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5-min read

GST Effect: Hundreds of Thousands Laid Off Despite Growth

The drawbacks of the GST, especially the job losses, could prove costly for the BJP and Prime Minister Narendra Modi in state elections later this year and the 2019 general elections.


Updated:September 6, 2018, 3:01 PM IST
GST Effect: Hundreds of Thousands Laid Off Despite Growth
Ram Pratap, who lost his job as a powerloom operator earlier this year, poses for a picture inside a weaving factory where he used to work, in Panipat in Haryana. (Image: Reuters)
Mumbai: Tilak Raj Bathla's tiny weaving factory is one of the few still humming on a once busy road in Panipat, known as the country's "textile city".

Nearby, more than two dozen other workshops are locked from the outside, while dogs and cows roam through other abandoned factories. Scrap dealers enquire about idle powerlooms.

India launched the Goods and Services Tax (GST) just over a year ago, its biggest ever tax reform, aiming to replace more than a dozen federal and state levies and unify the sprawling economy.

The move improved economic efficiency but critics say the complexities of the new regime have driven many small enterprises out of business and forced hundreds of thousands out of jobs.

The drawbacks of the GST, especially the job losses, could prove costly for the BJP and Prime Minister Narendra Modi in state elections later this year and the 2019 general elections.

Bathla says his neighbours, most of them unschooled, could not comply with monthly online filings required under the GST regime. Some of his customers and suppliers could not afford to hire accountants to navigate a system which has been amended more than 200 times already, while others struggled to cope with delays in tax returns caused by glitches in the centralised software.

"I have a GST registration, but I can't work as my vendors and buyers are unable to comply with a complex tax structure," the 50-year-old said, adding his monthly sales had fallen to about Rs 2.5 lakh from about one million rupees before the GST. Only two of his 10 powerlooms are currently being used.

The government has said it is simplifying the tax measure to make it accessible to everyone. Finance Ministry spokesman D.S. Malik said requests from small businesses have been considered "from time to time." But he declined to comment on job losses.

Nevertheless, India's economy gathered pace in the April-June quarter, expanding 8.2 percent compared to 5.6 percent in the same period a year earlier. Economists said the number was coming off a low base as companies held off production in the year-ago period ahead of the implementation of the tax measure in July last year.


But while big firms have since shaken off the effects of the change and are set to gain from a uniform tax regime, small businesses across the country are still hurting.

A survey by the All India Trade Union Congress (AITUC) in July found that a fifth of India's 63 million small businesses – contributing 32 percent to the economy and employing 111 million people - faced a 20 percent fall in profits since the GST rollout, and had to sack hundreds of thousands of workers.

Readymade garments, gems and jewellery, leather, handicraft and basic machinery manufacturing are hit the most, industry bodies from across the country say.

According to estimates by the Centre for Monitoring Indian Economy, a Mumbai-based consultancy, nearly five million workers lost their jobs over the past year. But it was not clear how many were from small enterprises.

India's unemployment rate rose to 6.4 percent in August from 4.1 percent in July last year despite an additional 17 million people joining the workforce.

But it did not give data on how many people were laid off or from which industries.

India's labour ministry releases jobs data once in five years, last reporting unemployment at 5 percent in 2015/16 (April-March).

More than 50 workers and factory owners Reuters spoke with in Panipat, about 90 km (55 miles) north of New Delhi, said over a third of the city's 10,000 weaving units had closed or curbed production.

Chand Multani, president of the Panipat Handloom Owners' Association, pointed to the tax headaches behind a bedsheet that costs barely $2 dollar as an example.

The weaving of the sheet, its dyeing, ironing, embroidering and packaging are all done by separate businesses. Under the new system, each business has to pay GST at each stage of production which the businesses can claim back provided they have registered with tax authorities and have a GST number.

For a lot of small businessmen this is way too much work. "How can all these different operations comply with tax rules?" asked Multani, waving the sheet in the air.


The GST replaced several federal and local taxes and tore down tariff barriers between India's 29 states, but critics say that has been to the benefit mainly of large, nationwide businesses.

For Panasonic Appliances, India's leading electric goods maker, GST has meant cutting costs by 4-5 percentage points, for example. India's consumer goods stock index has risen 26 percent in the past year, outpacing the broader Mumbai market.

"GST ... has improved the competitiveness of the manufacturing sector," Panasonic India CEO Manish Sharma said.

PM Modi, in his Independence Day speech, said the businesses that faced "teething difficulties in adopting GST had accepted the challenge and the country is now moving ahead."

But opposition Congress and its chief Rahul Gandhi has zeroed in on the job losses and shuttered businesses. "This GST is a way of removing money from the pockets of the poor," he said last month. "This is not GST, this is Gabbar Singh Tax," he had said, referring to the villain in Sholay, one of Indian's most popular movies.

To address grievances, the GST Council, which administers the tax measure, has approved more than 200 amendments since the law came into force.

M.S. Mani, senior partner at Deloitte, said too many changes to rules and rates were damaging, particularly for small businesses.

The Federation of Indian Export Organisations estimates that nearly $2 billion of tax credits, mainly of small exporters, were yet to be refunded, mainly because of software glitches in the system and the difficulties in matching the hundreds of thousands of invoices.

About 230,000 small businesses have closed down due to compliance and cash flow problems, leading to large-scale job losses, said Amarjit Kaur, national secretary of the All India Trade Union Congress.

"GST has proved a death warrant for us," Ravinder Kashyap, 22, who lost his job as a powerloom operator earlier this year, said in a small rented room in Panipat that he shares with four friends.

He said his employer had lost sales orders because of the mess caused by the tax and so had let him off along with scores of others. "If this carries on for one or two years, we'll have to commit suicide."
(Get detailed and live results of each and every seat in the Lok Sabha elections and state Assembly elections in Andhra Pradesh, Odisha, Arunachal Pradesh and Sikkim to know which candidate/party is leading or trailing and to know who has won and who has lost and by what margin. Our one-of-its-kind Election Analytics Centre lets you don a psephologist’s hat and turn into an election expert. Know interesting facts and trivia about the elections and see our informative graphics. Elections = News18)
| Edited by: Ahona Sengupta
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