GST Fallout amidst record Recession

So … the latest GDP figures are out which suggest that we are in a very very bad shape. The shape is so bad that it’s correction may require the full tenure of Modi Government. But … the problem is not just figures but exhausted fiscal deficit and rift over GST compensation as well. Let’s have a look at them.

The Latest GST Figures

According to the figures Indian economy has grown … oh I am sorry degraded by around 24% (1). Yes … you heard it right, ‘Downgraded’ , i.e. it has been in Negative. Also the magnitude of 24 is as large as almost our growth over last 4 years. Means we are straightaway thrown 4 years back by MOVID (MODI+COVID). Also, saying economy shrank only because of COVID is just like “A student who didn’t studied whole year but also caught fever before exam and blamed him failing in exam on fever”.


GDPGrowth Twitter Trend : Most Popular Tweets | Worldwide

Image Source : https://www.tweet247.net/worldwide/gdpgrowth

So is the reason just COVID or something bigger … ?????

Well … I already hinted at the end of last paragraph. If the government says what they are saying, that all this is because of COVID-19 Pandemic, then they are lying. Was our economy booming before COVID hit the world.

Two Important Points (2)

1.We are not the only country being hit by this pandemic and nor are we the only country whose economy has contracted, but look at the magnitude … man. No one is even close to that a level of downfall.

2. If you look at our economic performance from last 16 quarters, which means 4 years we have been continuously falling and not for even once did we even showed any sign of revival. So, when COVID hit us we were already in our most vulnerable condition.

Affect on Various Sectors

If we take a look at various sectors in economy we will find the worst hit one is as usual the ‘Manufacturing’ sector. It has contracted by around 40%. Service sector has also suffered a downfall. If it was not for the’agriculture’ sector which grew , our figures would have been even worse.

So where did the Government went Wrong … ?????

Well … shouldn’t the question be asked in opposite way, where it didn’t … ?????

When all the economic experts including those are called as Critics of Modi Government like RAGHURAM RAJAN, ABHIJIT BANERJEE or even our former prime minister MANMOHAN SINGH, have been continuously stressing that it’s our ‘Consumption’ front which has been in paralysis and that’s where our reforms should target. Another notable point is that our Consumption fell for the first time in over 50 years which is a big question mark on the economic report card.

But, what the government did was bringing one reforms after the other, but none of them focused on this very sector. Some were towards making easy loans or some were towards promoting new industries. But, one thing we all should remember that our Indian economy is majorly a ‘Consumption’ based economy, which means that whatever people spend and purchase that only runs the economy and keeps it going. (3)


Slowdown: Does the Narendra Modi govt even understand what is going on with  the Indian Economy?

Image Source : https://scroll.in/article/942091/hard-times-does-the-modi-government-even-understand-what-is-going-on-with-the-indian-economy

The Fiscal Deficit Challenge

Fiscal Deficit is the excess of government expenditure over it’s revenues. It’s not a bad thing to have, especially in case of a Developing Economy, but there should be a target fixed or else we might find ourselves in a vicious circle. Though it is not a new trend in our economy as from all the past years we have been exhausting our fiscal deficit target set for the year much before (9-10 months) that. But this year we have exhausted the target in ….. 4 months. Yes … that’s it, in one third of the year. Now what will we eat for the rest of the year … SOS. (4)

The Fight over GST Compensation

To further understand this issue … you all need to get a Background of GST Compensation.

See, when GST was under discussion, a markable point was raised. We all know that whatever be the amount of GST on a product, half of it goes to centre and half goes to state. But a big doubt that hit all the states was that GST is levied only on the state where the good is finally sold and not in any of the states where it was processed, manufactured or transported. So, the states argued that it will be a matter of loss for all of us as we would have gained had GST not been in place. But, then our former finance minister late ARUN JAITLEY in a historic move, assured that whatever be the loss amount for states that will be compensated by the centre. It was after this assurance in the bill only that finally all states agreed for passing of the GST Bill.

But … the claims never really took off. No … GST compensation was given to the states but it was always late and with a heavy heart kind of attitude. The reason for this was that GST collection never even cam eclose to what was expected at the very beginning (1.5 lakh crore). Due to which centre has always been reluctant to give money to states. But, this time what happened is that due to COVID-19,GST collections was not not even up to an average level, basically the centre itself has ran out funds so how will it give the compensation to the states.

Claims of Centre and State

On one hand states are claiming … what can we do if centre has not been able to able to accumulate funds, we need the money or else how will we run. Centre also has many other sources of income but we don’t.

While centre claims that GST Compensation was for compensating the loss occurring to the states due to GST and not for any unprecedented situation or ‘Act of God’.

In my opinion, both the claims are correct at their place but centre asking states to borrow is something I don’t think is agreeable. It is the duty and responsibility of the central government to make resources available to the state. So, it should be the centre only which should borrow. Also, central government has accessed the RBI vaults now, maybe that would help but they need to gather that help ASAP.

Conclusion : So will we see a change in attitude towards economy now … ?????

In my opinion the answer is No. When our economy is in such a miserable position, do we have any prime time debates or general discussions (among public) going on regarding it … NO. We all know what is the most discussed topic in the country at the moment. Do you even know how will government arrange money now, it will either sell it’s assets or most probably inflate the prices through extra taxes or cess. It means already our spending is at an all time low and we should be ready for further downturn. It’s you all who are going to be the most affected but still you all are as relaxed as ‘That’ topic only will help you out of it.

Press Trust of India on Twitter: "'Act of God' may result in contraction of  economy this fiscal: Finance Minister Nirmala Sitharaman, referring to  coronavirus pandemic"

We also know how easily our government slides away all the accountability on COVID and so called ‘God’. It’s not just media and government to be blamed alone, after all they are also doing what is bringing them profits. The real culprits are we the people who waste our precious time on useless topics instead of focusing on what really matters. are and practical in life. So … before ending I would only say Economics is something which affects ‘each and every’ person … so never ignore it and at least for your own good … be aware on it.





References :

  1. India’s GDP contracts by 23.9% in Q1, biggest crash in over 40 years , Aug 31, 2020 https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-contracts-by-23-9-in-q1-biggest-crash-in-over-40-years/videoshow/77853129.cms
  2. India’s economy was facing worst-ever deceleration before Covid-19 hit , Roshan Kishore HT New Delhi Sep 1 , 2020 https://www.hindustantimes.com/business-news/india-s-economy-was-facing-worst-ever-deceleration-before-covid-19-hit/story-gOJfU86lJ64UPOjLBoypvN.html
  3. First Time In Four Decades, Consumer Spending In India Falls By 3.7%: Report, Outlook Web Bureau NOv 15, 2019 https://www.outlookindia.com/website/story/business-news-first-time-in-four-decades-consumer-spending-in-india-falls-by-37-report/342379
  4. Fiscal deficit crosses full year budget target in 4 months, Reuters , Aug 31, 2020 https://timesofindia.indiatimes.com/business/india-business/fiscal-deficit-crosses-full-year-budget-target-in-4-months/articleshow/77851470.cms#:~:text=NEW%20DELHI%3A%20India’s%20fiscal%20deficit,government%20data%20showed%20on%20Monday.
  5. With the Centre refusing to pay compensation to states, is GST nearing an end? , By Shoaib Daniyal, Sep 29, 2020 https://scroll.in/article/971657/with-the-centre-refusing-to-pay-compensation-to-states-is-gst-nearing-an-end

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