A Paradigm Shift

-Sanju Verma

 

 

This quote exemplifies the visionary, problem-solving leadership of Prime Minister Narendra Modi, who chose to bring in the most significant indirect tax reform in post-Independent India by implementing the Goods and Services Tax (GST), in his first term in office. From an average tax rate of between 28-31%, in 2013, on most goods and services meant for daily and frequent consumption, post-GST that was introduced in July 2017, average tax rates have come down sharply to less than 18%, with over 90% items of mass usage taxed at either zero or 5%. Barely 28 odd luxury items and “sin goods”, like say aerated/caffeinated drinks and tobacco products, for instance, are taxed at the peak rate of 28% today.

 

GST rollout has also cut down the number of forms to be filed by businesses to just 12 from almost 495, in the pre-GST era. Again, uniform 5% tax is levied for all restaurants, both air-conditioned and non-AC, since 2018, from an earlier 12% GST levy on the food bill in non AC restaurants and 18%, in air-conditioned ones. Effectively speaking, contrary to what critics allege, while the erstwhile Congress-led UPA regime sat on the Kelkar Committee recommendations for ten long years, it was finally the Modi Government which not only made GST a reality but ensured its seamless execution too, notwithstanding a few initial glitches. Consumers got an annual benefit of Rs 1 lakh crore due to GST in 2018-19. Also, with a compliance rate of over 70%, with over 13 million GST filers, suffice to say that GST has succeeded in its endeavour towards replicating the “One Nation, One Tax” model.

 

Apart from GST, a destination-based tax which clearly has been the single biggest indirect tax reform in the last seven decades, the Modi government also brought in sweeping changes in Direct taxes.

 

Speaking of Direct taxes, “Budget 2020” ushered in a new income tax slab regime with reduced rates for those foregoing 70 tax exemptions and deductions under a “new simplified tax regime”. This new tax system that came into effect from April 1, 2020, is optional and will co-exist with the old tax regime, but is path-breaking, as it gives the taxpayer the freedom to choose and plan, his tax outgo and cash flows. Individuals with a net taxable income of up to Rs 5 lakh per annum will be able to avail tax rebate of Rs 12,500 under section 87-A of the Income Tax Act in both, the existing and new, tax regimes. Effectively, this would mean that individual taxpayers with a net taxable income of up to Rs 5 lakh, will continue to pay zero tax in both tax regimes and, this is certainly a huge bonanza for many.

 

 

Of late, the recent 4.2% gross domestic product (GDP) print for the financial year 2019-20 for India, has reignited the Modinomics versus Manmohanomics debate. In particular, the GDP print of 3.1% for the March 2020 quarter, has provided fodder to idle minds who know nothing about economics, to start waxing eloquent on how things were much better, under an incompetent Congress. Well, the pleasant truth is things are, indeed, undeniably much better today versus what they were six years back. While the ignominy of a miserable 0.2% GDP growth for the March 2009 quarter belongs to the Congress, the highest GDP growth of 8.2% in fiscal 2016-17, belongs to the Modi Government. Before proceeding further, it should also be noted that while India’s GDP expanded in the March 2020 quarter, albeit by just 3.1%, most large global economies contracted during this quarter.

 

For instance, the USA posted negative growth of 4.8%; China recorded negative growth of 6.8%, Japan grew by minus 5.2% and Singapore and Germany by minus 2.2% each, during the March 2020 quarter. Eurozone contracted at its slowest pace since 1995, by 3.1% for the March quarter, year on year (YoY) and 3.6%, quarter on quarter (QoQ). Indeed, this sharp slowdown globally in the March 2020 quarter had little to do with the Corona virus pandemic or the lockdown. The impact of the epidemic will be felt only in the coming few quarters. Equally, what Modi’s critics and self-styled economists forget is the fact that since 2019, the world economy has been in a rather rough patch due to trade and tariff wars between the USA and China and the great “global auto slowdown”, due to the mandatory transition to BS-VI emission norms. To single out India, which has weathered the storm far better than global counterparts, is therefore unacceptable.

 

  

Be it launching Rupay cards in Abu Dhabi and Bhutan, spearheading the International Solar Alliance (ISA), or powering the India story at BRICS and the Eastern Economic Forum in Vladivostok, Modinomics has perfected the subtle art of marrying international diplomacy, soft power and the attendant economic linkages. Modi’s first term in office laid the solid groundwork –the first year of his second term has thereafter decisively built on that strong foundation. Also, be it the world’s biggest healthcare scheme, “Ayushman Bharat”, that has till date benefitted over 1 crore people, or the Rs 6,000 per annum income support scheme, under the “PM Kisan Yojana”, that benefits over 14.5 crore small and marginal farmers, or the “PM Ujjwala Yojana” that gave free gas connections last year, to over 8 crore households, the Modi Government has given last mile connectivity a whole new meaning.

 

Equally, the direct benefit transfer (DBT) scheme, which has till date, transferred a cumulative sum of Rs 8.91 lakh crore, akin to almost 4.5% of India’s gross domestic product (GDP), showcases how Modinomics is both inclusive and democratic. The world’s largest food security scheme to benefit 80 crore people across the country, with each one getting 7 kg ration per month, during the COVID-related lockdown, is a testimony to Prime Minister Modi’s tremendous execution skills in putting to work, policies, to prevent them from becoming mere paper tigers.

 

In the first year of his second term, Modi’s landmark steps have been many-the decision to implement Rs 102 lakh crore worth of infrastructure projects via the National Infrastructure Ppipeline (NIP), lowering employees’ state insurance act (ESIC) contribution from 6.5% to 4%, which benefits 3.6 crore employees and 12.85 lakh employers, a monthly pension of Rs 3,000 to small traders and shopkeepers in the unorganised sector after they attain 60 years of age under the “PM Shram Yogi Maandhan Yojana”, the bill to repeal 58 archaic laws including outdated labour laws and passing the “Code on Wages Bill” 2019, which will benefit over 500 million workers across the country, raising foreign portfolio investor (FPI) limits in corporate bonds from 9% of the outstanding stock to 15% and, opening up of specific government bond limits for non-resident investors, to carve out a roadmap for India’s inclusion in the emerging market (EM) bond index, have been notable.

 

Modi’s misguided critics who have been quick to dismiss demonetisation would do well to know that the number of people paying an individual income tax of greater than Rs 1.5 lakh has increased from 13.8 lakh in AY13 to 34.9 lakh in AY19, reflecting how demonetisation dramatically improved tax compliance. As per National Payments Corporation of India (NPCI) data, February 2020 saw 132.32 crore UPI transactions totalling Rs 2.2 lakh crore, illustrating how demonetisation has also dramatically enhanced India’s digital footprint.

 

Clearly, in the last one year, Modi has shrugged away any form of incrementalism. Sweeping, big bang reforms have been the norm. Reduction in corporate tax rate from 30% to 22% and for new companies to 15%, 100% foreign direct investment (FDI) in coal mining and contract manufacturing, allowing private sector in commercial coal mining on a revenue-sharing basis with no end-use restrictions, 100% FDI via the automatic route in defence manufacturing, single-brand retail and real estate broking services, corporatisation of Ordnance Factory board and, of course, strengthening the insolvency and bankruptcy code (IBC) framework, by ring-fencing new owners of bankrupt companies from criminal liabilities of erstwhile promoters, are measures that underpin, the essence of Modinomics. Decriminalising Sections 7, 9 and 10 of the IBC, to ensure defaults arising from the COVID pandemic are not penalised, are reflective of a government that means business but cares.

 

The Bank Nationalisation Act of 1969, a forgettable vestige of outdated Nehruvian socialism, has been a milestone for PSBs. By merging SBI, with its five associates and the “Bharatiya Mahila Bank” in 2017, Modi created a banking behemoth with an asset size of over Rs 41 lakh crore and over 370 million customers. The decision to thereafter consolidate 10 public sector banks (PSBs) into 4, starting April 2020 and more recently, allowing the private sector to enter into non-strategic areas, with not more than four PSUs in any given strategic sector and of course, the decision to privatise power distribution companies in union territories (UTs), are a reflection of how Modinomics is following the path of “Minimum government, Maximum governance”.

 

More recently, “One nation one ration card”, free food grain supply to migrants, creation of affordable rental housing complexes (ARHCs) in urban areas for migrants, Rs 90,000 crore support for cash starved power distribution companies, Rs 30,000 crore special liquidity scheme for non-banking financial companies (NBFCs), housing finance companies (HFCs) and micro finance institutions (MFIs),

 

Rs 3 lakh crore of collateral free loans to micro, small and medium enterprises (MSMEs) and liquidity support of Rs 6,750 crore by bringing provident fund rate down from 12% to 10%,efforts to make India a global maintenance, reach and overhaul (MRO) hub for aviation, throwing open 6 new airports via the public-private partnership (PPP) route to the private sector, changing the definition of MSMEs by including both investment and turnover related criteria, atomic energy reforms, allowing private sector in space exploration and to use indian space research organisation (ISRO’s) facilities, reducing the benchmark Repo rate to 4%,the lowest in 20 years, Rs 2 lakh crore concessional credit for farmers and fishermen via Kisan Credit cards, throwing open 6 new airports for privatisation via the public-private partnership (PPP) route and decriminalising certain offences under the Companies Act, have been part of the Modi government’s Rs 20.97 lakh crore, mega stimulus package, akin to a solid 10.48% of GDP.

 

The Modi Government has launched “Swayam Prabha”, free-to-air education channels, which consists of a group of 32 DTH channels that provide educational content, to those who do not have access to the internet. The other component in the “PM eVIDYA” package is the “DIKSHA” portal (One Nation, One Digital Platform), which will provide quality educational content to researchers and students.

 

Coming back to COVID, unarguably with a high recovery rate of 52.47% and a case fatality rate (CFR) of around 2.7%, India’s track record under Modi has been exceptional. As a way of comparison, the CFR in Germany is 5%, 19% in France, 6% in the US and over 14% in both Italy and the UK. CFR is the proportion of people who die from disease among all individuals diagnosed with the disease. If we look at death per million population, India has recorded roughly four deaths per million, whereas the number for UK is 585, the US is 330, Germany is 104 and Brazil, is 153. Even allowing for our younger demography, our health system has been able to cope up with the pandemic reasonably well and far better than global peers. From being a net importer in March 2020, India has produced well over 1 crore PPE kits in the last 2.5 months, to become one of the largest producers of PPE kits in the world. Clearly, turning crisis into an opportunity is a rare ability and, Modi has that ability in abundance.

 

Modi’s critics have often accused him of being majoritarian–an allegation which is absolutely baseless. For example, over Rs 5,029 crore has been separately allocated for minorities, with over 80 lakh students from minority groups being provided pre-metric, post metric and other “merit cum means” oriented scholarships. One lakh youth from minority communities are being given specialised training in various skill sets. Again, no one can accuse Modi Government of being partisan, by neglecting any particular geography. The North-East, which suffered heavily under previous Congress-led or Leftist regimes, is thriving today. A 1,656 km long gas pipeline is being laid to put this region onto India’s hydrocarbon map. Also, the Agartala-Akhaura rail line, will for the first time, connect India and Bangladesh, via a rail route, besides, of course, drastically reducing the rail commute time between Kolkata and Agartala from over 38 hours to less than 15 hours. Speaking of railways, 5,181 km of railway track has been renewed, over 1,367 bridges renovated and more than 1,274 manned crossings eliminated, in the recent past.

 

Modinomics, among other things, has been very gender-sensitive too, with over Rs 4.78 lakh crore worth of loans given to women borrowers alone, under the MUDRA scheme. While addressing the Indian Chambers of Commerce (ICC) at its 95th annual plenary session on June 11, 2020, the Prime Minister focussed on the importance of families, which are the very core of “Aatmanirbhar Bharat” and underlined the relevance of a people-centric, people-driven and a planet-friendly approach. Marrying economics with environment friendliness is never easy due to the natural conflict involved. However, under Modi, India has managed this conflict seamlessly. For instance, as of March 31, 2020, the country’s total installed power capacity stood at about 372 GW. Of this, the installed power capacity from renewable sources (including large hydro) accounted for about 134.7 GW, or 36.21% of the overall power capacity. This is a huge development, in reducing carbon footprint without sacrificing growth. Don’t forget that when Modi initially took charge in May 2014, renewable sources barely accounted for 5% of the installed capacity, under an utterly incompetent and lethargic Congress. Again, within renewables, solar installations account for about 27.2% of the overall renewable capacity, today, in India. The LED bulb revolution, made popular by Indian families, which saves a good Rs 19,000 crore annually, is another great example of how Modinomics is participative. These bulbs used to cost Rs 300-450 per piece in 2013, but are now available at between just Rs 34-50, per unit.

 

That Modinomics is not isolationist like Nehru’s decadent, Mahalanobis model is evident from the Rs 43,574 crore investment by Facebook in Reliance Jio, the largest ever FDI into India, in the technology sector. Equally, the clarion call of “Vocal for Local” by PM Modi is best exemplified by the unprecedented decision to amend the “Essential Commodities Act” of 1955, yet another Nehruvian relic, well past its expiry date, to ensure deregulation of prices for food stuff including cereals, edible oils, oilseeds, pulses, onions, and potatoes. Also, allowing farmers in contract farming and defanging the agricultural produce marketing committee (APMC) structure, will give “adequate choices” to farmers to sell their produce at attractive prices, either via barrier-free, inter-state trade, or via e-trading, besides, of course, ending trade cartelisation by middlemen and ensuring assured returns, quality and standardisation to India’s “Annadaata”.

 

It is true that like the rest of the globe, India will slowdown, with the World Bank predicting a 3.2% GDP contraction for India in 2020-21, while forecasting a much larger 5.2% contraction in world GDP and an even bigger 7% contraction for advanced economies. Equally, Fitch says India’s recovery will be dramatic and its GDP will grow by a solid 9.5% in 2021-22, while S&P says, India’s growth will be the sharpest at 8.5% in 2021-22.

 

Well, in the case of PM Narendra Modi, last year has been extraordinary for the sheer number of opportunities that were seized, to create new milestones, in making India self-reliant. India trumped France in 2019 to become the 6th largest and then yet again surpassed the United Kingdom in early 2020, to become the world’s 5th largest economy. The Prime Minister, at the recent ICC address, quoted Swami Vivekananda, who decades back had urged Indians to “use their own products and get markets for Indian art ware in other countries”. The PM went on to say how the path shown by Swami Vivekananda is an inspiration for India in the post-COVID world. Indeed, as geopolitical equations recalibrate, India, with a forex reserve of almost $500 billion, next only to China and Japan, has shown to the world, why it deserves to enjoy pole position, in more ways than one. Modinomics, with the right degree of fortitude and unputdownable resilience, has indeed, consummately blended the 3P’s: People, Planet, and Profits.