This year started with uncertainty regarding the effects of demonetisation and ends with uncertainty regarding the effects of the Goods and Services Tax (GST). Global trade growth rose sharply but export growth remained tepid, although in positive territory over a low base. The World Trade Organization (WTO) adopted a Trade Facilitation Agreement but failed to agree on a declaration at the 11th ministerial conference at Buenos Aires.
GST was implemented after enough discussion on merits and demerits. There was near-consensus that it would benefit the economy. The draft legislations were placed in the public domain well in time and, based on the feedback, many amendments were also made. Yet, many serious concerns regarding the timing and design of the business processes were summarily dismissed. As noted by a parliamentary panel, the GST Network (GSTN), which operates the main information technology platform for filing of returns and payment of tax, was not ready. There was no interface between the technology platforms of GSTN and those of the Customs and Directorate General of Foreign Trade.
When the glitches surfaced, the government went on overdrive to make patchwork corrections in laws, tax rates, procedures and software. Now that GST collections have fallen, accusations of tax evasion by the trade have surfaced, leading to e-way Bills for goods movement from next month to curb that.
The introduction of GST did help in improving India’s position in the global ‘ease of doing business’ index and credit rating by one of the agencies. However, the jury is still out on whether it has helped those doing business or the government. The parliamentary panel said the GST refund mechanism for exporters was tardy and cumbersome, owing to several operational issues. It was also critical of the lack of clarity among officers at the ground level on aspects such as letters of undertaking and noted that the training these officers got on the ground to deal with such issues was inadequate. The commerce ministry was a helpless spectator for most of the year. It did ease some procedures and increase the rates of reward under the Merchandise Exports from India Scheme and Service Exports from India Scheme towards the year end.
In spite of these problems, export showed positive growth (on a low base) but it is now clear that aggregate merchandise outward shipment for this financial year would be less than $300 billion, about a tenth less than the $330 bn achieved six years earlier. Thus, the opportunity to boost export in a year when global trade growth sharply rose has gone away.
WTO revised its estimate for growth in world merchandise trade volume in 2017 to 3.6 per cent, a substantial improvement over the 1.3 per cent increase in 2016. But, its estimate for next year is lower at 3.2 per cent due to a higher base effect, tighter monetary policy in developed countries and tighter fiscal policy in China. Worries persist of growing protectionism. So, it is difficult to say export would perform better next year.
Overall, this year will be remembered for the introduction of GST, here to stay. It is too early to say this will deliver on the promises. But, expectations of better days ahead are high, as the stock markets show. On that hopeful note, let me wish all readers a happy new year.