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Subject: Economics

  • Why Surge in FPI in India?

    While emerging economies have been facing the crunch of foreign capital due to the pandemic, India is witnessing the surge of FPI: a sign of investors confidence in the economy. 

    Surge in FDI: Sign of trust India has built

    • In the September quarter, FDI doubled year-on-year to $28.1 billion dollars.
    • While foreign portfolio investor (FPI) inflows across emerging economies witnessed a decline due to the pandemic, India recorded a surge to $13.5 billion – a testimony to investor confidence in India’s growth story.
    • This surge in foreign funds amid the pandemic has been possible because of the continuous effort of the government, businesses, and agencies to make India a sought-after destination.

    Strategies used by the government

    Various steps described below signalled the government’s intention to open up the economy to investments.

    Such steps include the following:-

    • Allowing NRI’s to acquire up to 100% stake in Air India.
    • 26% FDI in the digital sector.
    • Permitting 100% FDI through automatic route in the coal mining sector.
    • 100% FDI for insurance intermediaries.
    • The National Infrastructure Pipeline, a â‚č13 trillion project to open up avenues for infrastructure investment for global investors.
    • Apart from these steps, the more recent Production Linked Incentive (PLI) scheme worth an estimated â‚č1.5 lakh crore is also a testimony to the government’s intention to encourage entrepreneurship and investment in the country.
    • Steps to skill-train 3 lakh migrant workers the country to realign the rural youth towards industry-relevant jobs is also a step in the right direction.

    Reducing dependency

    • The urgency the Indian government has shown to reduce dependency on China as a hub of the global supply chain.
    • Also, providing an enabling alternative environment has struck the right chord with the world as we see global biggies contemplating a move to India.

    Consider the question “India witnessed a steady flow of foreign capital while the world was battling pandemic. What are the factors responsible for this? What are the risks associated with such capital in the economy?”

    Conclusion

    While persisting with its efforts to attract the capital, the government also needs to focus on improving the productivity and export competitiveness of the economy.

    Back2basics: Difference between FDI and FII

    • FDI is an investment that a parent company makes in a foreign country.
    • On the contrary, FII is an investment made by an investor in the markets of a foreign nation.
    • While FIIs are short-term investments, the FDI’s are long term investment.
    • FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily.

  • How should India navigate future energy transition?

    The article is based on the book by Daniel Yergin, titled ” The New Map: Energy, Climate and the Clash of Nations”. The book throws some questions to countries dependent on oil and suggests the framework for their transition to renewable.

    Six broad themes underlying the energy transition

    • The first is the US shale revolution, which transformed the US from a major importer of oil and gas to a significant exporter.
    • The second is the leveraging by Russia of its gas exports to compel former members of the Soviet Union to stay within its sphere of influence and to embrace China into an energy partnership.
    • The third is China’s assertion of its rights over the South China Seas — a critical maritime route for its energy imports and the Belt and Road initiative;
    • The fourth is sectarian strife (Sunni/Shia) in the Middle East which, compounded by volatile and falling oil prices, has brought the region to the edge;
    • The fifth is the Paris climate summit and its impact on public sentiment, investment decisions, corporate governance and regulatory norms.
    • Sixth is the consequential impact of the manifold and impressive advancement of clean energy technologies.

    Questions for India

    • The ongoing transition in the energy world raises several questions for India.
    • How might they impact its objective to provide reliable, affordable, clean and universal access to energy?
    • Who will bear the costs of the transition — in particular, the costs of retrofitting industrial infrastructure and upgrading the power grids.
    • How can it prevent the “perfect storm” of high unemployment due to laid-off coal workers and stranded assets thermal power plants, slowed economic growth and environmental degradation?
    • How realistic is a green transition for an economy almost totally dependent on fossil fuels?

    Three policy initiatives for the government

    1) Securing favourable terms with oil suppliers

    • The government leverage its buyer strength to secure “most favoured” terms of trade for crude supplies.
    • In this regard, they bring out one development that plays to India’s advantage — the onset of “peak oil demand” (that is, demand will plateau before supply depletes).
    • However, there is no consensus on the timing of peak demand.

    2) Develop own systems for photovoltaics (PVs) and batteries

    • India must develop its own world-scale, competitive, manufacturing systems for photovoltaics (PVs) and battery storage.
    • Otherwise, India will not be able to provide affordable solar units unless it accepts the further deepening of dependence on Chinese imports.
    • Currently, China manufactures 75 per cent of the world’s lithium batteries; 70 per cent of solar cells; 95 per cent of solar wafers and it controls 60 per cent of the production of poly silica.
    • China is also looking to secure a chokehold over several strategic minerals (cobalt, nickel).

    3) Prepare a clean energy technology strategy

    • Technology is the answer to the energy transition.
    • That is what will bring the system to the tipping point of radical change.
    • China has placed clean energy R&D at the forefront of its “Plan 2025”.
    • The India strategy should identify relevant “breakthrough technologies”, establish the funding mechanisms and create the ecosystem for partnerships (domestic and international).

    Conclusion

    As an economy which is energy import-dependent, fossil-fuel-based India must balance between the rising demand for energy and an unhealthily strong linkage between this demand and environmental pollution.

  • Diversification of output to overcome the MSP trap

    The article analyses the state of agriculture in Punjab and the its dependace on the MSP regime and suggest the diversification as a solution to the MSP trap.

    Punjab’s role in Green Revolution

    • India was desperately short of grains in 1965, and heavily dependent on PL 480 imports from the US against rupee payments, as the country did not have enough foreign exchange to buy wheat at global markets.
    • The entire foreign exchange reserves of the country at the time could not help it purchase more than 7 MMT of grains.
    • It is against this backdrop that the minimum support price (MSP) system was devised in 1965.

     India’s current grains management system: Issue of excess grains

    • Today, the Food Corporation of India (FCI) stocks grains touched 97 MMT in June this year against a buffer stock norm of 41.2 MMT.
    • The economic cost of that excess grain, beyond the buffer stock norm, was more than Rs 1,80,000 crore, a dead capital locked in without much purpose.
    • That’s the situation of the current grain management system based on MSP and open ended procurement.

    Decline in Punjab’s economic level

    •  In 1966 Punjab had the highest per capita income.
    • Punjab’s position fell to 13th in 2018-19.
    • There are several reasons behind this deterioration, ranging from lack of industrialisation to not catching up even with respect to the modern services sector like IT, financial services.

    What explains Punjab’s prosperity

    • Punjab’s agriculture is blessed with almost 99 per cent irrigation against an all-India average of little less than 50 per cent.
    • The average landholding in Punjab is 3.62 hectare (ha) as against an all-India average of 1.08 ha.
    • Punjab’s fertiliser consumption per ha is about 212 kg vis-Ă -vis an all-India level of 135 kg/ha.
    • The productivity levels of wheat and rice in Punjab stand at 5 tonnes/ha and 4 tonnes/ha respectively, against an all-India average of 3.5t/ha and 2.6t/ha.

    Assesing Punjab’s real contribution to income and agriculture

    • In Punjab, the total farm families are just 1.09 million, a fraction of the all-India total of 146.45 million.
    •  The overall subsidy, from just power and fertilisers would amount to roughly Rs 13,275 crores.
    • That means each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20.
    • This is the highest subsidy for a farm household in India.
    • Let’s not forget that the average income of the Punjab farm household is the highest in India.[2.5 time’s the India’s average].
    • But to assess the real contribution of farmers/states to agriculture and incomes, the metric is the agri-GDP per ha of gross cropped area of the state in question.
    • This is an important catch-all indicator, as it captures the impact of productivity, diversification, prices of outputs and inputs and subsidies.
    • On that indicator, unfortunately, Punjab has the 11th rank amongst major agri-states.

    Way forward: Diversification of crops

    • States in south India like Andhra Pradesh, Tamil Nadu and Kerala have a much more diversified crop pattern tending towards high-value crops/livestock — poultry, dairy, fruits, vegetables, spices, fisheries.
    •  If Punjab farmers want to increase their incomes significantly, double or even triple, they need to gradually move away from MSP-based wheat and rice to high-value crops and livestock, the demand for which is increasing at three to five times that of cereals.
    • Punjab needs a package to diversify its agriculture — say a Rs 10,000 crore package spread over five years.

    Conclusion

    Once farmers diversify their farm output and double their incomes, they will not be stuck in the MSP trap.

  • Himachal wants GI status for five products

    The Himachal Pradesh government is trying to obtain GIs for five products from the state – Karsog Kulth, Thangi of Pangi, Chamba Metal Crafts, Chamba Chukh, and Rajmah of Bharmour.

    Read more about GIs at:

    GI(Geographical Indicator) Tags

    Which are the five HP products?

    • Karsog Kulth: Kulthi or Kulth (horse gram) is a legume grown as a kharif crop in Himachal Pradesh. Kulth grown in the Karsog area of Mandi district is believed to be particularly rich in amino acids.
    • Pangi ki Thangi: It is a type of hazelnut which grows in Pangi valley located in the northwestern edge of Himachal. It is known for its unique flavour and sweetness.
    • Chamba metal crafts: These include items such as metal idols and brass utensils which, historically, were made by skilled artisans in the courts of kings of Chamba. There are efforts to revive the trade, and a plate made from a brass-like alloy and having carvings of gods and goddesses is still popular.
    • Chamba Chukh: It’s a chutney made from green and red chillies grown in Chamba, and prepared in traditional and unique ways. The practice has largely declined in rural households of Chamba, but survives to some extent at the small-scale industrial level.
    • Bharmouri Rajmah: It’s more specifically called the Kugtalu Rajmah, since it grows in the area around Kugti Pass in the Bharmour region of Chamba district. It is rich in proteins and has a unique flavor.

    How many registered GIs does Himachal currently have?

    • They are eight in number.
    • It includes four handicrafts (Kullu Shawl, Chamba Rumal, Kinnauri Shawl and Kangra Paintings).
    • There are three agricultural products (Kangra Tea, Basmati and Himachali Kala Zeera) and one manufactured product (Himachali Chulli Oil).
    • Kullu Shawl and Kangra Tea were the first to be registered in 2005-06.
    • Basmati has been registered jointly from seven states of North India, including Himachal Pradesh.
    • Chulli (apricot) oil and kala jeera (cumin), mainly associated with Kinnaur and known for their medicinal properties, were the last to be registered in 2018-19.

    How does a GI tag help?

    • A GI tag provides a better market for these products and prevents misuse of the name.
    • A GI registration is given to an area, not a trader, but once a product gets the registration, traders dealing in the product can apply for selling it with the GI logo.
    • Authorised traders are each assigned a unique GI number. For example, Kullu shawl has 135 authorised traders. A shawl made in Ludhiana cannot be sold as a Kullu shawl.
    • If any unauthorised trader, even from Kullu, tries to sell a shawl under the name of Kullu shawl, he or she can be prosecuted under The Geographical Indications of Goods (Registration and Protection) Act, 1999.
    • GIs are also expected to boost or revive the items whose production has declined, as is being aimed in the case of Chamba Chukh and metal crafts.

    Back2Basics: Geographical Indication (GI)

    • The World Intellectual Property Organisation defines a GI as “a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin”.
    • GIs are typically used for agricultural products, foodstuffs, handicrafts, industrial products, wines and spirit drinks.
    • Internationally, GIs are covered as an element of intellectual property rights under the Paris Convention for the Protection of Industrial Property.
    • They are also covered under the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
    • Presently, there are 370 registered GIs in India.

  • RBI keeps repo rate unchanged

    The MPC decided on Friday to leave the Repo rate unchanged at 4%. However, the RBI faces a dilemma over the excess liquidity in the economy while tackling inflation.

    Limits of monetary  policy

    • Even though our economy slumped into a recession in the first half of 2020-21, there seems little further RBI can do with monetary policy to spur growth.
    • Its monetary decision to leave its main policy rate unchanged at 4%, the rate at which it lends money to banks, thus seems appropriate.
    • This is because retail inflation has hovered above its 6% upper tolerance limit for much of this year.
    • It is the first time its 2016-adopted price-stability framework looks poised for failure.
    • Meanwhile, it has announced wider coverage of an earlier scheme by which banks buy bonds issued by firms in specific stressed sectors–a way to ease credit.

    Poor credit demand

    • Supply-side measures have their limits of efficacy, with aggregate demand observed to be in a bad way and investments restrained by uncertainty.
    • Therefore, RBI’s focus had to shift to the inflationary effects of excess liquidity detected in the economy.
    • Oddly, this doesn’t seem to have happened.
    • With over â‚č6 trillion still being parked daily by banks with RBI at its reverse repo window, a reflection of poor credit demand.

    Dilemma RBI faces in maintaining low interest rate

    • Plus, India has seen a large sum of dollars coming into India.
    • To keep the rupee’s global value stable and Indian exports competitive, RBI has been buying those dollars, thus raising our foreign exchange reserves and pumping more liquidity into the domestic arena.
    • Sterilizing the inflationary effect of this usually requires bonds to be sold, which increases their market supply and pressures yields up-a dilution of its stance on easy money.
    • This poses a dilemma that RBI may soon have to grapple with.
    • RBI’s core task as a central bank, of watching both the external and internal stability of the currency under its charge, may get more complex than ever if capital inflows stay high, global investors see an opportunity in ‘carry trade’ profits, and price trends don’t go by its expectations.

    Conclusion

    If India’s broad policy frame is being pushed by our covid crisis towards a major reset, with the Centre’s fisc granted a freer run and its debt burden to be partially inflated away over the years, then that would call for another debate.

  • The many layers to agricultural discontent

    Farmers protest against the Farm laws is based on the multiple reasons. The article analyses these concerns of the protesting farmers.

    Three farm laws and response to it

    • Three Farm Bills were passed by the Central government in September 2020.
    • In the process, the regulatory role the state played hitherto with regard to these issues was watered down to a great extent.
    • Apart from complex challenges that rural India confronts today, there is a substantial body of studies that demonstrates how the vagaries of the market and the role of the middlemen reinforce agrarian distress in India.
    • However, organised farmers’ bodies are not in sync with the reasoning of the government.

    Role of the states

    • There is a debate around the constitutional provisions with regard to the respective domains of the State and the Union with regard to agricultural marketing,
    • However, issues affecting the farming community have a far greater bearing on the States relative to the Centre.
    • Ideally, given its immediacy, the States are the apt agencies to respond to a host of concerns faced by the farming community, which includes agricultural marketing.
    • While enacting the Farm Bills, the Centre extended little consideration to the sensitivity of the States.

    Role of APMC

    • In Punjab and Haryana, tweaking the APMC system and its resultant bearing on Minimum Support Price (MSP) is seen by the farmers as a threat to an assured sale of their produce at a price.
    • MSP system provides a cushion, wherein the farmer can anticipate the cost of opting for these crops and tap the necessary supports through channels he has been familiar with.
    • Farmers are apprehensive of the vagaries of a competitive market where he would eventually be beholden to the large players including monopolies.
    • There is widespread apprehension that the measures proposed by the Farm Acts in addition to the existing agrarian distress, are only going to make the lot of the farmer even more precarious.
    • All across the country, the farming community is prone to sympathise with the demand to scrap the new laws, as they have little to offer to them in a positive sense.

    Conclusion

    Those with large holdings and produce for the market — are spearheading the present stand-off against the Farm Bills, as it affects them very deeply. But farming distress is shared in common by the different strata within the farming community, even though it has a differential impact on them.

  • Perils of profits based economic recovery

    The economies across the world are showing recovery driven by profits. However, one cannot neglect the implication of such recovery for the long term growth given the pressure such recovery has been exerting on the labour markets. The article deals with this issue.

    3 Ways to look at GDP

    • The first is what they tell us about the past.
    • Here, the news has generally been better-than-expected.
    • The US and India saw a much stronger recovery last quarter than previously envisioned.
    • The second is sectoral, production side-agriculture, manufacturing, services- and the functional, expenditure side consumption, investment, net exports.
    • But there’s a third way — the income side.
    • Value addition must ultimately accrue to the different factors of production.
    • On the income side, therefore, GDP is simply the sum of profits, wages and indirect taxes.

    Profit-driven growth and impact on employment

    • The economic recovery in many parts of the world is driven disproportionately by capital than labour.
    • In India, the net profits of listed companies grew 25 per cent (in real terms) last quarter. This despite revenues shrinking.
    • Revenue shrank because firms aggressively cut costs, including employee compensation.
    • This implies that if listed company profits are growing 25 per cent, and yet GDP contracted 7.5 per cent, it reveals (by construction) significant pressure on profits of unlisted SMEs, wages and employment.
    • Labour market pressures are evident in India too.
    • Household demand for MGNREGA remains very elevated, suggesting significant labour market slack.
    • The employment rate in some labour market surveys still reveal about 14 million fewer employed compared to February, and nominal wage growth across a universe of 4,000 listed firms has slowed from about 10 per cent to 3 per cent over the last six quarters.

    Why this matters

    • It may be rational for any one firm to boost profits by cutting employee compensation.
    • But if every firm pursued that strategy, that simply reduces future aggregate demand and profitability for all firms.
    • This is quintessential fallacy of composition that Keynes enumerated.
    • Weak demand, in turn, disincentivises re-hiring, reinforcing the risks of settling into a sub-optimal equilibrium.

    Need to remain vigilant about labour market

    • Remaining vigilant about labour markets is particularly important for India.
    • Private consumption was increasingly financed by households running down savings and taking on debt pre-COVID-19.
    • Consequently, if job-market pressures induce households into perceiving this shock as a quasi-permanent hit on incomes, households will be incentivised to save, not spend in the future.

    Way forward for fiscal consolidation

    • While economic momentum is expected to slow as pent-up demand wears off, the level of output will progressively reach pre-COVID levels as the economy normalises.
    • The question is what will drive growth after that?
    • India’s fiscal response has been restrained thus far, with the Centre’s total spending similar to last year and state capex under pressure.
    • It’s therefore important for the Centre to step up spending in the remaining months.
    • More importantly, public investment, and a large infrastructure push, must be the leitmotif of the next budget.
    • This will be crucial to boost demand, create jobs, crowd-in private investment and improve the economy’s external competitiveness.
    • If higher infrastructure spending is financed by higher asset sales, the headline fiscal deficit (which matters for bond markets and interest rates) can be slowly reduced, even as the underlying fiscal impulse (which matters for growth and jobs) remains positive.
    • This is the only way to undertake fiscal consolidation without incurring a fiscal drag.
    • Monetary policy has led the charge in 2020. But with inflation continuing to remain sticky and elevated, the RBI has fewer degrees of freedom going forward.

    Conclusion

    The stronger-than-expected GDP print is very encouraging. But this is the start of a long journey back. Much, therefore, remains to be done. The excitement around the vaccine shouldn’t obscure this fundamental premise.

  • In farmers’ protests, the core is procurement

     

    Context

    • Farmers’ protests have erupted once again in north India, their main worry is about a possible withdrawal of the Minimum Support Price (MSP) and a dismantling of the public procurement of grains.

    Why farmers in Punjab and Haryana are protesting

    • Farmers in Punjab and Haryana are heavily dependent on public procurement and assured price through MSP.
    • Nearly 88% of the paddy production and 70% of the wheat production in Punjab and Haryana (in 2017-18 and 2018-19) has been absorbed through public procurement [Food Grains Bulletin and Agricultural Statistics at a Glance, Government of India].
    • In contrast, in the other major paddy States such as Andhra Pradesh, Telangana, Odisha and Uttar Pradesh, only 44% of the rice production is procured by public agencies.
    •  In the major wheat States of Madhya Pradesh and Uttar Pradesh, only 23% of the production is procured by public agencies.

    Government needs to continue procurement

    • If farmers of Punjab and Haryana need the procurement system, the government needs it even more.
    • This is because of its obligations under the PDS and the National Food Security Act (NFSA).
    • Support under the NFSA is a legal and rights-based entitlement.
    • There are nearly 80 crore NFSA beneficiaries and an additional eight crore migrants who need to be supported under the PDS.
    • In the last three years, nearly 40% of the total paddy production in the country and 32% of wheat production has been procured by public agencies to supply the PDS.
    • Thus, the government has little option but to continue its procurement from these States in the foreseeable future.

    Way forward

    • Therefore, it is imperative that the government reaches out to the farmer groups and assures them of the indispensability of MSP-procurement system.
    • The government needs to start this initiative immediately to allay their legitimate concerns.
    • Two of the major limitations in the laws that need to be addressed immediately:
    • 1) The absence of a regulatory mechanism to ensure fair play by private players vis-Ă -vis farmers.
    • 2) The lack of transparency in trade area transactions.

    Conclusion

    The severe trust deficit that resulted from the way the Farm Bills have been rushed through needs to be addressed by adopting a conciliatory approach towards farmers and the States.

  • Trade-offs for growth revival: Why India’s policymakers need a new roadmap

    The article weighs in the policy options with the Indian policymakers to revive the India economy. This leads to the trilemma of managing the exchange rate, controlling the inflation and maintaining the capital account open all at the same time.

    A brief overview of 1991 economic reforms

    • The crisis in 1991 was centred on the balance-of-payments.
    • Allowing the Indian rupee to fall from an artificially high level  was a key part of the solution.
    • Since the reforms, the Indian rupee has steadily depreciated, roughly according to a market-determined equilibrium.
    • Extraordinarily high tariff barriers were reduced, allowing for welfare gains from greater international trade.
    • Reforms of the domestic economy that increased market orientation was, in some sense, opportunistically combined with these externally-oriented measures.

    What should be India’s foreign economic policy

    • In terms of connections to the rest of the world, however, it is less clear what the right policy mix should be.
    • We can think of three types of international flows: labour, goods and services, and capital.

    1) Internation flow of Indian labour

    • India has benefited from being able to send workers with a variety of skills to different types of economies: construction workers and nurses in the Persian Gulf, software engineers in the US, and so on.
    • Direct benefits came from large remittances back to India.
    • The pandemic and US immigration policy, have had some major impacts on this international connectivity, but new vaccines and a change in the US president are likely to reverse these shocks.
    • In any case, there is not much that Indian policymakers can do or need to do on this front.

    2) Trade in Goods and Service

    • India has been able to grow its exports, both in a variety of agricultural and manufactured commodities and in services, from software services to tourism.
    • It has been reasonably competitive in a range of goods and services.
    • It was only in the last few years, even before the pandemic, have Indian exports struggled to register growth.
    • Whereas the export powerhouses of East Asia consistently ran surpluses on the current account of the balance of payments, India has mostly run deficits, albeit manageable ones.

    3) Capital Flow: Area where policymakers have option

    • Current account deficits have to be covered somehow, though various forms of foreign capital.
    • Whereas economic theory and economic policymakers mostly agree on the benefits of international trade in goods and services there is less of a consensus on the benefits of international capital flows.
    • Capital flows can raise fears of instability if they are reversed, or make exports less competitive if they push up the value of the rupee. 
    • The country is a relatively attractive destination for foreign capital, both FDI and portfolio investment.
    • But, these flows can make Indian exports less competitive if the rupee appreciates too much, requiring domestic demand to do more of the work of absorbing increased output.

    Lesson from Japan

    • Right now, India is trying to build its manufacturing capacity by raising tariffs, in an old-style push for import substitution.
    • It is also providing direct incentives, such as the new scheme rewarding increases in production.
    • Arguably, this did work in Japan in the 1960s, but it is not clear if India is well-off enough to sustain that domestic strategy.
    • In addition, the lack of competitive discipline exporting can hinder the achievement of acceptable quality levels.

    Way forward

    • Capital controls to some extent can help mitigate the risk in this situation.
    • The Reserve Bank of India do more to keep the rupee at competitive levels, by accumulating foreign exchange reserves.

    Consider the question “In terms of links with the rest of the global economy, it is less clear what the right policy mix should be. Do you agree with the view that focus on simultaneously managing the exchange rate and domestic inflation while maintaining an open capital account would help in the revival of India’s economic growth

    Conclusion

    Lurking under the surface of these issues is the trilemma of being unable to simultaneously manage the exchange rate and domestic inflation while maintaining an open capital account, although foreign exchange reserves provide a way of softening the trade-offs. These are not new challenges, but they will need to be a focus for India’s policymakers as they seek renewed economic growth.

    Source:-

    https://www.financialexpress.com/opinion/trade-offs-for-growth-revival-why-indias-policymakers-need-a-new-roadmap/2142900/

  • Lottery, gambling, betting taxable under GST Act

    The Supreme Court has held that lottery, gambling and betting are taxable under the Goods and Services Tax (GST) Act.

    Try this question from CSP 2018:

    Q.Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempt under GST (Goods and Services Tax)?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    What did the court say?

    • A three-judge Bench led by Justice Ashok Bhushan said the levy of GST on lotteries does not amount to “hostile discrimination”.
    • The court held that lottery, betting and gambling are “actionable claims” and come within the definition of ‘goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017.
    • Lottery, betting and gambling are well known concepts and have been in practice in this country since before Independence and were regulated and taxed by different legislations.

    Parliament to decide

    • The court said that the Parliament had an absolute power to go for an “inclusive definition” of the term ‘goods’ to include actionable claims like lottery, gambling and betting.
    • The court accepted the government’s stand that the Parliament has the competence to levy GST on lotteries under Article 246A (inserted after GST Act) of the Constitution.
    • The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to GST and expansive definition of goods given in Section 2(52).

    Must read:

    Goods and Services Tax