Liberalisation ,privatisation And Globalisation: An Apraisal Flashcards
Was india a successful mixed economic system . State reasons Why after 1990 there was need for economic reform
Since independence, India followed the mixed economic system, by combining the advantages of the market economic system (capitalist economy) with those of the planned economic system (socialist economy).
But, in reality, the public sector dominated the control and regulation of our economy and private sector was ignored. There was a huge investment in the public sector and very low investment in the private sector. The dominance of public sector for about 4 decades led to establishment of various rules and laws, which hampered the process of growth and development.
V1. Poor Performance of Public Sector: In the 40 years period (1951-90), public sector was assigned an important role to work for the economic development of India. However, except for few public enterprises, the overall performance was very disappointing. Considering
the huge losses incurred by a good number of public sector enterprises, the Government recognised the
Indian Economic Dev
need for making necessary reforms.
- Deficit in Balance of Payments (BOP): Deficit in BOP arises when foreign payments for imports exceed foreign receipts from exports. Even after imposing heavy tariffs and fixing quotas, there was a sharp rise in imports. On the other hand, there was slow growth of exports due to low quality and high prices of Indian goods in the international market.
- Inflationary Pressures: There was a consistent rise in the general price level in the economy due to increase in money supply and shortage of essential goods.
- Fall in foreign exchange reserves: Foreign Exchange Reserve (also termed as Fore Reserves or FX Reserves) are external assets like convertible foreign currencies, Gold, Special Drawing Rights, etc.) held by the Central Bank for direct financing of external payment, imbalances. In 1991, foreign exchange reserves fell to the lowest level and it led to the foreig exchange crisis in the country. Foreign exchange reserves declined to a level that was no
adequate:
• To finance imports for more than two weeks; and
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° To pay the interest that needs to be paid to international lenders.
Moreover, no country or international funder was willing to lend to India. - Huge burden of debts: The expenditure of the government was much higher than revenu
As a result, government had to borrow money from banks, public and from internation
financial institutions. - Inefficient Management. The origin of the financial crisis can be traced from the inefficie management of the Indian economy.
• The government had to generate surplus revenue to meet challenges like unemployme poverty and population explosion. However, there was no additional revenue due continuous spending on development programmes by the government. Moreor government was not able to generate sufficient revenue from internal sources such taxation, running of public sector enterprises, etc.
• Government expenditure began to exceed its revenue by such large margins the became unsustainable.
/ At times, the foreign exchange borrowed from other countries and international finan institutions was spent on meeting consumption needs. Moreover, neither any alter was made to reduce such profligate or reckless spending nor sufficient attention given to boost exports to pay for growing imports.
How was the crisis of 1991 settled
To manage the economic crisis of 1991, Indian Government approached for loan from:
• International Bank for Reconstruction and Development (IBRD), popularly known as
World Bank (to facilitate lending for reconstruction and development); and
• International Monetary Fund (IMF) (to avail short-term loans to solve Balance of Payments problem).
India availed $7 billion loan from these agencies as loan. Dr. Manmohan Singh was the Indian Finance Minister in 1991 and he was greatly acknowledged for his capabilities to steer away the economic crisis looming large on the Indian Economy.
For availing the loan, these international agencies expected India to liberalise and open up the economy by:
• Removing restrictions on the private sector;
•Reducing the role of the government in many areas; and
• Removing trade restrictions.
India agreed to the conditions of World Bank and IMF and announced the New Economic Policy.
When was new economic policy launched what was its main aim and classify economic policy on the basis of measures and main policies amd define the main policies in one line
The New Economic Policy (NEP) was announced in July 1991. It consisted of wide range of economic reforms. The main aim of the policy was to create a more competitive environment in the economy and remove the barriers to entry and growth of firms The New Economic Policy can be broadly classified into two kinds of measures:
/1. Stabilisation Measures: They refer to short-term measures which aim at.
(i) Correcting weaknesses of the balance of payments by maintaining sufficient foreign exchange reserves; and
(ii) Controlling inflation by keeping the rising prices under control.
2. Structural Reform Measures: They refer to long-term measures which aim at:
(i) Improving the efficiency of the economy; and
(ii) Increasing international competitiveness by removing the rigidities in various
segments of the Indian economy.
Main Policies of New Economic Policy
The government initiated a variety of policies which fall under three heads:
- Liberalisation
- Privatisation
3.globalisation
Liberalisation
(Refers to removal of Entry and Growth restrictions on the Private Sector)
y
Privatisation
(Refers to transfer of ownership, management and control of Public Sector to Private Sector)
Globalisation
(Refers to integrating the National Economy with
World Economy)
Different policies under liberalisation
The economic reforms taken by the Governmer
(i) Industrial Sector Reforms (ii) Financial Sector Reforms (iii) Tax Reforms (iv) Foreign Exchange Reforms
(v) Trade and Investment Policy Reforms
Let us now discuss each reform in detail.
Industrial Sector Reforms
In order to make necessary reforms in the industrial sector, the Government introduced its new industrial policy on July 24, 1991 The various measures under industrial policy reforms includes
1. Reduction in Industrial Licensing: The new policy abolished industrial licensing for all the projects, except for 18 industries. This number was further reduced to 5 industries.
They are: (i) Distillation and brewing of
alcoholic drinks; (i) Cigars and cigarettes of tobacco and manufactured tobacco substitutes; (ili) Electronic Aerospace and defense equipments; (iv) Industrial explosives; (v) Specified Hazardous chemicals.
• No licences were needed (i) To set up new units; or (ii) Expand or diversify the existing line of manufacture.
• However, compulsory licensing is required for the above mentioned 5 industries on account of environmental, safety and strategic considerations.
2. Decrease in role of Public Sector: One of the striking features was the substantive reduction in the role of the public sector in the future industrial development of the country. The number of industries, exclusively reserved for the public sector, reduced from 17 to following 8 industries: (i) Arms and ammunition and allied items of defence equipment; (il) Defence aircraft and warships; (li) Atomic Energy; (iv) Coal and lignite; (V) Mineral oils; (vi) Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold, diamond, copper, lead, zinc, tin, molybdenum and wolfram; (vi) Minerals specified in the Schedule to the Atomic Energy (Control of production and use) Order, 1953; (viii) Railway transport.
3. De-reservation under small-scale industries: Many goods produced by small scale industries have now been de-reserved
• The investment ceiling on plant and machinery for small undertakings enhanced to rupees one crore.
• In many industries, the market was allowed to determine the prices through forces of the market (and not by directive policy of the government).
4. Monopolies and Restrictive Trade Practices (MRTP) Act: With the introduction of liberalisation and expansion schemes, the requirement for large companies, to seek prior approval for expansion, establishment of new undertakings, merger, amalgamations, etc. were eliminated. MRTP Act has been replaced by Competition Act, 2002, which is more liberal. The Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009
Financial Sector Reforms
Financial sector includes financial institutions like commercial banks, investment banks, stock exchange operations and foreign exchange market. The financial sector in India is controlled by the Central Bank - Reserve Bank of India (RBI). RBI is known as the apex (supreme) body as it occupies the top most position in the monetary and banking system of the country. RBI decides the amount of money (i.e. deposits) that the banks can keep with themselves, fixes interest rates and nature of lending to various sectors. )
The reforms introduced under financial sector are:
1. Change in Role of RBI: The role of RBI was reduced from regulator to facilitator of financial sector. As a result, financial sector was allowed to take decisions on many matters, without consulting the RBI.
As a regulator (prior to liberalisation), RBI used to fix interest rate structure for the Commercial Banks.
After changing the role as a facilitator (post-liberalisation), RBI now facilitates the free market forces to act accordingly. In the post liberalisation era, greater autonomy has been ensured for financial institutions for their functioning.
2. Origin of Private Banks: The reform policies led to the establishment of private sector banks, Indian as well as foreign. For example, Indian banks like ICICT and foreign banks like HSBC increased the competition and benefitted the consumers through lower interest rates and
better services.
3, better services, of Foreien investment-The limit of foreign insestment imn banks tai funds around 51%. Foreign Institutional Investors (FLD such as merchant bankers, mutual funds and pension funds were now allowed to invest in Indian financial markets.
Though banks have been given permission to generate resources from India and abroad, certain aspects have been retained with the RBI to safeguard the interests of the account-holders and the
4. Ease in Expansion Process: Banks were given freedom to set up new branches (after fulfillment of certain conditions) without the approval of the RBI.
Tax Reforms
Tax reforms refer to reforms in government’s taxation and public expenditure policies, which are collectively known as its ‘Fiscal Policy’. Taxes are of two types:
• Direct Taxes consist of taxes on incomes of individuals as well as profits of business enterprises. For example, Income tax (taxes on individual incomes) and Corporate tax (taxes on profits of companies).
• Indirect Taxes refer to those taxes which affect the income and property of persons through their consumption expenditure. Indirect taxes are generally imposed on goods and services For example Goods and Services Tax (GST).
The maior Tax Reforms made are:
1. Reduction in Taxes:Since 1991, there has been a continuous reduction in income and corporate tax as high tax rates were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income
2. Reforms in Indirect Taxes: Considerable reform have been made in indirect taxes to facilitate establishment of common national market for goods and commodities.
3. Simplification of Process: In order to encourage better compliance on the part of taxpayers many procedures have been simplified.
Foreign Exchange Reforms
The important reforms made in the foreign exchange market are:
1. Devaluation of Rupee: Devaluation refers to deliberate reduction in the value of domestic currency vis-a-vis any foreign currency by the government of a country. To overcome Balance of Payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange.
2. Market Determination of Exchange Rate: The Government allowed rupee value to be free from its control. As a result, market forces of demand and supply determine the exchange value of the Indian rupee in terms of foreign currency.
Trade and Investment Policy Reforms
Before 1991, a lot of restrictions (high tariffs and quotas) were imposed on imports to protect the domestic industries. However, this protection reduced the efficiency and competitiveness of domestic industries and led to their slow growth. So, the reforms in the trade and investment policy were initiated
• To increase the international competitiveness of industrial production.
• To promote foreign investments and technology into the economy.
• To promote efficiency of local industries and adoption of modern technologies.
The important trade and investment policy reforms include:
1. Removal of Quantitative restrictions on Imports and Exports: Under the New Economic Policy, quantitative restrictions on imports and exports were greatly reduced. For example, quantitative restrictions on imports of manufactured consumer goods and agricultural products were fully removed from April 2001.
2. Removal of Export Duties: Export duties were removed to increase the competitive position of Indian goods in the international markets.
3. Reduction in Import Duties: Import duties were considerably reduced, which improved the competitiveness of domestic industries as it enabled them to import raw materials at better prices.
4. Relaxation in Import Licensing System: The Import licensing was abolished, except in case of hazardous and environmentally sensitive industries. This encouraged domestic industries to import raw materials at better prices, which raised their efficiency and made them more competitive.
Another important feature of new economic policy was the promotion of the policy of “Privatisation”.
How can privatisation done and arguments in favor and against privatisation
Transfer of ownership and management of public sector companies from the government
to the Private Sector;
2. Privatisation of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public. This process is known as disinvestment.
Arguments in Favour of Privatisation
The arguments in favour of privatisation are:
1. Reduction in Budgetary deficit: Public sector enterprises were putting large burden on public exchequer due to huge losses and growing subsidy payments. Privatisation reduces the financial burden of the government.
2. Competitive Environment: Privatisation abolishes the monopoly position of the public sector enterprises and helps in improving the competitive strength and efficiency of these enterprises.
3. Better managerial efficiency: Privatisation is supported as a means of improving managerial efficiency as the management is not subject to unwanted political pressure and interference.
4. Quick Decision making: The policy of privatisation will be helpful in imparting greater flexibility in the decision-making process as management would be free from any
government intervention.
5. Promotes Consumer’s sovereignty: The survival of private enterprises depends on satisfaction of the consumers. Privatisation will lead to caring of the consumers because of the need for creating and sustaining market. Hence, the quality of service will improve.
6. Profit-oriented decisions: Private sector works with the ‘profit-oriented’ approach. It infuses the commercial spirit in the functioning of the enterprises and leads to an improvement in efficiency and performance of the enterprises.
7. Increase in investment and employment opportunities: Privatisation open up the areas, which were earlier reserved for the public sector, like in case of insurance sector. It increases the investment by the private sector, which leads to creation of greater employment and income-earning opportunities in the economy.
Arguments Against Privatisation
The arguments, which are put forward against privatisation, are given below:
1. Social welfare neglected: The foremost argument against privatisation policy is that private sector enterprises operate mainly with the objective of profit maximisation. Thus, this system does not guarantee the social welfare of the poor people.
2. Lop-sided economic development: Private sector does not take interest in projects which are risky and have long gestation period with lower profitability. It may adverselv affer the growth of basic and heavy industries and infrastructure in the country.
3. Concentration of economic power: Privatisation can also result in the substitution of public monopoly to a private monopoly, which may lead to monopolistic exploitation efficient private owners.
4. Rise in level of unemployment: Under privatisation, there is always fear of retrenchment and consequent unemployment. Privatisation in many public sector enterprises has let to voluntary retirement of many workers. In this way, this policy may lead to greate incidence of unemployment and poverty in the country.
Changes made by globalisation in Indian economy. Positive and negative impacts of globalisation
Changes made by the Globalisation of the Indian Economy
1. The New Economic Policy prepared a specified list of high technology and high investment priority industries, in which automatic permission will be available for foreign direct investment up to 51 per cent of foreign equity.
2. In respect of foreign technology agreements, automatic permission is provided in high priority industry upto a sum of rupees 1 crore. No permission is now required for hiring foreign technicians or for testing indigenously developed technology abroad.
3. In order to make international adjustment of Indian currency, rupee was devalued in July
1991 by nearly 20 per cent. It stimulated exports, discouraged imports and raised the influx of foreign capital.
4. To integrate Indian economy with world, the Union Budget 1992-93 made Indian rupee partially convertible and then the rupee was made fully convertible in 1993-94 budget.
5. A new five year export-import policy (1992-97) was announced by the Government to establish the framework of globalisation of India’s foreign trade. The policy removed all restrictions and controls on the external trade and allowed market forces to play a greater role in respect of exports and imports.
6. In order to bring the Indian economy within the ambit of global competition, the government has modified the customs duty to a considerable extent. Accordingly, the peak rate of customs duty has been reduced from 250 per cent to 10 per cent in 2007-2008
budget.
Positive and Negative Traits of Globalisation
The process of globalisation through liberalisation and privatisation policies, has produced positive as well as negative results, both for India and other countries.
In Favour of Globalisation
Globalisation resulted in:
• Greater access to global markets;
• Advanced technology;
• Better future prospects for large industries of developing countries to become important players in the international arena.
• Better prospects for skilled people across the globe to increase their earnings by utilising their skills.
Against Globalisation
Globalisation has been criticized by some scholars because according to them:
° Benefits of globalisation accrue more to developed countries as they are able to expand their markets in other countries.
Globalication compromises the welfare and identity of people belonging to poor counts
• Sakalsation cetobalisation increases the economie disparities among nations and peg.
• Asaresultoriobalisation, MNCs have gained strong position in the developing countie due to which domestic companies are forced to face stiff competition.
Write brief on outsourcing and wto. Should india be part of wto
Outsourcing
Ontsourcing refers to contracting ont some of its activities to a third party which were eatin performed by the organisation. For example, many companies have started outsourcing secure service to outside agencies on a contractual basis.
Outsourcing is one of the important outcomes of the globalisation process.
• It has intensified in recent times because of the growth of fast modes of communication, particularly the growth of Information Technology (IT).
• With the help of modern telecommunication links, the text, voice and visual data in respect of these services is digitised and transmitted in real time over continents and national boundaries.
• India has become a favourable destination of outsourcing for most of the MNC’s because of:
• Availability of Skilled Manpower: India has vast skilled manpower which enhances the faith of MNCs for investment in India.
• Favourable Government Policies: MNCs get various types of lucrative offers from the Indian Government such as tax holidays, tax concessions, etc.
• Low Wage Rates and availability of cheap labour in India for skilled work.
• Considerable growth of Indian IT industry, which has proved its competitive strength in the world.
For example, Indian Business Process Outsourcing (BPO) companies are already gaining prominence and earning precious foreign exchange.
World Trade Organisation (WTO)
Origin of World Trade Organisation (WTO)
Prior to WTO, General Agreement on Trade and Tariff (GATT) was established as global trade organisation, in 1948 with 23 countries. GATT was set up to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market. WTO was founded in 1995 as the successor organisation to the GATT]
•The WTO agreements cover trade in goods as well as services, to facilitate international trade.
• At present, there are 164 member countries of WTO and all the members are required to abide by laws and policies framed under WTO rules.
• As an important member of WTO, India has been in the forefront of framing fair global rules, regulations and advocating the interests of the developing world.
• India has kept its commitments made to the WTO. India has taken reasonable steps to liberalise trade by removing quantitative restrictions on imports and reducing tariff rates.
.ade
• Some Major Functions of WTO:
(i) To facilitate international trade (both bilateral and multi-lateral trade) through removal of tariff as well as non-tariff barriers;
(ii) To establish a rule-based trading regime, in which nations cannot place arbitrary
restrictions on trade;
(iii) To enlarge production and trade of services; (iv) To ensure optimum utilisation of world resources; and
(v) To protect the environment.
Should India be a member of WTO?
Some scholars are of the view that there is no use for a developing country like India to be a member of the WTO. According to them.
(i) Major volume of international trade occurs among the developed nations; and (ii) Developing countries are being cheated as they are forced to open up their markets for developed countries and are not allowed access to markets of developed countries.
Aruguments in favour and against economic reforms
- Increase in rate of Economic Growth: The growth in GDP was 5.6% during, 1980-91. During,
2018-19, growth in GDP is estimated at 7, 2% as compared to growth rate of 6.7% in 2017-18 During the reform period, the growth of agriculture has declined and industrial sector reported fluctuation, whereas, growth of service sector has gone up. This indicates that the growth is mainly driven by the growth in the service sector.
During 2012-15, there has been a setback in the growth rates of different sectors.
Agriculture recorded a high growth rate during: 2013-14, but witnessed negative grate rate in the subsequent year, Service sector witnessed the highest ever growth rate of 10.3% in 20144 sequent year. Service sector witsed a steep decline during 2012-13, but began to show a positive growth thereafter. - Inflow of Foreign Investment: The opening up of the economy has led to the rapid increase in foreign direct investment (FDI). The foreign investment (FDI and foreign institutional investment) increased from about US $ 100 million in 1990-91 to US $ 73.5 billion in 2014-15, With launch of Make in India’ initiative in September 2014, Foreign Direct Investment (FDI) Policy was further liberalised. Due to this reason, FDI inflow in India increased by 48%.
- Rise in Foreign Exchange Reserves: There has been an increase in the foreign exchange reserves from about US S 6 billion in 1990-91 to about US $ 321 billion in 2014-15. India is one of the largest foreign exchange reserve holders in the world.
- Rise in Exports: During the reform period, India experienced considerable increase in exports of auto parts, engineering goods, IT software and textiles.
- Control on Inflation: Increase in production, tax reforms and other reforms helped in controlling the inflation. The annual rate of inflation reduced from the peak level of 17 in 1991 to around 5.48% in 2015-16.
- Increase in role of Private sector: Abolition of licensing system and removal of restriction on entry of the private sector, in areas earlier reserved for the public sector, have enlarge the area of operation of the private sector.
Criticism of Economic Reforms
Critics have raised a series of criticism against the New Economic Reforms, especially in $ areas of employment, agriculture, industry, infrastructure development and fiscal manageme - Growing Unemployment: Though the GDP growth rate has increased in the reform perio but such growth failed to generate sufficient employment opportunities in the countr
- Neglect of Agriculture: The new economic policy has neglected the agricultural sector compared to industry, trade and services sector.
(i) Reduction of public investment: Public investment in agriculture sector, especially infrastructure, which includes irrigation, power, roads, market linkages and resear and extension (which played a crucial role in the Green Revolution), has been redu in the reform period.
(it) Removal of subsidy: Removal of fertilizer subsidy increased the cost of production,
which adversely affected the small and marginal farmers.
(ill) Liberalisation and reduction in import duties: This sector has been experiencing a number of policy changes such as: (a) Reduction in import duties on agricultural products;
(b) Removal of minimum support price; and (c) Lifting of quantitative restrictions on agricultural products. All these policies adversely affected the Indian farmers as they now have to face increased international competition.
(io) Shift towards cash crops: Due to Export-oriented policy strategies in agriculture, the production shifted from food grains to cash crops for the export market. It led to rise in the prices of food grains.
3. Low level of Industrial Growth: Industrial growth recorded a slowdown due to the following reasons:
(i) Cheaper Imported Goods: Due to globalisation, there was a greater flow of goods and capital from developed countries and as a result, domestic industries were exposed to imported goods. Cheaper imports replaced the demand for domestic goods and domestic manufacturers started facing competition from imports. For example, cheaper Chinese goods pose a big threat to Indian manufacturers.
(it) Lack of infrastructure facilities: The infrastructure facilities, including power supply,
have remained inadequate due to lack of investment.
(in) Non-Tariff Barriers by Developed countries: All quota restrictions on exports of textiles and clothing have been removed from India. But some developed countries, like USA have not removed their quota restrictions on import of textiles from India.
4. Ineffective Disinvestment Policy: The government has always fixed a target for disinvestment of Public Sector Enterprises (PSEs). For instance, in 2014-15, the target was
§ 56,000 crore, whereas, the achievement was about © 34,500 crore.
However, according to some scholars, the disinvestment policy of government was not successful because:
• The assets of PSEs were undervalued and sold to the private sector.
• Moreover, such proceeds from disinvestment were used to compensate shortage of government revenues rather than using it for the development of PSEs and building social infrastructure in the country.
5. Ineffective Tax Policy: The tax reduction in the reform period was done to generate larger revenue and to curb tax evasion. But, it did not result in increase in tax revenue for the government.
•Tariff reduction decreased the scope for raising revenue through customs duties.
• Tax incentives provided to foreign investors to attract foreign investment further reduced the scope for raising tax revenues.
6. Spread of Consumerism: The new policy has been encouraging a dangerous trend of consumerism by encouraging the production of luxuries and items of superior consumption.
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7. Unbalanced Growth: Growth has been concentrated only in some select areas in the services sector, such as telecommunication, information technology, finance, entertainment, travel and hospitality services, real estate and trade, rather than vital sectors, such as agriculture and industry, which provide livelihood to millions of people in the country.
Explain in brief demonetisation and its impact
On 8 nov 2016 it was decided to demonetise high currency value notes of domination of 500 and 1000. with immediate effect, ceasing to be legal tender, except for a few specified purposes. Demonetisation is the act of removing a currency unit of its status as Legal Tender.
These notes accounted for almost 86% of the country’s cash supply.
The aim of demonetisation was to curb corruption, counterfeiting the use of high denomination notes for illegal activities and especially the accumulation of black money’ generated by income that has not been declared to the tax authorities.
Demonetisation also aim to create a less cash or cash lite economy.
Impact of Demonetisation
1. Money /Interest rates
i. Decline in cash transactions. ii. Bank deposits increased. ii. Increase in financial savings.
2. Private wealth-
Declined since some high demonetised notes were not returned and real estate prices fell.
- Public sector weath -
No effect.
4.digitalisation.
-Digital transactions amongst new users and use of RuPay Cards and Aadhar
Enabled Payment System (AEPS) increased.
- Real state -Prices declined
6 tax collection -Rise in income tax collection because of increased disclosure
Explain what is gst its demerits and components
GST is an indirect tax levied on the supply of goods and services
right from the producer to the consumer.
It is a destination based consumption tax with facility of Input Tax Credit in the supply chain.
It is applicable throughout the country with one rate for one type of goods/service. GST has replaced many indirect taxes. GST was brought in to effect on 1 July,
2017.
The Indirect Taxes that were replaced by the GST
VAT/Sales Tax, Entry Tax, Luxury Tax, Octroi, Entertainment Tax, Taxes on
Advertisements, Taxes on Lottery /Betting/ Gambling, State Cesses on goods.
(i) GST is an indirect tax that was designed to bring the indirect taxation under one
umbrella. More importantly, it is going to eliminate the cascading effect of tax. It
avoids tax on tax.
(ii) It introduced the concept of One Nation - One Tax and one market Rate of taxation
is uniform throughout the country. It promoted free movement of goods across the states.
(iii) GST reduced cost of production and helped our producers to compete with the products of other countries.
(iv) GST promoted economic growth rate. Simple and moderate tax system encourages investment and growth.
(v) Taxation system has been made simple. The entire process from registration to filing returns can be made online.
(vi) Several small producers and small service providers are exempted from taxation under GST.
(vii) Tax rate for essential commodities is very low. This will help poor people.
Demerits of GST
(i) GST was introduced in the middle of the financial year. This created a lot of confusion among the people.
(ii) As the fee structure is totally new, the small producers had to seek the help of professionals. They had to purchase the new software.
(iii) GST registration in different states became mandatory for the sellers.
Components of GST
(i) CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within Maharashtra)
(ii) SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within Maharashtra)
(iii) IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)
