GST data may help throw new light on state income calculation

Goods and Services Tax (GST) could well present economics researchers a new opportunity to reflect on and modify the calculation of the Gross State Domestic Product (GSDP).

Renowned economist MA Oommen hinted at this to an audience hosted by the Kerala Economic Association in Ernakulam on Tuesday where Chief Economic Advisor Arvind Subramanian was the keynote speaker.

SDP is the measure of economic progress at the regional level. Unlike National Income Accounts, it deals only with the income originating in the state and does not take into account the income accruing.

Now that GST is going to open up a mine of data on interstate flow of goods and services, can an alternate set of state income calculation be attempted, Oommen wondered.

On Economic Surveys per se, Oommen said that he has no hesitations in saying that the three masterminded by Arvind Subramanian stand out eminently different. “Not that everything is fine and beyond reproach in the ES 2016-17. Certainly not,” he said.

The policy suggestion given in the ES 2016-17 about the universal basic income (UBI) deserves to be mentioned here.

According to Oommen, the policy dynamics of competitive federalism being assiduously fostered in India needs a relook. “UBI becomes a radical new vision only if it is part of a comprehensive and determined fiscal and strategic policy drive against growing inequality in income, wealth and in the provisioning and delivering of health care and elementary education in the country.”

That the budget for 2017-18 identifies only 24 lakh people with incomes above ₹10 lakh seems to be a great travesty of truth. It does not square with the ES finding about the existing ratio of tax payers to voters and the potential to be exploited for common good. Unless strong fiscal measures to counter inequality, the emerging scenario will be worse than what it is today.

While state governance and institutional traps are important, unbridled capitalism as a strategy can only accentuate inequality. Oommen also made a plea to put the third tier and local finance in the governance map and public finance of India. He argued for an integrated public finance in India that assigns the local governments, their rightful role in Indian federal polity.

The federal system has a fairly good financial reporting system at the union and state level. But the third tier is nobody’s business. All the economic surveys so far have avoided local government from India’s fiscal federalism.

The National Statistical Commission (2001) however drew attention to the need for building a data base from the bottom in the context of the 73rd/74th amendments.

Even 16 years after this commission, the ground reality is that no attempt has been made to build a relevant and reliable bottom-up data base, Oommen noted.

Chapter 14 of the ES 2016-17 is ‘From competitive federalism to competitive sub-federalism: cities as dynamos?’ But these ‘dynamos’ are part of municipal governance and could be a powerful factor in widening spatial inequality in Indian federal polity.

“The moot question is how many of these ‘dynamos’ have a viable operational budget system that serve as an instrument of financial control,” he added.