GST’s (b)ill-effect
India’s vast informal economy — which accounts for more than 90 per cent of the workforce — is struggling under India’s new goods and services tax rates.
PAGE 28
new delhi — On the edge of one of India’s biggest slums, Alauddin Ansari opens a paper ledger of daily sales at his small leather shop and points to a blank page. That’s the tally for today. Nothing.
Before Prime Minister Narendra Modi introduced the country’s new goods and services tax on July 1, Ansari said he was earning 6,000 rupees ($93) a day selling leather jackets, wallets, bags and belts. But India’s new tax classified leather products as luxury items and raised the rate to 28 per cent — more than double the 13.5 per cent tax levied until June 30. Since then, his business has collapsed.
“My business is down nearly 75
The struggles of small leather retailers are indicative of the broader pain being felt by many SMEs in India’s informal sector K.E. Raghunathan, president of the All India Manufacturers Organisation
per cent,” Ansari said, turning a page to show he made just 850 rupees the previous day at his shop near Mumbai’s vast Dharavi slum. “Obviously, the GST has had an impact on trade. At 28 per cent, GST is a bit too much.”
The leather sector is just one example of how India’s vast informal economy — which accounts for more than 90 per cent of the workforce — is struggling under India’s new tax rates, which range widely from exemptions for items like basic food grains to 28 per cent for products like air conditioners.
In 2016, India’s leather exports totalled $5.67 billion, according to the Council for Leather Exports.
Even supporters of the tax expected months of economic chaos as millions of shopkeepers and manufacturers were dragged into the tax net for the first time. But many labourintensive sectors — from leather to textiles — fear newly-high rates will have a lasting impact on industries that provide billions in export earnings, raising the chance that India’s trade balance could widen in the next few months.
Although it should increase tax compliance and government revenues over time, analysts are still waiting to gauge the short term disruption now rippling through India’s $2.3 trillion economy. The GST comes less than a year after the government’s shock cash ban sucked 86 per cent of the nation’s currency out of circulation overnight, knocked India’s GDP growth down to 6.1 per cent from 7.1 per cent and eliminated as many as 1.5 million jobs.
The struggles of small leather retailers are indicative of the broader pain being felt by many smalland-medium-sized businesses in India’s informal sector, said K.E. Raghunathan, president of the All India Manufacturers Organisation. Other unorganised sector workers making firecrackers, matches, textiles are also suffering, he said.