WILL GST IM­PACT CON­SUMP­TION OF GOLD OR CURB IM­PORTS?

Solitaire - - COVER STORY -

econ­omy was also an at­tempt to curb cash trans­ac­tions in the coun­try and thereby stem gen­er­a­tion of black money. Fur­ther, GST has been in­tro­duced to make all trans­ac­tions vir­tu­ally on­line with strin­gent com­pli­ance mea­sures, thereby try­ing to make it very dif­fi­cult for the trade to make ad­just­ments to­wards the end of the year or un­der- or over-in­voice their trans­ac­tions.

The in­ten­tions are very noble and laud­able to make In­dia free of cor­rup­tion and black money. How­ever, the im­ple­men­ta­tion leaves a lot to be de­sired. The premise is that the in­for­mal, un­reg­is­tered or small and medium sec­tors or the cot­tage in­dus­try are not wanted. They have vir­tu­ally no place in the sys­tem.

Last year, the im­po­si­tion of 1% ex­cise duty as well as de­mon­eti­sa­tion saw gold con­sump­tion and im­port of gold fall quite sharply. So, will GST also im­pact gold im­ports as well as cause a de­cline in con­sump­tion of gold? Since, there is no sign of dis­rup­tion of busi­ness in the jew­ellery trade so far, the con­sump­tion of gold would be based on the nor­mal fac­tors that im­pact it. How­ever, there is a pos­si­bil­ity that the gold con­sump­tion num­bers could show an in­crease as re­port­ing im­proves. A bet­ter track­ing sys­tem – match­ing ev­ery in­put with the fi­nal out­put – could make it dif­fi­cult for the trade to be un­of­fi­cial. More­over, one does not stop do­ing busi­ness just to avoid pay­ing taxes. But, there could also be in­stances where sec­tions of the trade go com­pletely un­der the radar. How­ever, it may not be as easy as be­fore and it could lead to some play­ers quit­ting the bul­lion trade al­to­gether. It can take some time be­fore one can make an es­ti­mate based on the above fac­tors.

Like­wise, hence­forth, cash has very lit­tle role to play in the econ­omy. How­ever, the fact is that agri­cul­tural in­come is tax free. And suc­ces­sive gov­ern­ments have ac­tively en­cour­aged the cot­tage in­dus­try and the small to medium en­ter­prises. They deal mainly in cash. True, all these fa­cil­i­ties have been mis­used by big­ger play­ers mas­querad­ing as small play­ers or farm­ers. But, they have the re­sources and con­nec­tions to cir­cum­vent the sys­tem even now.

Even de­mon­eti­sa­tion some­what failed in its stated ob­jec­tive of flush­ing out black money. Although it al­most got all the money back with the bank­ing sys­tem, it could not write off any sig­nif­i­cant li­a­bil­i­ties. More­over, the Jan-Dhan ac­counts meant for the poor in ru­ral and urban In­dia were mis­used by the rich and pow­er­ful in the coun­try. The ones who were to ben­e­fit from these bank ac­counts were the ones who bore the brunt of the hard­ships caused by de­mon­eti­sa­tion.

The gov­ern­ment ap­pears to be de­ter­mined to curb con­sump­tion of gold, par­tic­u­larly as an in­vest­ment op­tion. The mod­ern eco­nomic think­ing that gold is a dead in­vest­ment ap­pears to be firmly in­grained in the bu­reau­cratic mind­set. The same think­ing had seen the im­po­si­tion of the ob­nox­ious Gold Con­trol Act that was in vogue from around 1962 to1990. This Act was re­pealed in 1990 by

KARLIE KLOSS

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