Hundreds of thousands laid off despite growth, thanks to GST
Tilak Raj Bathla’s tiny weaving factory is one of the few still humming on a once busy road in Panipat, known as the country’s “textile city”.
Nearby, more than two dozen other workshops are locked from the outside, while dogs and cows roam through other abandoned factories. Scrap dealers enquire about idle powerlooms.
The Goods and Services Tax (GST) improved economic efficiency but critics say the complexities of the new regime have driven many small enterprises out of business and forced hundreds of thousands out of jobs. For Prime Minister Narendra Modi, the drawbacks of the GST, especially the job losses, could prove costly in major state elections later this year and a general election in mid-2019.
Bathla says his neighbours, most of them unschooled, could not comply with monthly online filings required under the GST regime. Some of his customers and suppliers could not afford to hire accountants to navigate a system which has been amended more than 200 times already, while others struggled to cope with delays in tax returns caused by glitches in the centralised software.
“I have a GST registration, but I can’t work as my vendors and buyers are unable to comply with a complex tax structure,” the 50-year-old said, adding his monthly sales had fallen to about ~250,000 ($3,511) from about ~1 million before the GST. Only two of his 10 powerlooms are currently being used.
The government has said it is simplifying the tax measure to make it accessible to everyone. Small firms hurting
But while big firms have since shaken off the effects of the change and are set to gain from a uniform tax regime, small businesses across the country are still hurting. A survey by the All India Trade Union Congress (AITUC) in July found that a fifth of India’s 63 million small businesses — contributing 32 per cent to the economy and employing 111 million people — faced a 20 per cent fall in profits since the GST rollout, and had to sack hundreds of thousands of workers. Readymade garments, gems and jewellery, leather, handicraft and basic machinery manufacturing are hit the most, industry bodies from across the country say. According to estimates by the Centre for Monitoring Indian Economy, a Mumbai-based consultancy, nearly five million workers lost their jobs over the past year. But it was not clear how many were from small enterprises.
Opposition seizes on GST The GST replaced federal and local taxes and tore down tariff barriers between 29 states, but critics say that has been to the benefit mainly of large, nationwide businesses.
For Panasonic Appliances, India’s leading electric goods maker, GST has meant cutting costs by 4-5 percentage points, for example. India’s consumer goods stock index has risen 26 per cent in the past year, outpacing the broader Mumbai market. “GST ... has improved the competitiveness of the manufacturing sector,” Panasonic India CEO Manish Sharma said.
Modi, in an Independence Day speech said the businesses that faced “teething difficulties in adopting GST had accepted the challenge and the country is now moving ahead.”