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Computation of GDP – conundrums continue

Contrary to the widely held opinion, the Chief Statistician to the Government of India, T C A Anant, said that the tax-GDP ratio for India was not much lower than that of other economies!

Anant reasoned that 45 per cent of businesses and trades do not keep proper accounts and are not coming under the tax net. Factoring this, the tax-GDP ratio is not too bad!, he said.

The tax-GDP ratio, currently 16.6 per cent is way below that of emerging market economies (21 per cent) and the average for OECD countries (34 per cent).

IE has been pointing to the very low number of citizens filing tax returns, of just around three crore out of the 125 crore population. To my query on this, Anant pointed to the high exemption limit of Rs. 5 lakh. By proper planning, one may not pay any taxes upto an annual income of Rs 5 lakh!

Rs. 5 lakh income is no small amount, and it is far higher than the per capita income of Rs. 93,293 for 2015-16. It’s time to spread the tax net wide and bring around 40 per cent under the IT net. A contribution of Rs. 1000 as tax for an annual income of Rs. 2 lakh shouldn’t pose a big burden. We can ensure such payment through efficient computerisation.

The more serious concern should be on getting the 45 per cent to maintain accounts. The attempts of Manmohan Singh to impose a presumptive tax of a measly Rs. 1400 on these sections found resistance and had to be withdrawn.

Hopefully, the introduction of GST will help bring about change.

Anant was addressing the members of the Chennai International Centre and presented the nuances of the computation of the gross domestic product, particularly, the efforts made to refine and re-refine the concept. When the NDA-II government claimed a higher GDP growth on new norms, there was, understandably, scepticism and charges of shifting the goal post. It is normal for experts to disagree, and so the scepticism continues!

 Sunder Ramaswamy, noted economist and acting Head of the Madras School of Economics, made a lucid presentation on the evolution of GDP over the last eight decades with continuous refinements.

 A more pressing issue relates to the sudden spurt in GDP growth recorded by several states, many of them part of the BIMARU states. Remember business magazines going gung-ho over the spurt in GDP growth claimed by Bihar and later by Madhya Pradesh? This can be explained for an odd year by the base being low, but when such growth is reported for successive years, the claims needed closer scrutiny. This has to be related to Anant’s observation that different states follow different norms in computing GDP. Greater attention is required to standardise the rules for such computation.

 

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