GST collections for April 2021 is Rs. 14,10,00,00,00,000/-

Yes, it is true – GST collections in India for the month of April 2021 is Rs. 1.41 lac crore and everyone is baffled as to how the economy has shown such resilience even as the pandemic continues to rage across the nation.

I’ve heard a lot of people saying that this is a made up figure, as businesses were shut in most parts of the country throughout April and industry revenues have been hit across the economic spectrum. Well, correct! Economy has been hit, but the collections done in April are of the period from 1st March to 31st March 2021, when the pandemic had just started it’s resurgence and when economic output had picked up steam.

Now, 1.41 Lac crores is a lot of money. What is praiseworthy is the fact that this sum has been collected at a time when lockdowns had been reimposed in many big states including Maharashtra, Gujarat, UP, etc. We should rather be asking that how this sum has been collected- what are the main factors?

Factor 1 – Past Experience. Work from home has been aced by many corporate houses. Everything has more or less become paperless. Life has shifted from on-site to online. And so has the Accounts Department. When data is available on time, lockdown or no lockdown- taxes can be paid on time and before the due dates.

Factor 2 – Price rise in major volume-intensive commodities. GST is an indirect tax which is charged on the invoice value. If the value of the goods or services increases, GST automatically increases. GST collections have received a major fillip due to rise in prices of steel, cement, etc.

Factor 3 – Stricter Vigilance. As the GST law gains vintage and some familiarity develops, government brings about various fundamental changes to improve the system and close all gaps. With GST gaining adequate vintage, now the council has enforced a lot of strict rules. Fake billing has reduced considerably. This has helped in preventing tax revenue leakage, which happened freely hitherto. News of Directors/CAs/management being arrest and charged with fraud have become commonplace these days thanks to tightening of the norms. This is the hallmark of a robust economy undergoing paradigm changes.

Factor 4 – March means Year End. India follows April to March Financial Year. As March comes, everyone moves to record all such transactions, which have been done throughout the year but not yet recorded, or which are on-going on the balance sheet date. This leads to increased revenues, even though just on paper. And increased revenues translate into increased GST collections.

While there is no denying the fact that the economy was not just recovering, but growing in leaps and bounds post the first wave subsided, it should be kept in mind that in a country like India, with it’s enormous population – economy is always expected to grow as long as businesses run. The demand supply gap is huge and if trends are anything to go by, it is ever increasing.

We ought to praise all our businessmen, for paying up their dues at a time when one would be tempted to save every last penny. We ought to praise our GST practioners, who, despite everything going digital so quickly, have adapted and delivered.

However, before bidding adieu, I’ll just leave you with one food for thought- regarding collections for the month of May 2021 (i.e GST for the period 1st April to 30th April 2021). The same should fall drastically on account of multiple factors. It won’t be a surprise, if it dips below Rs. 1 lac crore. Though, that would be an issue of discussion for some other blog.

Stay Home. Stay Safe.

Farming Politics – What You Sow, What I Reap

How does a market work ?

Seller and buyer meet, buyer inspects the goods, both negotiate a price and conclude the transaction.

This is the most basic and common idea of how a transaction happens and this whole mechanism is broadly termed as market mechanism.

How does an Indian Agricultural Mandi work?

Seller and buyer meet, buyer inspects the goods, buyer decides the price and buyer concludes the transaction.

Unfair, right ?

But then, one might argue, that why does the seller sell? Why does he not go to some other buyer?

Well, it’s simple. All the buyers decide the rate before-hand and the seller is forced to choose one among the identicals. Law doesn’t permit him to sell elsewhere. Until now. (Okay, until three months ago, when the ordinances were issued).

Yesterday, two landmark bills were passed by the Rajya Sabha, namely – The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill and the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill (the Lok Sabha had already passed them earlier in the week) and now these bills are all set to become a law.

Yes, the bills were passed amid chaos and pandemonium.

Yes, proper procedures were not followed.

Yes, the bills could have been debated upon a fair bit more.

Yes, the nuances of the bills could have been a little bit more extensively researched.

But, overall, I still maintain that the bills were the need of the hour. Infact, these are the bills which should have been promulgated a lot earlier.

Now, you might ask, if the bills are all hunky dory and wonderful, then why are the farmers protesting?

Fair question, isn’t it ?

Again, the answer is simple but three fold.

Firstly, the farmers who are protesting are the big farmers from the northern States of Punjab and Haryana, where the Government Markets are very well organized and these bills aims to curb the unchecked power of these markets, which are wreaking havoc on farmers in the poorer states. (Remember when onions were sold at Rs. 2 per kg by the farmer but consumers paid Rs. 80).

Secondly, the farmers are generally unaware about the bills and since it is a matter of their livelihood, they can easily get influenced based on the facts being fed to them.

Thirdly, and majorly, it’s all about Politics. The government mandis are usually managed by ministers, MLAs, MPs. A check on these mandis means a check on these public servants.

And we all know, that it’s essentially the public, which is the servant in India – enough said.

What are the real benefits of these bills ?

Quite a lot, I must say.

The most important one being – Farmers have been freed from the mandis. This means that now, they can sell their crops to whomsoever they so desire. They won’t have to choose one among identicals, but rather, they will have the option to sell to the one who bids the highest. Also, they can sell their produce wherever they want to – intra-district, inter-district, intra-state, inter-state. All the boundaries have been erased. Government has also coined a slogan – One Nation, One Market.

Next, a concept of contract farming has been introduced. This is a total game changer. Farmers can get into contracts with the private players well before they’ve sown their seeds and lock a price. There is also a clause whereby, farmer will enjoy enhanced prices at the time of reaping, if the market prices are significantly higher at that point of time. Though, it should also be noted that benefit of this system will accrue to large farmers and co-operatives. Small farmers won’t be benefitted much and majority of Indian farmers are small farmers.

The role of middlemen will greatly reduce. These bills will surely dent their earnings but on the contrary, farmer’s incomes will increase and for an agrarian country like ours, that should be the primary aim and that is, in fact, the primary aim of these bills. Though, government should definitely think about alternatives for the middlemen as well, since they are also Indian citizens and have the equal right to life.

Lastly, consumers stand to benefit too. If the number of middlemen reduce, the prices also drop. So it’s a win-win situation for all, except the middlemen.

What next?

Most certainly, expect a lot of fireworks in the days to come.

The middlemen which I have been referring to in this entire write-up includes not just the traders but also, and not exclusively, big farmers, local politicians, ministers, state governments, etc.

These people, who have deep pockets and wield a lot of influence won’t sit idle as their clout fades. They will revolt. Not by themselves, but by stirring farmer agitations, bandhs and strikes, protest marches and so on.

What should the government do?

Majority of the farmers are being swayed by a few, who are peddling half truths like rollback of Minimum Support Price (MSP). It is interesting to note that MSP benefit is utilized by just 6% of farmers basis the volume produced, but nevertheless, it is a guarantee which a farmer holds very dearly. It is an assurance that if no one buys his crops, the government will procure it.

It may seem weird, but the government has already said that it won’t be rolling back the MSP. In fact, it has recently come out with the MSP for a variety of commodities. However, for some unknown reasons, it has been unable to write its own stance of not rolling it back in the new bills. This will certainly raise brows and it even should.

Next, the government should ensure that formation of buyer cartels doesn’t happen. If that happens, then all of this would be an exercise in futility.

Lastly, in my opinion, equal redressal opportunities should be given to both the parties. Currently, the benefits are well skewed towards the private players. For a bill (and soon to be law), such prejudices do more harm than good.

P.S. more research is required at my end as well. But here my intention was only to give a brief overview of what has happened, what is happening and what we can expect to happen.

More on it in the days to come. Cheers!