GST: If we cannot help ourselves, who can?

The Government of India (GOI) has undertaken very bold and courageous reforms that include demonitisation and the goods and services tax (GST) taking full responsibility for success and failure alike. Given the gigantic efforts required for the implementation of demonitisation and GST, near-term economic slowdown is obvious. India is not the country which takes monumental challenges to its stride with pride on political consensus. For all you may expect, the growth turn-around may be further away than International Monetary Funds (IMF) forecast of 2018 as upward push. IMF may not have factored in “babu culture” of the Indian bureaucracy and old-fashioned private enterprises, and politicians always on lookout for political scissor-kick to score a goal. These cannot be easily parted with yet even if there is effort to modernize systems and corporate management. India may come around the lethargic what-is-there-for-me (personally as well as politically) work culture but that may take much longer than expected.

The IMF expects India to regain its fastest growing major economy status by next year, and  forecasts  7.4% growth (against China's 6.5%) next year and 8% in the medium term once reforms are firmly rooted into the system. The IMF chief Christine Lagarde said, “Indian economy is on a solid growth track in the medium and long term due to the structural reforms undertaken by the government, and the current slowdown due to implementation of GST and demonitisation is short term.” The IMF has lowered 2017-18 forecast to 6.7% from 7.2%.

The Indian economic turn-around is not going to be spontaneous. To overcome the economic slowdown, IMF has suggested a three-pronged structural reforms including (i) addressing the corporate and banking sector weaknesses[1]; (ii) continued fiscal consolidation[2]; and (iii) improving the efficiency of labour and product markets[3].

The fact is India is on a solid growth trajectory and we cannot afford being off-the-track, not us. Our economy is India import-dependent. Leaving aside few high-end and luxury items, all essential goods (and services) are imported from India. The dependency will increase further with Indian economy moving at faster pace on a strong track unless alternatives somehow emerge. We seem to judge ourselves by our uncertain intentions, and do not realize the pace with which we need to catch up with neighbours. The world will judge us by our actions, not by intentions. Move, we have to make this way or that. There is no choice. The options are: we either move ourselves smartly or get towed along. The signs so far show we are heading towards latter, unfortunately. If we cannot help ourselves, I do not know who will help us!

With GST in place, India exports us zero-rated goods and services. The Bhutanese bureaucracy has no clue and private sector is too inept to work out details to take full advantages of GST-free Indian supplies. What can you say to we-can-do-ourselves-everything kind of persons who cannot think beyond nationalism as credential or cover-up for them to be engaged in corrupt, fraudulent, coercive and collusive practices parroting dedication and commitment to Tsawa-Sum (The King, Country and People)?  Nothing. Because when the model is wrong, it cannot be right in any sense of the word. If these do not bring in forth the need for course correction, I really do not know what will!

The interpretation that revenue shortfall  of Nu 14 billion in 12^th Plan due to subsuming of excise duty into GST by GOI leading to increase trade deficit and adverse impact on the economy is shocking shallow. Can we not think beyond this? The cheaper imports from India increase business volumes as well as modes and models, enable savings, decrease expenditures, generate economic activities and new jobs, and make the economy vibrant. But these are subject to one condition: hard work. The question is who will work hard when mindset is too used to plucking easy handouts. We need to grow-up to enter into the real world, seriously!

If we see through things, details can be worked out. Let us take a simple example. You want to buy 2 truck tyres, which cost Rs 30,300 per pair (including 28% GST). If you buy from India, 2 tyres will cost you Nu 32,115 [30,300 price + 1,515 (5%BST) + 300 (transport & handling)]. The same items if you buy from Bhutanese dealer (who imports GST-free) will cost Nu 27,117 [23,672 GST-free cost + 1,184 5% BST + 1,740 (7% Bhutanese dealer profit)+ 521 BIT]. The tyres are delivered to dealer by manufacturer. You will save Nu 4,998 (or about 18% of your cost) and the Bhutanese dealer benefits Nu 1,740. This is not an arbitrary example.

This is plain arithmetic, reality is much harder. You want to buy for instance 10 ton CGI sheet and ask an Indian retailer/dealer anywhere to supply you GST-exempt 10 ton CGI sheet. He will say no way because you are one-time buyer. Why should he go through the rigorous process of GST-free supply for one-time Rs. 60,000 supply for no subsequent process  benefits? But if the Bhutanese CGI sheet retailer goes and establishes business relationship with Indian supplier for regular supply of CGI sheet, the seller may agree to go through GST-free supply process. The Indian suppliers have to be convinced (even pushed) where business relationship, dealings, reputation, trust and future scope between both Indian and Bhutanese business houses come into play. Also, the sales figures will be recorded in GST database, which can be retrieved to counter-check/reconciled with the figures at Indo-Bhutan gate to help make clean transaction, free from corruption. Initial stages are pretty tough but beneficial to both Bhutanese buyers and Indian sellers longer-term, and eventually consumers.  To expect Bhutanese businesses who are so used to living on proxy system practising unfair means to move in the direction that benefits all and upgrades themselves on value chain is an irony of pretty tall order.

Having understood the business dynamics, the government role should be to make policy and regulatory environment conducive to Bhutanese business entities to enable smooth GST exempt import from India. This is a high hope! Any bureaucratic efforts along these lines would be a pleasant surprise. On contrary nitpicking the dated regulations to make the import process regressive is no exception. There is neither responsibility nor accountability for such actions. The rudimentary systems for checks and balances are as good as non-existence. And its like you cannot ask someone to do something who is benefiting from not doing it. Much bigger irony!

People may do whatsoever they feel deemed right, but we are not willing to give the opportunity a free pass.  No sir, we aren't. Like I say if we cannot help ourselves, who can!

---

[1]  Accelerating the resolution of non-performing loans, rebuilding the capital buffers for the public sector banks, and enhancing banks’ debt recovery mechanisms.

[2]   Consolidating revenue measure as well as further reductions in subsidies.

[3]  Reforming the market regulations, including reducing labour laws, in order to create a more favorable environment for investment and employment.