​Unwelcome surge: On the buoyancy in GST collections

Statement 1 is incorrect: Tax revenue as a percent of GDP in India has not steadily increased over the last decade. It has fluctuated — for instance, it rose during periods of strong economic growth but fell during years like 2019–20 and 2020–21 (due to slowdown and the pandemic). Hence, the trend is not steadily upward. Statement 2 is incorrect: Fiscal deficit as a percent of GDP has also not steadily increased. It narrowed from around 4.5% in 2013–14 to about 3.4% in 2018–19, then spiked during the COVID-19 years (to around 9.2% in 2020–21) and has gradually declined since. Thus, there has been no steady increase over the decade.

Statement 1 is correct: When prices rise, the real value of money decreases. Debtors repay their loans with money that has less purchasing power than when they borrowed it. Therefore, debtors gain because the real burden of debt falls. Statement 2 is incorrect: Bondholders (lenders) receive fixed interest payments. During inflation, the real value of these payments decreases, as money loses purchasing power. Thus, bondholders lose during inflation.

A decrease in the tax-to-GDP ratio of a country can potentially indicate 1 only (Slowing economic growth rates). Tax to GDP Ratio: This ratio represents the total tax revenue collected by a government as a percentage of the country's GDP. It's a measure of the government's ability to raise funds through taxes. Impact of Decrease: A decrease in this ratio can have several interpretations, but it doesn't necessarily point towards a less equitable income distribution (option 2). Slowing Growth: It might indicate a slowdown in economic growth. During economic downturns, businesses and individuals tend to earn less, leading to lower tax collections. Change in Tax Policy: It could also reflect a deliberate change in tax policy, such as tax cuts or exemptions, aimed at stimulating economic activity. Inefficiency: In some cases, it might suggest inefficiencies in tax collection.

Statement 1 is Correct: Goods and Service Tax (GST) replaces multiple indirect taxes levied by central and state governments, creating a unified market. This can simplify tax compliance and potentially reduce the cost of goods and services for consumers. Statement 2 is Incorrect: While GST can improve efficiency in tax collection, it's not a direct solution to the current account deficit, which is influenced by factors like trade balance and foreign investment. Statement 3 is Incorrect: The impact of GST on economic growth is complex and depends on various other factors. It's unlikely to solely propel India's economy to overtake China's in the near future.
Therefore, the most likely advantage of GST is 1 only. Hence, option A is the correct answer.

Statement 1 is correct. Domestic production of edible oil in 2018 was around 100 Lakh Metric tons (LMT) while import was around 150 LMT. Statement 2 is incorrect. The Government of India does impose customs duties on imported edible oils. The rates of these duties may vary depending on various factors, including the type of edible oil, international market conditions, and government policies aimed at promoting domestic production or protecting domestic producers.

Expansionary policies: Expansionary policies like increased government spending or lower interest rates can stimulate economic activity and consumer spending. This can lead to excess demand that outstrips supply, causing prices to rise. Fiscal stimulus: Similar to expansionary policies, fiscal stimulus through government spending injections can create an inflationary gap if it's excessive. Higher purchasing power: Higher purchasing power can contribute to demand-pull inflation. If people have more money to spend due to factors like wage increases or wealth accumulation, it can lead to increased demand for goods and services. Inflation-indexing wages: While inflation-indexing wages can contribute to a wage-price spiral in some cases, it's not necessarily a direct cause of demand-pull inflation. It can be a consequence of inflation rather than a primary driver. Rising interest rates: Rising interest rates generally act as a tool to cool down an economy and reduce inflation. They make borrowing more expensive and encourage saving, thereby reducing the money supply and aggregate demand. Therefore, the correct code is 1, 2, and 4.

Out of the given options, the most inflationary effect is likely caused by (D) Creation of new money to finance a budget deficit. Option A is incorrect: Repayment of public debt actually removes money from circulation, potentially leading to deflationary pressure. Option B and C are incorrect: Borrowing from the public (B) or banks (C) - While these options involve increasing government debt, they don't directly increase the money supply. The government essentially takes money that already exists in the economy. Option D is correct: Creation of new money is the most inflationary option. This can lead to an increase in the money supply, which can put upward pressure on prices (inflation) if not accompanied by a corresponding increase in goods and services. In essence, printing new money directly expands the money supply, potentially outpacing economic growth and leading to inflation.

List of Tax-exempted Goods are;
- Several food items have been exempted from any of the tax slabs. Fresh meat, fish, chicken, eggs, milk, buttermilk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery and hulled cereal grains have been kept out of the taxation system. - Bindi, sindoor, kajal, Palmyra, human hair and bangles also do not attract any tax under GST. - Drawing or colouring books alongside stamps, judicial papers, printed books, newspapers also fall under this category.

Actions that can help reduce the deficit: 1. Reducing revenue expenditure (Correct): This involves cutting back on non-essential government spending. Examples include reducing administrative costs, curtailing travel expenses, or postponing discretionary infrastructure projects. 3. Rationalizing subsidies (Correct): This means making subsidies more targeted and efficient. The government can identify and eliminate wasteful subsidies or ensure they reach the intended beneficiaries. Actions that will likely increase the deficit: 2. Introducing new welfare schemes (Incorrect): This would increase government spending and contribute to the deficit. 4. Reducing import duty (Incorrect): Lower import duties can lead to a decrease in government revenue collected from customs duties. This can worsen the deficit. Therefore, the correct answer is 1 and 3 only (Reducing revenue expenditure and Rationalizing subsidies)

Economic Growth vs. Economic Development: An increase in absolute and per capita real GNP signifies economic growth, which means the overall production of goods and services in a country is expanding. Economic development is a broader concept that goes beyond just increasing production. It encompasses factors like
1. Improved living standards for citizens
2. Reduction in poverty and unemployment
3. Increased literacy and education levels
4. Improved healthcare and infrastructure If poverty and unemployment are increasing even with economic growth (GNP increase), it suggests the benefits of growth are not being shared widely. This indicates a lack of true economic development.

The article states, 'India’s June GST collections rose 13.9% year-on-year to ₹1.95 lakh crore, driven largely by import IGST, which surged 34.6%'. This clearly identifies import IGST as the primary driver, not domestic growth or general compliance.

The article mentions: 'the government hiked its import duty from 6% to 15% on May 13' (Factor 1), 'This period also coincided with the rupee depreciating by almost 6% against the U.S. dollar' (Factor 2), and 'a 14.5% rise on non-oil imports in May at elevated global prices' (Factor 4). Regarding Factor 3, the article states, 'Some economists have argued that this reflects stronger imports of capital goods and industrial inputs. However, May petroleum products’ trade data and Q1 FY27 data on the performance of the eight core industries, point to a rather different explanation,' thereby dismissing it as the primary reason cited by the article itself.

Statement 1 is incorrect: The article states, 'Domestic GST collections grew by a more modest 6.5%, suggesting that the sharp increase in overall collections owes less to a broad-based improvement in domestic value addition.' Statement 2 is correct: The article notes, 'Read alongside the performance of India’s eight core industries, which expanded by only about 2.8% in Q1 FY27... the domestic economy appears more subdued.' Statement 3 is incorrect: The article mentions, 'The latest HSBC Manufacturing PMI reading of 54.2 likewise points to steady but moderating factory activity, marking the second-lowest expansion in 13 months,' indicating moderation, not significant acceleration.