The Goods and Services Tax norms (GST) were tweaked early this month by the GST Council, giving relief to small businesses by cutting rates and simplifying compliance. The GST has roiled small businesses. Complexity of compliance is one reason. The other is high rate of tax on certain goods and services. The government can no longer afford to ignore adverse impact of GST on businesses, now that economic growth is sliding.
After the tweaks early this month, more changes in GST are likely soon to give relief to small businesses and increase compliance. Revenue Secretary Hasmukh Adhia indicated that when he said on Sunday that some rejig in GST rate structure was required to reduce the burden on small and medium businesses.
It seems by next July, when GST completes a year, it might see so many changes that it starts looking different from its original design.
Is the Narendra Modi government trying to rectify what went wrong with the GST? No. It seems that’s how it was supposed to be, if you have heard what Sanjeev Sanyal, Principal Economic Advisor to the Ministry of Finance, has been saying.
Sanyal believes the economy is not a machine but a living organism that evolves as it grows. He calls it an adaptive system. Against the conventional economic wisdom, he does not believe in equilibriums over perfect states. The economy, according to him, is an eco-system that keeps shifting shape in response to emerging challenges. He means you have little chance to know what all will happen when an economic change is introduced. Economy cannot have a predictable final shape as it adapts to new factors based on feedback.
Writing in ET last year , Sanyal pitted the conventional Computable General Equilibrium (CGE) models against what he calls Complex Adaptive Systems (CAS). To illustrate his point Sanyal gave an example popularised by Andrew Haldane of the Bank of England — of a dog catching a frisbee.
“Say, a man is throwing a Frisbee for his dog to catch. If the dog was a CGE proponent, it would model the shape of the Frisbee, the man’s muscle strength, wind speed, gravity and so on. Even if the dog is a genius, however, it would probably still fail to catch the Frisbee because there are just too many moving parts to model. In reality, the average dog has no problem catching the Frisbee because all it does is closely watch the flying object and constantly adjust its own position, i.e.,monitor, feedback, adapt. This is the CAS approach,” wrote Sanyal.
It seems the Modi government is not merely rectifying the GST but adjusting its position as it monitors, gets feedback and adapts. Whatever its merits, Sanyal’s theory surely reflects in the government’s economic policy not just the way it is tweaking the GST but also in the way it changed rules and regulations so often after demonetisation in November last year.