India's new tax regime has improved economic efficiency but critics say its complexities have forced many small businesses to close and forced hundreds of thousands of workers to lose their jobs, Reuters reported.
India's economy grew 8.2% in the second quarter of 2018, up from the 5.6% growth in the year-ago period. Economists, however, note the low base effect as companies delayed production in the previous year ahead of the Goods and Services Tax implementation.
Large companies have benefited from the tax change. Panasonic Appliances, India's leading electric goods maker, slashed costs by 4 to 5 percentage points due to the measure. "GST ... has improved the competitiveness of the manufacturing sector," Panasonic India CEO Manish Sharma told Reuters.
But small businesses are hurting. A fifth of India's 63 million small businesses, which contribute 32% to the economy and employ 111 million people, were hit by a 20% drop in profits and had to lay off hundreds of thousands of workers since the roll out of the GST a year ago, Reuters reported, citing a survey by All India Trade Union Congress.
The Centre for Monitoring Indian Economy, a Mumbai-based consultancy, said 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 climbed to 6.4% in August from 4.1% in July in spite of an additional 17 million people added to the workforce, Reuters reported.
To address grievances, the GST Council, which administers the tax measure, 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 crimping small businesses.
About 230,000 small businesses have closed down due to compliance and cash flow problems, aggravating the number of job losses, said Amarjit Kaur, national secretary of the All India Trade Union Congress.
Months ahead of a general election in mid-2019, Prime Minister Narendra Modi's popularity has fallen below 50% in July from 53% in January, while his main election rival, Rahul Gandhi, has risen to 27% from 22%, Reuters reported, citing a survey by India Today magazine. The gap has further narrowed compared from eighteen months ago, when Modi was at 65% and Gandhi was at 10%.