India's economy turned into the world’s quickest developing significant economy in the last quarter of 2014, replacing the People's Republic of China.
Goods and Service Tax (GST)
GST is a comprehensive tax on goods and services. GST
can make indirect tax system very efficient and will benefit all stake holders including manufacturers, sellers, the ultimate consumers and the tax collecting governments.
The GST is expected to be implemented from April 2016
. More than 140 countries have so far implemented GST. In India GST has proposed in the 2006-2007
budget but it delayed due to lack of consensus among political parties.
Due to lack of consensus a final decision is yet to be reached on the tax rate. GST council is working on a tax rate acceptable to all.
Since petroleum and alcohol are major sources of revenue to the states, they objected to the inclusion of these items in the GST. Entertainment tax imposed by local bodies like panchayats and municipalities will be exempted from the GST.
The Apex policy making body for the GST will be the GST Council. The GST council will consists of the finance ministers at the Centre and the states.
Advantages of GST
How the GST will Affect the Country
- GST simplifies the indirect tax structure by subsuming a plethora of taxes levied by the Centre and the states.
- Through the uniform GST for the entire country, a common market is created for the entire economy. All state economies with differing tax rates will be merged together into a common market.
- GST can contribute to making Indian products competitive in the international markets.
- GST is business friendly tax since it simplifies procedures. Economists believe that the GST alone can increase GDP growth by close to 1 percent.
Based on New Calculation, India Revises GDP
- From the consumer’s point of view, the biggest advantage would be in terms of reduction in overall tax burden on goods, which is currently estimated at 25 – 30 percent.
- Tax reform in many of the developing countries has focused on moving to VAT. Federal countries like Canada, New Zealand and Australia have successfully adopted the GST into their structure.
Gross Domestic Product is the total value of all goods and services produced in a country’s economy in a specific time period and is usually given in local currency. GDP growth rate denoted in Percentage, is the growth in the GDP as compared to that of the previous year.
Three important changes in the Calculation of GDP
Changing the base year
- Changing the base year
- Replacing factor costs with market prices
- Widening of the data pool
Choosing a base year is the first step while counting the real GDP
. A real GDP growth rate removes any effects that have arisen due to inflation to give us a truer picture of economic reality. For the revised GDP calculations the Indian statistics
have changed the base year from 2004-05 to 2011-12
. This means the real GDP will be counted by keeping the prices of 2011-12 instead of the prices of 2004-05.
Replacing the Factor costs with Market prices
There are two ways to calculate GDP and those are calculating via factor costs or calculating via market prices.
India’s Gross Domestic Product
- Factor costs means the cost of production that the producers or service providers have incurred after removing the effect of indirect taxes or subsidies.
- Market prices means the actual expenditure incurred by consumers.
- The shift from factor costs to market prices indicates that India is slowly conforming to international norms as most countries use market prices for calculating the GDP.
- The GDP for the base year 2011-12 is estimated as Rs. 88.3 Lakh Crore. The GDP for the current prices for the base year 2012-13 is estimated as 99.9 Lakh Crore while that for the year 2013-14 is estimated as 113.5 Lakh Crore.
- The real GDP for the year 2011-12 prices stands at 92.8 lakh Crore and 99.2 Lakh Crore respectively for the years 2012-13 and 2013-14.
The percentage changes in the Gross GVA (Gross Value Added) at basic prices in different sectors of the economy as follows, the nominal GVA at basic prices increased by 13.2 percent during 2013-14 and 12.9 percent during 2012-13.
Finance Commission of India
The growth of India in GVA during 2013-14 has been higher than that in 2012-13 due to higher growth in ‘trade and repair services’ at 14.3%, ‘communication and services related to broadcasting ‘ at 13.4% and other services at 10.7%.
Net National Income
The Nominal Net national Income for the year 2011-12 stands at Rs. 78.5 Lakh Crore while the estimates for the year 2013-14 is Rs. 100.6 Lakh Crore.
Gross National Disposable Income
The Gross National Disposable Income at current prices is estimated as Rs. 90.6 Lakh Crore for the year 2011-12 and for the year 2013-14 is Rs. 116.0 Lakh Crore respectively.
Gross Savings during 2011-12 is estimated as Rs. 29.9 Lakh Crore
and estimates for the year 2012-13 and 2013-14 are Rs. 31.8 and Rs. 34.8 Lakh Crore respectively. The highest contributor to the gross saving is the house hold sector with a share of 59.4% in the year 2013-14 however the share has declined from 67.3% in 2011-12 and 63.4 percent in 2012-13.
Gross capital formation at current and constant prices is estimated by two approaches
Industrial, corporate and Infrastructure Performance
- Through flow of funds derived as gross saving plus net capital inflow from abroad.
- By the commodity flow approach, derived by the type of assets. The estimates of GCF through the flow of funds approach are treated as the firmer estimates, and the difference between the two approaches is taken as “errors and omissions”.
The growth story in industry also presented a bleak picture. The growth rate in GSDP
for industry for the entire nation was a paltry 0.4 percent, but there were few surprises the biggest being Kerala
leading the pack with 18.41 percent, followed by Odisha, Sikkim and Nagaland. Gujarat fared well, posting a rate of 7.12 percent followed by Madhya Pradesh
As per recently released national accounts data with 2011-12 base year growth much better in 2012-13 and 2013-14 at 2.4 percent and 4.5 percent respectively than earlier estimated, with 2004-05 as base year.
The industrial growth picture as per the IIIP
suggests that industrial production which had slowed down since 2011-12, reversed tend in 2014-15. The basic goods and capital goods witnessed marked improvement in growth during April-December 2014-15
Growth in Infrastructure, based on an index of eight crore industries, has improved slightly to 4.4 percent during April-December 2014-15 as compared to 4.1 percent in the same period in 2013-14.
India’s Service Sector remains the major driver of economic growth contributing 72.4 percent of GDP
growth in 2014-15. The service sector
growth has increased from 8 percent in 2012-13 to 9.1 percent in 2013-14 and 10.6 percent in 2014-15. This mainly due to growth acceleration in financial, real estate and professional services to 13.7 percent from 7.9 percent and public administration, defence, and other services to 9.0 percent from 7.9 percent in the previous year.
The service sector is also the dominant sector in most of the states of India with a more than 40 percent share in the gross state domestic product
(GSDP) in 2013-14 for almost all states. The India had the second fastest growing service sector
, just below the China’s 10.7 percent.
Among the sub-sectors, computer and related with a share of 3.3 percent
in India’s GDP grew by 14.4 percent in 2013-14. The contribution of tourism to total income and employment of the country during 2012-13 was 6.9 percent 12.5 percent respectively. In 2014 foreign tourist arrivals and foreign exchange
earnings increased by 7.1 percent and 6.6 percent respectively.