year bordering on the dismal. The long shadow of the pandemic, joblessness, inflation, rising oil prices, and the outbreak of the much-predicted Russian-Ukraine conflict, have kept the economy in a constant state of uncertainty.

Despite all this gross GST collection in March 2022 was good. The revenue touched a record Rs 1.42 lakh crore. This is the highest GST collection ever, breaching the Rs 1.41 lakh crore collected earlier in April 2021. The grand total for the financial year being an impressive Rs 14,89,905 crore.

The single largest component continues to be IGST. This is not unsurprising given the fact that GST is a destination-based tax. The import component of IGST has been steadily rising. Though welcome as a significant contributor to revenue, this is a matter of concern. Exports have done well and India has touched a record $417.8 billion merchandise goods export mark. However, the trade deficit also has been increasing. The trade deficit at the end of February was touching USD 21 billion-the highest in a very long time.

Also Read | Government owes Rs 53,489 crore to states of GST compensation for FY22

The surge in imports, however, is an indication of increased economic activity in the country. It is an indication of the release of the long pent-up demand. This is also indicated by the number of e-way bills generated in February—they exceeded 6.91 crore. The IHS Markit manufacturing PMI increased to 54.9 in February 2022 again suggesting increased factory activity. The Services PMI was at 51.8 in the same period-lesser than market expectations, but higher than the previous month.

The performance of the eight core sectors in February 2022 improved to 5.8 percent up from 4 percent of the previous month. This was of course supported by the negative base of last year (minus 3.3 percent in February 2021). Coal, natural gas, refinery products, steel, cement, and electricity being the sectors that performed well.

Net direct taxes collections touched Rs.13.63 lakh crore by mid-March. This is growth by a phenomenal 48.4 percent. Corporation tax being the major contributor is again an indication of increased economic activity in the country. More importantly, it is an indication of the close coordination between the apex boards of indirect and direct taxes.

The increase in revenue has had a multiplier positive impact. It has meant that the central government’s fiscal position is robust. The fiscal deficit during the period April-February 2022 period has been Rs 13.2 lakh crore. In effect, it has been checked at just under 83 percent of the revised estimate -again thanks to the robust revenue collection. The larger than anticipated transfer of dividends from the RBI has also helped.

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The focus on asset creation has helped. The result has been an increase in capital expenditure. The central government’s market borrowing in the eleven-month period April-February has also been lesser by nearly 36 percent. This again is the direct consequence of the robust revenue collection.

Data shows that the top Indian companies have in the period ending December 2021 made over 100 percent profit when compared with the same period in the pre-pandemic year. This again is yet another reason for the spurt in revenue-both indirect and direct.

The stock markets have been doing well. The flow of foreign funds is a sure indicator of confidence in the Indian economy. Foreign Exchange reserves at USD 622 billion are a matter of comfort.

The increased spending, coupled with the increase in fuel prices and general disruption of supply chains has resulted in inflation. The CPI retail inflation has breached the 6 percent mark. The RBI has expressed confidence that there is no cause for serious concern. Paradoxically inflation has also contributed to the increase in GST revenues since all the rates are ad valorem.

Also Read | India’s external debt rose to $614.9 bn at end of December 2021

Going forward the robust revenue performance is likely to continue. One is assuming of course that the dreaded third wave has abated and that no further waves await us. The Russian-Ukraine conflict persists. The longer the war, the greater is the possible disruption to global economies and to India.

There are some key issues that need to be addressed in the new financial year. The deadline for ending GST compensation to States for any shortfall from a 14 percent assumed growth is fast approaching. The guarantee ends in June 2022 and a decision needs to be taken fast. The report of the Karnataka Chief minister headed by GoM on the rationalisation of GST structure is still awaited.

The effort should be to identify pain points and address them. These include the creation of the long-delayed dispute resolution institutions – a GST Tribunal and a national advance ruling authority. A decision regarding initiating the process of expanding the GST tax base with the inclusion of some petroleum products has been long overdue.

The GST law has largely settled. It is important that GST laws and rates are not changed too often. They cause avoidable uncertainty. The focus should continue to be on easing compliance and effective enforcement.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: MV Lal Bahadur Shastri and herald of new era for India’s North-East

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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It has been a roller-coaster last few weeks. Just when the pandemic appeared to be waning and the economy settling down, came the Russia-Ukraine conflict. As is said, starting a war is easy—ending it, difficult. The conflict has brought in its wake uncertainty, both within India and globally.

The first economic impact was on oil prices. The average Brent crude price in 2020 was just shy of $40. The average price went up to around $68 in 2021. Brent traded at about $113 on March 24.

Sixty percent of our edible oil requirements are met from imports; sunflower oil which comes almost wholly from Ukraine constitutes 14 percent. This import too has been impacted.

All this has had a huge multiplier effect. Inflation has hit all economies hard. In the US, it has touched 7.9 percent, the highest since 1982. The UK has recorded 6.2 percent. In India, retail inflation touched 6.1 percent breaching the RBI’s 2-6 percent band. Wholesale inflation rose to 13.1 percent.

The long-anticipated hike in domestic fuel prices has happened. Petrol and Diesel prices have increased by 80 paise; domestic cooking gas by Rs 50. This will further have a multiplier impact on prices. Citing soaring energy prices, rating agency Fitch has cut India’s growth forecast for FY 2022-23 to 8.5 percent from 10.3 percent.

Evasion of GST has reduced but not stopped. The cases of fake syndicates issuing invoices, availing non-existent credit continue to be detected. Corruption does not appear to have reduced. Anti-corruption squads in Karnataka raided several officials in mid-March. Detection of a mind-boggling array of disproportionate assets were detected—from property wherein several badminton courts had been constructed, to sandalwood, diamonds, gold and silver to cash.

In the midst of all these depressing happenings, there have also been many positive developments too.

The $400 billion mark target achieved by merchandise exports by March 23 in this financial year is a landmark achievement. This is 37 percent higher than the previous year’s actuals of $292 billion. The previous high of $330 billion achieved in 2018-19 has been comfortably breached. Engineering goods exports has been the star performer.

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This achievement has been rightly hailed by the Prime Minister as ‘a key milestone in our Atmanirbhar journey’.

Direct Tax collections touched Rs 13.68 lakh crore till March 16. This is a phenomenal Rs 1 lakh crore more than the revised budget estimate. It is obvious that the robust GST revenue performance and close coordination between CBIC and CBDT is bearing results.

The focus of this article though is on another remarkable development this March. A development that has not had as much coverage. This was the arrival of MV Lal Bahadur Shastri at Pandu Port, Guwahati. This vessel made a 2350 km journey spread over 26 days. The vessel was carrying 200 metric tonnes of food grains and had started its journey from Patna’s inland waterway terminal Gaighat.

What was unique about this journey was that the vessel transited through Bangladesh. It started its sail on National Waterways 1 (river Ganga) through Bhagalpur, Manihari, Sahibganj, Farakka, Haldia in India. The vessel then entered Bangladesh and sailed via Khulna, Nrayanganj, Chaimari and entered India again where it joined National Waterway 2. It journeyed thereafter through Dhubri and Jogighopa before reaching Pandu port in Guwahati on the River Brahmaputra.

India and Bangladesh have a Protocol on Inland Water Transit (PIWTT). This protocol allows mutually beneficial arrangements for use of the waterways of both the countries. Under this Protocol, Inland vessels of both the countries can ply on the designated protocol route and dock at the notified Ports of Call in each country.

Thus, Inland Waterway 1 (River Ganga) is connected to National Waterway 2 (River Brahmaputra) and National Waterway 16 (River Barak) through the Indo-Bangladesh Protocol (IBP) routes. To improve navigability two stretches of the IBP routes are being developed on an 80:20 cost-sharing basis-80 percent being borne by India and 20 percent by Bangladesh.

The Indian transit cargo expected is mainly bulk -coal and fly-ash, for power projects in the NE region. The other potential cargo for movement is fertilizers, cement, food grains, agricultural products. The export cargo from India to Bangladesh is again expected to be mainly fly-ash.

Inland waterways are a much-neglected mode of transportation. India has approximately 5,150 km of waterways spread across 26 National Waterways. As per detailed project reports, these waterways are feasible for development for the purpose of shipping and navigation. While undoubtedly the utilisation of waterways depends on very many factors like the availability of vessels, fairways, and first and last-mile connectivity, the fact remains that waterways have been underutilised.

As per a RITES report, the cost of transportation through Inland water transport is significantly cheaper than by any other mode. It is estimated to be Rs 1.06 per tonne/km as opposed to Rs 1.36 by Railways and Rs 2.50 by highways. This is a huge cost advantage that should be taken advantage of. Waterways have the additional advantage of decongesting roads and being less polluting.

Connectivity with the mainland has always been an issue for the North-Eastern states. Waterway connectivity via Bangladesh could be a major path-breaking solution. MV Lal Bahadur Shastri’s journey should herald a new era of growth for the North-Eastern states.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The misconceived aura of smuggling

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Glamorisation of crime makes good stories. Be it in books or movies. And if the crime is smuggling it is even more so. In movies, add some mirch masala in the form of a pretty village belle, good music and for good measure also throw in a socialist element, you have a sure winner in your hands. ‘Pushpa ‘, a multilingual super-hit movie with a twist, running in theatres and on OTT, is the latest.

That smuggling and counterfeit activities are detrimental to the economy is well known. There are very few studies however available to establish just how bad these activities are. One major challenge has always been that since smuggling is a clandestine activity, establishing the quantum of smuggling is difficult.

However, in a study commissioned by FICCI’s think tank, Smuggling Committee Against Smuggling and Counterfeit Activities Destroying the Economy, (CASCADE) attempts have been made to establish the quantum in a few select commodities. This has been done on the basis of the domestic demand, domestic manufacture, licit imports and the gap between these.

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This is one of the few studies on the subject. Obviously, a study of this nature necessarily has to make certain assumptions. The study is still a very brave attempt to fill a gap in this literature.

What the Report does emphatically point out is that smuggling hurts the economy in multifarious ways. It results in loss of revenue and hurts the legitimate industries. It results in the loss of jobs and impinges innovation and investment.

Prof. Arun Kumar, the leading economist, has estimated in his book (‘Understanding the Black Economy and Black Money in India’ published by Aleph Book Company 2017) that India’s black economy is about 62 percent of GDP. He suggests that at 2016-17 prices, about Rs 93 lakh crore of black money (or USD 1.4 trillion) has been generated. Prof. Kumar estimates that consequently, the country’s economy has been losing on an average 5 percent growth since the mid-1970s.

Of course, to lay the blame on smuggling for all the black money generated in the country will not be correct. Black money has very many other contributors. Proceeds of smuggling too contributes. Smuggling with its perceived risks makes a good story.

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The Indian Customs Act defines smuggling ‘in relation to any goods, means any act or omission which would render such goods liable to confiscation’. The definition is wide and includes within its ambit not just evasion of tariffs, but also restrictions against import or export, which have been imposed for the time being.

When one talks of smuggling invariably it is in the context of goods coming into the country. Illicit import is certainly more prevalent. In the context of India, the incessant demand for gold makes it a commodity favoured by smugglers.

Smuggling ultimately is all about demand and supply. It is about controls that are put in place which ironically make the supply even more challenging and increases costs. It makes smuggling more profitable. Thus, smuggling can also be of illicit export to meet demand in other countries. This is particularly true of items like Red Sanders wood, star tortoise, or pangolin scales. All these fall under the Convention on International Trade of Endangered Species of Wild Fauna and Flora (CITES).

CITES which came into force in 1976 was driven by concerns of rampant killing and felling of fauna and flora. The idea of CITES, was to create awareness, ensure global cooperation and thwart through coordinated response, attempts to smuggle. India became a signatory in 1976 to the Convention.

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Red Sanders (Pterocarpus Santalinus) wood is a species endemic to the tropical dry deciduous forests in the South-East part of the Indian peninsula. Its main habitat is the Palakonda and Sheshachalam hill ranges of Cuddapah-Chittoor Districts of Andhra Pradesh. The Red Sanders Forest is spread over an area of 5100 kms. It has little domestic demand but has a market in South East Asian countries and China where it is traditionally given as dowry.

Given the indiscriminate felling of Red Sanders, it was included in Appendix II of CITES in 1995. (Appendix II refers to those species which are not endangered but could become endangered if trade in them is not controlled and monitored)

The twist in the movie ‘Pushpa, ‘is that the hero is a Red Sanders smuggler. This must be a first- and unlike the normal movie smuggler who traditionally is deep into only ’sona,’ the yellow metal. The movie makes it explicit that there is lots of money in the smuggling of this wood. It shows whole swathes of forests being cut and carted in vehicles. And the hero is projected with a swagger, an aura as if urging everybody to join this lucrative, criminal activity.

This brings us to the point that awareness campaigns are needed to educate the public at large. Awareness campaigns that enlighten the public that smuggling means goods moving in or out of the country in violation of the legal provisions. Campaigns to educate the public that purchasing smuggled goods is detrimental to the economy and encourages smugglers.

Nothing can strengthen the hands of the enforcement officials more than consumers not purchasing smuggled goods. If demand dies, smuggling syndicates would have to find new jobs.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View | The importance of MGNREGA

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Parliamentary Standing Committee on Rural Development and Panchayati Raj has submitted its report on the functioning of the MGNREGA to the Lok Sabha on February 8, 2022.

Titled ‘Critical Evaluation of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) the Report is an acknowledgment of the critical role the Scheme plays in the rural economy. The Report is also an indictment of the lackadaisical manner in which this critical scheme is being run.

Enacted in 2005, the objectives of the Act are to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work. It aims to strengthen the livelihood resource base of the poor and ensure social inclusion.

Also Read: Citi India ups inflation forecast for FY23; cuts GDP growth forecast marginally

Despite the criticism the Scheme has received over the years (monument of sixty years of failure, playing with mud, digging holes) it has become a powerful tool for ensuring inclusive growth in rural India. The Act covers the entire country except districts that have a 100 percent urban population.

The Report has more than 30 recommendations.

The more important among them highlights the fact that there has always been a hike in the revised estimate over the budget estimate in the past. However, the BE for 2021-22 has been maintained at Rs 73,000 crore. This when the expenditure in the previous year was in the region of Rs,1,11,000 crore.

If ever an estimate of the impact of the pandemic was needed, these figures bring out starkly the reverse migration from urban to rural areas. MGNREGA was the last resort for all these workers. The Report has emphasized the need for an enhancement in the budget.

The report notes the delay in the release of funds by the Centre to the States. While commenting on the need for closer coordination, the Committee also noted that there are unspent balances with the Department of Rural Development. It has rightly been observed that funds remaining unutilized on one hand along with the existence of pendency in payment of wages reflect poorly.

Also Read: Raghuram Rajan decodes impact of Ukraine-Russia war on global economy

The Committee has ‘painfully’ taken cognizance of the delay in the release of funds. The Act guarantees the release of wages within 15 days from the date of closure of the muster rolls. The pending dues as of 15.11.2021 was Rs 276,378.22 lakh defeating the very purpose of the scheme.

The Committee has also noted the wide disparity in the wage rate between one state to another. From as low as Rs 193 to 198 in Chhattisgarh and MP, Bihar, Jharkhand (the poorer states) to a high of Rs 318 in Sikkim. They have urged the need to ensure the wages are commensurate with inflation and uniform across States.

The Committee has recommended increasing the number of guaranteed working days from 100 to at least 150; this the Committee felt, given the situation in the country, was the ‘need of the hour’. The Committee recommended the need for regularly reviewing the scope and nature of work permitted under the MGNREGA. It emphasised the need to increase the permissible work taking into account the local geographical terrain and local requirements.

The Committee has commented adversely about the delay in giving compensation. The Act provides for payment of compensation for delays beyond 15 days. This is applicable at the rate of 0.05 percent of the unpaid wages per day.

Also Read: Indian economy poised for recovery, but high crude prices worrisome: CEA V Anantha Nageswaran

The Committee has also been ‘dumbfounded ‘to learn about the blatant violation of the provisions of employment allowance. The Act provides that if an applicant for employment under the scheme is not provided employment within 15 days, he/she shall be entitled to a daily unemployment allowance. However, the Committee learnt that zero amount as of 05.11.21 was paid in the name of unemployment allowance.

The Committee noted that despite the MGNREGA stipulating payment of wages to the beneficiaries within 15 days of completion of work, there is inordinate delay. This is mainly due to transfer not taking place due to either a dormant Aadhaar or the bank account not being functional.

The Scheme contemplates the Gram Sabha conducting regular social audits of all projects taken up within the Gram Panchayat. However, this has not been happening- thus in 2020-21, only 29,611 Gram Panchayats were audited at least once.

Also Read: India likely to overtake countries to become 3rd biggest economy by 2030: Mukesh Ambani

The MGRNGA contemplates an Ombudsman to attend to grievances. But as observed by the Committee and more trenchantly by Sanjiv Kumar and S Madheswaran in their working paper 460 of the Institute of Social and Economic Change in the context of Karnataka, the MGNREGA Ombudsman in the absence of any infrastructural support is a ‘forlorn scarecrow’.

The Department of Rural Development and Panchayati Raj would do well to address these deficiencies. MGNREGA is still relevant. As Sudha Narayanan points out the Scheme is a crucial part of ‘comprehensive social protection that serves as a safety net for those who are most vulnerable.

Again, as pointed out, despite the scale of MGNREGA, expenditure has never exceeded an annual 0.4 percent of the GDP since inception. Narayanan states that at no time has MGNREGA accounted for more than 3 percent of total rural employment -belying the belief that the programme was “wrecking the national labour market”. In fact, there is a demand now for expanding the Scheme to the urban poor too.

Surely the time will come when the MGNREGA is no longer required. That would be the day. The pandemic has on the contrary reemphasised the importance of the Scheme as an essential provider of succour.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View | February GST revenue an indication of increased economic activity and growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The GST revenue numbers for February 2022 have been remarkably good. This is despite it being a 28-day month. At Rs 1,33,026 lakh crore, the revenue has yet again crossed the Rs 1,30 lakh crore psychological mark. This is just Rs 5000 odd crore less than the revenue of January 2022.

There are quite a few positive elements in the revenue breakup of the GST. Cess being the most significant. At Rs 10,340 crore this is the first time the cess collection has crossed the Rs 10,000 crore mark. Since cess is imposed on very few items in the 28 percent tax bracket, this is a positive indication of growth-especially in the automobile sector.

The IHS Markit Purchasing Manager’s Index (PMI) in February rose to 54.9. This is an increase from 54 in the previous month. This too is an indication of increased economic activity and an increase in orders.

IGST revenue at Rs. 67,471 crore continues to be the single largest element of the GST revenue break up. So, imports have been growing. This is reflected also in the trade data. Thus, despite exports in February 2022 having touched USD 33.81 billion, just short of the January export figure at USD 34.06 billion, the trade deficit has increased. The trade deficit has touched USD 21.19 billion. This is substantially higher than the trade deficit figures of January when it was USD 17.94 billion.

Also Read | View: Changes in GST norms & solutions for enterprises

The Centre’s fiscal deficit (the gap between its income and expenditure), was 3.8 percent (of GDP) in Jan’22. This is lower than the government’s revised estimates (RE) of 6.9 percent. The Centre’s net revenue has already exceeded the government’s RE for FY22. It is at Rs 18.4tn (RE: 17.7tn). If despite this the fiscal deficit for FY 22 is 6.9 percent, it is an indication of the increased spending and capex. This again is good for increasing economic activity and revenue.

The Budget had shown that we are on a path of fiscal prudence. The enormous thrust on infrastructure at Rs.7.5 lakh crore is good. 65 percent of this being earmarked for roads, railways and defense which should generate substantial economic activity, both in manufacturing and in services. There is also a focus to boost sectors like hospitality, tourism, housing, telecom-hopefully this will mean demand for credit.

The Second Advance Estimate for agriculture has also ushered good news for 2021-22. Record food grains production of 316.06 million tonnes is estimated- this is higher by 5.32 million tonnes than the production of food grains in the previous year. This bodes well for the rural sector and should spur demand.

Having said that, the jury is still out whether the increase in GST revenue can be attributable to just an increase in economic activity. Since all the GST levies are applied on an ad valorem basis, the ‘growth’ in revenue is also an indication of inflation. The CPI was 6 percent in January 2022 up from 5.7 percent in December 2021. WPI was 13 percent -just slightly lower than the previous month. On a different note, the RBI continues to be sanguine that inflation is not a cause for concern.

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Thus, 2021-22 has seen robust revenue collections. This is a trend that normally would have continued in the last month of the fiscal. March has always been good for revenue.

And just when everything seemed to be going well, we have been hit by fresh winds of turmoil. The Russia-Ukraine long building tension has now become a full-fledged bloody war. Global markets have gone in a spin. With sanctions on Russia increasing by the day, the global impact is still unravelling. For India, the impact will be felt in the form of a sharp increase in oil prices. They have touched USD 113 per barrel. Both the Budget and the RBI obviously did not factor these developments. The projections made both in the Budget and by the RBI were on the very conservative estimate that crude prices would be at about USD 75.

Given our dependence on oil imports, our oil bill will increase dramatically. This will increase the trade deficit further. This will hurt the rupee too. There is likely to be increased volatility impacting exports.

Gas prices have also spiked. India imports a considerable amount of edible oil and grains from Ukraine which will also get impacted. The diamond trade, a very important job creator, and which has close links with Russia, is increasingly becoming nervous with these developments.

We are moving towards a period of uncertainty that we could have done without. The earlier the Russian-Ukraine conflict stops the better for us and indeed the world, both from the humanitarian angle and for the economy.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India-UAE CEPA: A win-win situation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The announcement of an India-UAE Comprehensive Economic Partnership Agreement (CEPA) was always on the cards. What was not, was the breath-taking speed in which the agreement has been finalised. As Prime Minister Narendra Modi mentioned on the occasion of the signing on February 18, it is noteworthy that such an important agreement has been concluded in a record time of less than 3 months.

The agreement is said to be 881 pages long. Despite the blaze of publicity following the signing of the agreement, the text of the CEPA is not yet in the public domain. All the reportage about the agreement is based entirely on the PIB releases.

The press release lists an impressive array of possible benefits. Union minister for commerce & industry, consumer affairs, food & public distribution and textiles, Piyush Goyal mentioned the agreement covered the widest array of subjects – from free trade to digital economy to government procurement and several other strategic areas of mutual interest.

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CEPA is expected to generate 10 lakh jobs across multiple labour-intensive sectors. Major sectors like gems and jewellery, textiles, leather, footwear, furniture, agriculture and food products, plastics, engineering goods, pharmaceuticals, medical devices, sports goods etc. are expected to be beneficiaries of the CEPA.

It has been mentioned that there are many firsts in the CEPA agreement. It is said that UAE had agreed to automatic registration and market authorization for Indian medicines in case of their regulatory approval in developed countries such as the USA, EU, UK and Japan.

It has been reported that UAE has offered immediate market access at zero duty from day one of the entry into force of the agreement, to products accounting for 90 percent of India’s exports to UAE in value terms. The minister emphasised that ‘this is a win-win agreement.

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Thus, there is a lot that appears commendable in the CEPA. However, the devil in all such agreements is in the details. And the details will not be known till the agreement is in the public domain.

As India has learnt the hard way, a key ingredient in all such free trade agreements is the Rules of Origin (RoO). Basically, the rules prescribe the criteria to determine the national source of a product. Since the benefit is to be extended only to the goods originating from the partner country, these rules are of critical importance. This is more so in the case of a country like UAE which has little manufacturing expertise and is basically a trading hub. Further, UAE has at last count at least 45 free trade zones with relaxed norms.

Minister Piyush Goyal has spoken of ‘stringent rules reflecting requirements for substantial processing of up to 40 percent value addition’. Undoubtedly 40 percent is high-however details of what constitutes value addition will have to be seen in the CEPA for a better appreciation.

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Given the large-scale concerns about the misuse of RoO, the Central Board of Indirect Taxes & Customs (CBIC) had in 2020 amended certain provisions of the Customs Act and introduced The Customs (Administration od Rules of Origin under Trade Agreement Rules (CAROTAR). This was done primarily to strengthen the certification procedure and ensure benefits are extended to eligible FTA imports only.

Mention has been made of the possible imposition of safeguard duties in the event of a surge in imports. This is a standard WTO approved prescription. For instance, in India’s trade agreement with Singapore, another similarly placed country like UAE, Article 2.9.1 of the Comprehensive Economic Cooperation Agreement (CECA) permits the imposition of bilateral safeguard measures.

In the case of CEPA, given that the tariff in UAE (and in fact in the entire GCC) is just 5 percent for most of the goods, the benefit for Indian exports will be minimal. The CEPA hopefully will address non-tariff barriers- especially sanitary and phytosanitary measures.

The UAE market is small. It acts primarily as a gateway, for the bigger African market. It is not very clear whether there will be any added benefits for Indian exporters exploring the African continent because of the CEPA.

However, a typical comprehensive agreement is much more than the goods. It encompasses services, investment cooperation, mutual recognition of professions, movement of people. With investments in the range of $ 11.67 billion, UAE is the ninth biggest investor in India. Given the sovereign funds at the disposal of the UAE, there is huge potential here. The combined investments of NRI’s in UAE is estimated to be around $55 billion -again an area of potential growth.

Dubai has a flourishing trade with China as also Pakistan. Though this trade need not necessarily be suspicious, we should be cognizant of this fact. This is especially given the fact that we are wary of imports from China. The CEPA should not become a medium for such imports.

Dubai is a huge property market. A major financial centre. We should also be aware of the fact that in its April 2020 report on UAE, the intergovernmental Financial Action Task Force (FATF) expressed concerns about Dubai. The Emirate was placed under observation to ensure that it fully implements the anti-money laundering legislation and improves cross border cooperation.

Most cases of smuggling detected in India, have a Dubai link. It is believed that many a wanted criminal operates from there. In this background, it is imperative that we should ensure that CEPA does not become a money-laundering mechanism. Hopefully, the CEPA has sufficient safeguards.

The success of the CEPA will depend entirely on its implementation and the cooperation between the two countries. There is undoubtedly a huge potential. The goal that the CEPA would increase the total value of bilateral trade to over $100 billion within five years is achievable.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View | Special Economic Zones: Not so special, after all!                           

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The recent Budget mentions replacing the Special Economic Zones (SEZ) Act with a new “legislation that will enable the states to become partners in ‘Development of Enterprise and Service Hubs’”. Life has come full circle for the SEZs which were when introduced in the Budget of 2004-05 touted as growth engines. All existing free trade zones /software technology parks came within the ambit of the then new SEZ law.

SEZs conceptually are a “geographical region within the nation state in which a distinct legal framework provides a more liberal economic policy than prevailing in the rest of the country”. This geographical area is declared to be outside the normal customs territory of India. Thus, SEZs enjoy several tax benefits, both direct and indirect, apart from other facilities. Benefits extended to SEZ units are subject to earning net foreign exchange (NFE)–defined as the value of exports minus the value of imports. SEZs are tasked with the goal of generation of employment opportunities, encouraging investment (both domestic and foreign) and increasing India’s share in global market.

The fact sheet on SEZs (as on January 27, 2021) available on the official site would suggest that there are 268 operational SEZs as against 425 formally approved and that the operational SEZs are doing well in terms of the objectives of the scheme.

The Comptroller and Accountant General (CAG) has not shared this rosy perspective. The CAG performance audit report on the functioning of SEZs points out shortcoming in their performance. The report suggests that while the total quantum of exemptions availed by SEZs were about Rs 1.76 lakh crore, the performance of the sampled SEZs was not commensurate. Non-performance was observed in employment (ranging from 65.95-96.58 percent) investments (ranging from 23.98-74.92 percent) and exports (ranging from 46.16- 93.81 percent). The Report suggest that the achievements are contributed by a few SEZs which were mostly established before the enactment of the SEZ Act.

The 83rd Report of the Parliamentary Standing Committee on Commerce on the functioning of SEZ, June 2007, has also frowned upon the misutilisation of land allotted to SEZ’s. The 40th Report of the Public Accounts Committee (PAC) on the performance of SEZs presented to the 17th Lok Sabha has similarly commented that the objectives had not been achieved and that  overall performance was “far below projections”. The PAC noted that only 39.78 percent of SEZs had become operational and that 52 percent of land was lying idle.  The Committee noted substantial diversion of land acquired for public purpose.

Against this backdrop, the Government had in 2018 constituted a committee under the chairmanship of Baba Kalyani to study the SEZ policy. The Committee was tasked to suggest a policy framework to adopt strategic policy measures which helps India to capitalize on global growth opportunities while developing its own highly competitive manufacturing and service base.

The Committee has since submitted its report. It has proposed to rename SEZs as 3Es–Employment and Economic Enclave, with the objective of moving from ‘island of exports to catalyst of economic and employment growth’. The 3Es would aim to bring together all categories of investors that enable economic activity or job creation and investment, targeted towards leveraging domestic demand. Separate recommendations have been made for stakeholders operating in the Manufacturing and Services sectors.

Another development which took place round about this time was in the World Trade Organization (WTO). The US had filed a dispute regarding export incentives being given by India to five schemes including to SEZs. The WTO held such benefits to SEZs as being violative of the provisions of WTO’s Subsidies and Countervailing Measures (SCM) since they linked benefits to earning foreign exchange. While India has appealed against the order, it is evident that we are taking these developments seriously. The announcement in the Budget was not unexpected.

Thus, while working out the contours of the new scheme, we would do well to look closely at the concerns raised by CAG and at the WTO. We would do well to look at the export schemes already in existence. The Customs department runs a trade-friendly and successful scheme–MOOVR (Manufacture and other Operations in Warehouse Regulations). In terms of these regulations, capital goods and raw materials can be imported without payment of duty to a bonded facility. Duty is deferred–and where the imported inputs are used for the manufacture of goods exported, the basic customs duty, and IGST are exempted and GST, zero-rated. A single point of approval, unlimited period of retaining the warehoused goods, no geographical restriction on opening the manufacturing warehouse, make it an attractive proposition.

We need to ensure we put in place a ‘smart’ export scheme. One that does not degenerate to a land-grabbing scheme. One that would help propel exports, help India achieve its ambitious target of reaching $ 1 trillion by 2025 and also be WTO compliant. The Budget speech also proposes to have the SEZs function on the very robust and time-tested customs national portal -this should further add to the ‘smartness ‘of the scheme.

— The author is a former chairman of the Central Board of Indirect Taxes & Customs

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: GST and budget proposals

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goods and Services Tax (GST) which is such an important component of the indirect tax regime barely finds mention in the Budget 2022-23 speech of the Minister of Finance. This is a reflection of the changed landscape post-2017. There were no proposals obviously on the GST rates.

But there were changes proposed in the GST statutes — seventeen in the CGST Act and one each in IGST and UTGST. All these are on the basis of recommendations made by the GST council over the period of the last twelve months.  Given the fact that these recommendations were in the public domain, it is surprising that the proposals appear to have left very many nonplussed.

The proposals are a mix of measures to, enhance taxpayer facilitation (ETF) and curb tax evasion (CTE). The more important changes proposed are:

Clause 99 of the Finance Bill (FB) seeks to impose a condition on availment of input tax credit (amending section 16 of Central Goods & Services Tax Act) only if the credit has not been restricted under Sec 38 of the Act which deals with furnishing details of outward supplies. This was much needed given the rampant misuse. (CTE)

Also Read | View: The Union Budget 2022-23 and proposed changes in Customs Act

The clause also has a proposal to extend the time limit for availment of input tax credit till the 30^th November of the following financial year (ETF)

Clause 100 (FB) proposes to amend section 29 ibid so as to initiate action to cancel the very registration of a person who having opted for the composition scheme, has not furnished returns for a for a period of three months beyond the due date. (CTE)

The proposal at Clause 101 seeks to ease a pain point. This proposes to extending time of issuance of credit notes up to 30^th November (from 30^th September) of the following financial year (ETF)

Clause 102 seeks to amend section 37 ibid relating to furnishing details of outward supplies. The requirement of the details of outward supplies having to within a time period either be accepted or rejected is being done away with. The clause also seeks to extend timelines to the 30^th November of the following financial year for rectification of errors (ETF)

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Clause 103 seeks to substitute the existing section 38. This is a corollary of the proposal in clause 102. This proposal seeks to put in place an auto-generated statement of inward supplies/input tax credit. Obviously, CBIC is confident of the robustness of GSTN to generate such statements for the taxpayers. (ETF and CTE)

Clause 105 seeks to substitute Section 41 of the Act and do away with the concept of “claim” of eligible input tax credit. Instead, the proposal is to permit the taxpayer to avail the self-assessed input tax credit. (ETF)

Clause 106 seeks to do away with Sections 42, 43 and 43A Act -in effect doing away with the two-way communication process in return filing. These were provisions that had been put in the statute after an extended debate. They were intended to check fraudulent claims of input tax credit. The technology provider had also assured that systems would be put in place to operationalise the provision. Obviously, this has not happened. The proposal to auto-generate a statement of inward supplies would hopefully take care of any possible attempted mischief. (ETF)

Clause 109 seeks to amend the provisions relating to the utilisation of credit (Sec 49). Restrictions are being proposed for utilising the amount available in the electronic credit ledger. Further, the maximum amount of output tax credit that can be discharged through the ledger is also sought to be prescribed. This proposal has generated debate-but what this proposal in effect seeks to do is only put in the statute what was introduced in the rules through a notification (notification 94/2020 which introduced Rule 86B) and was in force from 1.1.2021. (CTE)

Also Read | View: A benign budget is a fine budget

Clause 110 seeks to substitute Sub-section (3) of section 50 retrospectively, with effect from the 1st July 2017. Instead of the present rate of 24 percent, a rate of 18 percent is being proposed. (ETF)

These amendments would come into force from a date to be notified. It must be kept in mind that all the States will have to carry corresponding changes in their respective SGST Acts.

Certain retrospective amendment proposals have also been proposed-all are beneficial to the taxpayer. There is also an administrative retrospective amendment proposed recognising GSTN portal as the common goods and services tax electronic portal-making de jure what is de facto.

Another Budget related development though not directly related to the GST proposal is the proposal to tax at 30 percent under the IT Act virtual digital assets.  While the cryptocurrency market is grappling with this development, CBIC would do well to look closely at these transactions from the GST angle.

Thus, it may be seen that ETF proposals far outnumber the CTE proposals. As the Minister of Finance mentioned in her speech ‘The right balance between facilitation and enforcement has engendered significantly better compliance’. This is reflected handsomely in the record GST collection for the month of January 2022.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow