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Former finance secretary Vijay Kelkar on Friday advocated a single rate for the Goods and Services Tax (GST) as that would it simpler to administer.

The GST Council has already decided on the four-rate structure for the indirect tax regime besides a cess.

Giving an example he said it was better to first build a single-rate GST with a low rate achieve full mastery of this and then consider more complex possibilities such as high rates and multiple rates.

Delivering the C D Deshmukh lecture organised by the National Council of Applied Economic Research Kelkar said policymaking was required to address market failure improve efficiency and equity in the society. With regard to taxation he said it should be stable and simple giving investors confidence to invest.

A task force constituted by the 13th Finance Commission headed by Kelkar had recommended that all goods and services should be taxed at the single GST rate of 12 per cent. It could be split as 5 per cent for the central GST and seven per cent for the state GST.

The GST Council comprising finance minister minister of state for revenue and state representatives particularly their finance ministers have already agreed on four GST rates — 5 per cent 12 per cent 18 per cent and 28 per cent — besides a cess above the peak rate on luxury and demerit goods such as tobacco. The item-wise rate will be finalised by committee of officers.

Kelkar said simplicity was the first mantra of policymaking. Right sequencing is another important pillar of policy making.

Citing example he said exchange rate reform preceded trade reforms during the liberalisation and it succeeded. The third dimension of sequencing was in the construction of state capacity Kelkar said.

“We should walk before we can run. Our first objective should be to establish easy objectives for state capacity and fully succeed in building this state capacity. Only after this is done we should try for a more complex problem” he said.

Highlighting the value of criticism in policymaking he said “As policymakers we develop a point of view. We should be humble and recognise that many times we will be wrong.” This makes it useful to engage with our critics. “In every society there is an under supply of criticism” he said adding criticising the government imposes costs upon the critic.

“The gains from criticism are diffused; the entire society benefits from the criticism. The self-interest of the critic leads him to ignore the gains for society at large and thus to under supply criticism” he said.

Ruing the absence of credible data for policymaking Kelkar said “Our ability to undertake rational analysis and to undertake post-mortem of policy initiatives is bounded by our availability of information.”

A particularly disappointing feature of the Indian statistical environment is that in addition to having limited data some of our standard public data sources are also flawed he said.

“We are thus forced to first evaluate the soundness of each public data source before commencing to use it. It is not as simple as blindly accepting all data from official government sources. Each of us needs to commit considerable resources to evaluating the soundness of various kinds of statistics that are available in our field” he said.

Former RBI Governor Bimal Jalan today said demonetisation in-principle was a good move to eliminate black money but in terms of consequences it did not work.

Noting that there is a structural issue in policy making he said policy is made by politicians and executed by the administrative system and policy making should be flexible and respond to change in circumstances. (Reuters)

Former RBI Governor Bimal Jalan today said demonetisation in-principle was a good move to eliminate black money but in terms of consequences it did not work. “Demonetisation in terms of the principle of it nobody can object to black money being tapped or if demonetisation is being done to make sure that black money hoarders declare their money. But in terms of the consequences you can see that it didn’t work” he said at an NCAER event here.

“Now if it didn’t work then we have to make sure what is it that we can do in its place which can actually work” he said.

Noting that there is a structural issue in policy making he said policy is made by politicians and executed by the administrative system and policy making should be flexible and respond to change in circumstances.

In actual policy making you have to be practical he added.

Talking about current global scenario he said the only thing happening is deglobalisation.

On the occasion former Finance Secretary Vijay Kelkar while giving C D Deshmukh lecture said policy making is required to address market failure improve efficiency and equity in the society. kesh Ambani Lauds Demonetisation At World Economic Forum

With regard to taxation Kelkar said it should be stable and simple which gives investors confidence to invest.

He also advocated a single GST rate as it is simple to administer.
So simplicity is the first mantra of policy making he said adding right sequencing is another important pillar of policy making.

Citing example he said exchange rate reform preceded trade reforms during the liberalisation and it succeeded.

ICT adoption by firms in all regions could enhance effectiveness of programmes such as Digital India

The National Council of Applied Economic Research (NCAER) together with the Department of Electronics and Information Technology has assessed the e-readiness of states and Union Territories of India six times since 2003. This body of work defines e-readiness as the ability to pursue value-creation opportunities for inclusive economic development facilitated by information and communications technology (ICT).

The NCAER e-Readiness Framework includes three stakeholder groups — individuals businesses and government — and consists of three components — environment readiness and usage. The environment component comprises the market political regulatory and infrastructure environment. Readiness assesses the ability to use and produce ICT/ICT-enabled goods and services by the three stakeholders. Lastly given the environment and readiness usage covers the extent to which the stakeholders actually use ICT-enabled goods and services.

Economic intuition would say that businesses would be ahead of individuals and the government in creating a conducive environment and hiring or training a labour force that knows how to use and produce ICT/ICT-enabled goods and services. However this information is not always readily available or is only available at significant lags. To fill this gap we conducted a perception-based analysis of business e-readiness under the Business Expectations Survey (BES) framework in six major cities.

The NCAER has been conducting the BES every quarter since 1991. It tracks the business sentiments of over 500 Indian companies to compute the composite Business Confidence Index. The survey elicits responses from firms/industries spread across regions (Delhi NCR representing the north Mumbai and Pune the west Kolkata the east and Bengaluru and Chennai the south). The BES conducted in September 2016 included a survey about ICT readiness of firms.

In the environment section we assess the presence of a well-established ICT policy and available infrastructure within the firms. The presence of ICT policy provides dynamism to the ICT infrastructure of companies. The southern region leads the way in this parameter. Continuous electricity supply is a prerequisite for ICT implementation and power back-up serves the purpose of overcoming any deficit in that infrastructure. More firms in the northern and southern regions have power back-up. A smaller percentage of firms located in the western and northern regions view the ICT infrastructure in their company as good. Overall the survey indicates that the ICT environment of the firms in the southern region outperforms other regions.

In the ICT readiness category we assess the preparedness of firms in terms of being able to use ICT. Questions were asked about the presence of either the IT department or manager use of various operating software like MS Office and Enterprise Resource Planning; if computer literacy is a prerequisite for hiring at various levels; and if ICT training is imparted to employees at regular intervals. The presence of either an IT department or a dedicated IT manager is maximum in the western region. As much as 82.9 per cent of the firms use one or the other operating system with a relatively limited regional variation. Only 62.5 per cent of the firms responded positively regarding computer literacy as a prerequisite for hiring managerial workers. The western and southern regions particularly stand out. Regarding imparting ICT training to employees of various types results are similar to the previous parameter. Despite not having the best ICT environment the western region exhibits a higher degree of readiness with a dedicated IT manager/department use of software hiring computer-literate managers and imparting ICT training to employees.

Lastly we ask firms whether they are using ICT in various activities. A majority of firms use ICT in their finance and accounting operations. More than 60 per cent of the firms use ICT in sales marketing and public relations. The percentages of firms using ICT in HR administration production and supply chain management stand at 54.4 per cent 50.8 per cent and 57.1 per cent respectively. Overall in usage firms located in the western region are at one end of the spectrum compared to firms in the east.

The survey indicates that firms in the western region are more e-ready relative to other regions followed by the south.

It also indicates that there is a tremendous scope for firms to use ICT in their various activities to improve their productivity. The effectiveness of various key government programmes such as Digital India and Make in India may be enhanced if ICT is adopted by firms in all regions of the country. There is an acute need to assess business e-readiness of firms on a more continuous basis and in a comprehensive manner which may give key policy insights to all stakeholders.

Bornali Bhandari is a Fellow and Ajaya Sahu is a Research Associate at NCAER. Views are personal and do not necessarily represent those of the organisation (Published with permission from Ideas For India (www.ideasforindia.in) an economics and policy portal)

Two months since India’s two biggest banknotes were invalidated overnight to fight graft things are slowly returning to normal but at a cost to one of Asia’s fastest­growing economies.

In a central Delhi market two men in their 50s are fiddling with smartphones.

Sudhir Sabharwal is buying a stapler from stallholder Rakesh Yadav but no cash will change hands.

It would have been nearly unimaginable a mere three months ago but now using one of India’s many mobile wallet applications is becoming the norm.

“We must go with the Government policy otherwise we’re losing business” Mr Yadav said who admits he only adopted the technology following the withdrawal of India’s major banknotes last November said.

“Before the whole economy ran on cash.”

Announcing the replacement of 1000 and 500 rupee notes India’s Prime Minister Narendra Modi said the objective was to wipe out the so called “black money” which circulates in India’s vast informal economy.

Untaxed and unchecked it greases bureaucratic corruption and denies the Government much­needed revenue.

Short-term pain

Fighting graft is popular but the move has caused immense upheaval and hardship and the cost to India’s economy is now beginning to emerge.

India’s statisticians have cut forecast growth for 2017 from 7.6 per cent down to 7.1 per cent while the World Bank is predicting 7 per cent.

A survey of small and medium businesses estimates they lost a third of jobs and half their revenue in the first month.

The All India Manufacturers’ Organisation which carried out the survey also projected a fall in employment of 60 per cent and loss in revenue of 55 per cent until March 2017.

That is because replacement banknotes are still being printed.

The Government said it was impossible to print adequate replacements while maintaining the necessary secrecy but economist Kanhaiya Singh from Delhi’s National Council of Applied Economic Research said there was another good reason for limiting the cash supply.

“It is forcing the traders and the small manufacturers to shift to the formal economy” he said adding that would enable the Government to better track — and tax — transactions.

Take from the rich?

Elected promising brighter economic prospects for all Mr Modi is gambling his political fortune on convincing Indians the payoff will outweigh the pain.

Mr Modi is framing the policy as a crackdown on the elite and that message seems to be cutting through.

In his first interview since the move Mr Modi pointed to the lack of unrest despite the long queues and disproportionate impact on India’s poor as indicative of general support.

“I was well aware of the magnitude and complexity of the challenge we faced in implementation” Mr Modi told news magazine India Today before stating: “It is no small thing that no significant incident of unrest has taken place in the country.”

Back in the market customer Sudhir Sabharwal has completed his cashless purchase and reflects a similar view.

“Initially there was some problems — standing in the lines getting the money exchanged” he acknowledged.

“But that time — that was the teething time. People are happy now with demonetisation.”

Economist Mr Singh said it would be some time before the macroeconomic impact could be assessed but pointed to taxation revenue as an obvious marker.

But he was also confident that India’s economy would rebound quickly.

The policy will face its first electoral test in major state elections next month while many now expect Mr Modi to turn his attention to India’s notoriously shady gold and property markets.