Why we need gross progress indicator instead of GDP
The GDP is growing. The rate has been differing with different agencies. All, however, remains, around 7 per cent - plus minus 0.25 to 0.5 per cent. The latest central statistical office (CSO) figure of 7 per cent is within the range.
It is better not to link it up with demonetisation. The figures show an inherent strength of the Indian economy on the one hand, and on the other, raise certain questions about the concept of GDP itself.
Possibly, GDP is not the complete indicator though broadly it provides a path but does not exactly tell about the bumpy road conditions.
Data generation in India is largely considered credible. But the query can be whether the GDP figure could have been better if demonetisation was not there. Even the Economic Survey (ES) is not sure about the impact of demonetisation but does not rule it out either.
The “eight interesting facts” mentioned in the ES tell a lot. It says annual work-related migration has doubled since 2011 to about 90 lakh people. This shows that despite MGNREGA, people have to move out to look for jobs. Labour Bureau stats also indicate fewer job creation than targeted.
The credit rating of China to AA in 2010, despite fall in its growth, shows international bias, ES says. India despite improvement in indicators has remained unchanged at the lowest BBB-.
The peak of the growth boost due to the demographic dividend is fast approaching, with southern states peaking soon and the hinterland states peaking later.
The weaknesses are weak targeting of social programmes. Welfare spending suffers from misallocation; the districts with the largest number of poor people suffer from the greatest shortfall of funds. The districts accounting for the poorest 40 per cent receive 29 per cent of total funding.
India, ES says, has a “weak tax base”. There are only seven taxpayers for every 100 voters, ranking the country 13 among 18 democratic G20 peers. It says property tax potential is also unexploited.
This perception of the ES is incorrect. It only speaks of income-tax. It should be noted that the average income of Indians, as per various reports, including the Arjun Sengupta panel, is extremely low. The inflationary situation from 2009 to 2014 further eroded the income value.
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| No truck can pass a state border without paying the gratification fee, for which “receipts” are also issued. Photo: India Today |
While calculating the tax base, indirect tax payment is not included. Indirect taxes - excise, customs, cess, profession tax, local levies, tolls etc - are approximately over 40 per cent of one’s income. It is repeatedly said that even a beggar in this country pays at least 40 per cent as tax. It thus has a tax base of over 47 per cent and not 7 per cent as the ES stresses.
The tax one pays on property registration is often over 20 per cent of the base price. The ES arguments need correction.
In many cases there are multiple taxes. Take the example of automobiles. Apart from various taxes, road tax, bulk parking charge levied at the time of sale, a cess of 2 per cent per litre, is realised on the sale of petroleum fuel ostensibly for highway construction. But as one moves onto the highways, again hefty toll, said to be the highest in the world, is charged.
Nobody has studied the impact of multiplicity of taxes on prices and inflation and growth. Besides, one also does not understand that when a large chunk of the road or kisan vikas cess remains unutilised, why one is made to pay the toll.
In fact, it begins with capitation fee at nursery school admissions and continues till the highest medical education.
The GDP increases with every levy but that does not mean the country is progressing. The world over it has been observed that GDP growth neither means a comfortable situation nor progress of a nation and its people.
This country also has possibly the world’s biggest illegal income system. It is just not by businesses. Many business houses are forced into it by the people the government employs to check the menace. Various trade associations unofficially state that small and medium business units’ profit is limited to unpaid taxes. In hushed tones, they also say they have to shell out “doles” to various kinds of enforcers.
India can be more robust if travel can be seamless. It is not just hampered by each toll gate, where waiting time is 10 to 50 minutes, causing delays and wastage of fuel. Every state boundary calls for levying of an additional road tax and road barriers, giving the impression one is entering from one enemy territory to another. In Europe (EU) one smoothly crosses nations.
Apart from that are police barriers almost everywhere adding to further inconvenience. Of course, these also “add” to GDP as it is common knowledge money exchanges hands. There are official beggars who would not stop without extorting. This also leads to higher prices and is virtually a direct tax on the consumer. Does it add to progress?
The Narendra Modi government initiated many processes to free the country of corruption. It has achieved a bit of it through measures like direct benefit transfer, but it has not changed the functioning of state police and other agencies, including property registration or tax authorities. The demonetisation drive many would vouch for has been a windfall for many officials and some were caught too.
Every district border is a potential point of extortion by policemen for all commercial vehicles, including taxis, which are extorted even in NCR, be it Gurgaon, Jhajjar in Haryana or places in UP, MP or Rajasthan. No truck can pass a state border without paying the gratification fee, for which “receipts” are also issued.
Again for all this GDP may increase and so may income disparity but as a nation little can be done to free it of blatant illegal and unethical operations. Can any digitisation stop official extorters in various enforcement agencies?
Yes, the country has the potential to move faster if these illicit barriers across the nation are removed. Stringent rules will not solve the problem. It adds to more illicit ways and higher gratification.
The nation needs to discuss these issues threadbare at all fora and ensure real progress. It needs to do away with all barriers to create a new gross progress indicator (GPI) and junk the GDP.