INDIA'S INTERNAL GLOBALISATION
Rollout of GST, rapid spread of payments, ecommerce, portability of welfare spending, are steadily eliminating internal socio-economic barriers. EPISODE #121
Dear Reader,
A very Happy Monday to you.
Earlier this month, the Indian Public Policy Review (IPPR) published a piece co-authored by Bibek Debroy and Devi Prasad arguing that the introduction of the Goods and Services Tax (GST) had led to a surge in internal trade—growing at more than twice the pace of India’s Gross Domestic Product.
The study empirically confirms what the proponents of GST have long argued: A ‘One Nation, One Tax’, will infuse unprecedented efficiency.
Actually, if you stack this with all the other major policy tweaks that have been undertaken over the last decade—home grown solutions in payments, targeted welfare spending, reset to the business of lending, near-universalisation of health insurance, and so on, then what you have is an Indian version of globalisation. It is a hybrid model combining market forces with public goods.
This internal globalisation is dismantling socio-economic barriers, unleashing unprecedented change. So this week I explore this theme and its attendant implications.
Across India, it is harvest season. Whether it be Bihu, Baisakhi, Pahela Baishak, Agadi or Vishu, the entire country is celebrating harvest season. The cover pix sourced from Unsplash is taken by Gagan Deep Singh. Thank you Gagan.
A big shoutout to Madhu, Aashish, Gautam, Rajiv, Premasundaran, Vandana, Balesh and Rajit, for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.
INTERNAL GLOBALISATION
As mentioned in the introduction, the Indian Public Policy Review (IPPR) published a paper examining linkages between the relatively new Goods and Services Tax (GST) and the Indian economy.
Co-authored by Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council (PMEAC) and his colleague, Devi Prasad, the paper argued that the ‘One Nation, One Tax’ implemented on 1 July 2017 has made the Indian economy more efficient.
Between 2017-18 and 2020-21, the Indian economy grew by 19.7% to $3.1 trillion. In the same period, the value of goods transported inter-state (domestic only) increased by 44%.
Based on this, the authors concluded:
“In many ways, this is indicative of the transportation efficiency gains that have accrued after the introduction of GST, as well the enhanced economic integration of Indian states.”
Intuitively, we know this to be true.
The introduction of ‘One Nation, One Tax’ replaced 17 central and state taxes. Even better, it eliminated fiscal borders between states—previously goods moved across India as though they were moving between countries, inviting myriad taxes, levies. Not only did this have a cascading effect on prices, it also made Indian trade that much more inefficient.
The introduction of GST however meant that for the first time the Indian economy was unified and morphed into one single market. The IPPR paper provides the empirical evidence to what was intuitively apparent to everyone.
Mindset Reset
Implicit in the success of GST is that a bulk of India’s growth, present and future, will accrue internally. This is not difficult to comprehend, given that the tail wind of global exports has all but disappeared and that the country’s next 500 million are only now beginning to taste the fruits of basic development.
However, this is easier said than done. This is because it requires dismantling controls and prejudices acquired over decades of sloth. Dismantling of the Licence Raj, beginning in the 1980s and its acceleration in a watershed moment in 1991, was very important in this mindset reset.
The rollout of GST—which was under discussion since the Atal Bihari Vajpayee regime at the turn of the Millennium—was not only the single biggest piece of tax reform, but it was also a very important milestone in this ongoing mindset reset.
Actually, it was Nandan Nilekani, the co-founder of Infosys and the founder of Aadhaar (India’s unique identity project), who drew an ideological contour to this phenomenon.
In an interview, when I worked for Mint, the business daily from the Hindustan Times group, Nandan, made this astute observation:
“India's growth will have to come more from services because India doesn't have the access to the manufacturing route that Japan, Southeast Asia, Korea and China have used partly because the backlash against that and partly because manufacturing itself is becoming highly automated and therefore the jobs are not going to be there.
We will have to drive our economic growth by domestic services lead consumption and therefore reducing the friction internally, between states between people of different languages.”
Reducing Friction
Setting up of the Unique Identity Authority of India (UIDAI) in 2009 and the rollout of Aadhaar the following year, launched India’s campaign to reduce, if not eliminate, internal friction.
What Aadhaar did was to spawn the Digital Public Infrastructure driven by the India Stack—interoperable digital building blocks which solved for identity and payments in a transparent manner. Essentially, it provided a digital highway, on which anyone, private or public, could create innovations—like Unified Payments Interface—to create solutions at unimaginable scale.
As a regular reader of this newsletter, you are aware that this is a constant theme I address. So I will not dwell on this at length.
Instead, I am sharing a previous episode which sums up this promise. Do click the link if you wish to reread it.
But staying with the theme, UPI dramatically reduced friction in payments by enabling interoperability, killing proprietary wallets in the process and simultaneously achieving scale.
As explained in the last newsletter based on the ‘Indus Valley Report’ published by Blume Ventures, this experiment in payments has also made the general populace stakeholders in the payments structure. In March, UPI payments aggregated a staggering 8.7 billion; and, 84% of the merchant payments were for sums less than Rs500.
If UPI democratised payments, then initiatives like Bhashini—an ambitious project, using the power of Artificial Intelligence to enable access to Internet and digital services in local languages—are doing that to make access equitable; breaking the hegemony of English.
Sharing the episode I had written on Bhashini. If you wish to reread it, please click the link below.
Similarly, the idea of ‘One Nation, One Ration Card’ has made access to welfare services portable. This is hugely significant since there is a cohort of 400 million Indians who migrate in search of a living. In normal practice, they would miss out on their welfare benefits, like receiving free food grains through the public distribution system, since they were not at their domicile.
However, armed with a ration card seeded with an individual’s Aadhaar, makes him/her eligible to claim their social welfare benefits at any ration shop in the country. And, the rest of the family, assuming they did not move with the migrant, can claim the balance. Overnight social welfare became portable.
Presumably, you get the drift. India’s strategy is to make most services digitally enabled. And given the power of interoperability of the ‘India (Tech) Stack’, access to the services can be democratised, made transparent and directed at the beneficiary—direct benefits transfer (DBT)—by creating digital public goods.
So far, the union government has saved around Rs3 lakh crore to the exchequer by adopting DBT. As they say, money saved, is money earned.
Returning to my main point, it is clear that internal globalisation is underway in India. It is a cup half-full and still very much a work in progress. At the least it has let the genie out of the bottle as it were, by breaking down socio-economic barriers and democratising access.
For example, if this trend is sustained it will result in states becoming multilingual. Anecdotally we know this is true for Kerala, Tamil Nadu, Maharashtra, Gujarat and Karnataka. Already, we hear of several states developing a multilingual study curriculum to accommodate the needs of the children of migrants who speak a different language.
This kind of intermingling also undermines deep prejudices that have become a way of life—think of the pejoratives we used growing up to identify various ethnic groups and how we shed them once we were in contact with ‘people who are not like us’. India’s diversity is its strength; that their assimilation will be a force multiplier is a no-brainer.
While globalisation may be dead to the world, it is very much alive and kicking in India.
Long live internal globalisation.
Recommended Viewing
Sharing the latest post of Capital Calculus on StratNews Global.
Little under a month ago, the Intergovernmental Panel on Climate Change (IPCC) submitted its sixth and final report. It basically argued that the world was running on borrowed time. Unless it mended its ways and reduced the world’s carbon footprint on a war footing over the next seven years, it was facing a catastrophe.
Another way to look at this challenge is that this is an actor-less threat. In contrast to the normal security threats a country faces, either from a aggressor country or cross-border terrorism.
In fact, climate change is not the only actor-less threat. Sadly, the world is suffering waves of such actor-less threats—pandemics like covid-19, inflation, food insecurities—that do not respect borders. In other words, geography is no line of defence.
Not surprising then that the United States has included climate change as a threat in its national security strategy paper issued last October.
To unpack this phenomenon I spoke to Erin Sikorsky, Director, Centre for Climate and Security, Washington DC. Erin, is among the scholars who have consistently argued that climate change poses a threat to national security. Do watch this illuminating conversation packed with learnings.
Sharing the link below:
Till we meet again next week, stay safe.
This is on behalf of Ranjini, a regular reader and supporter of this newsletter. She was unable to post using the comments section of Substack. If anyone else is facing the challenge, please DM me. I can post on your behalf. Here goes:
From Ranjini
Dear Anil
Thanks a lot for this week's piece on InternaI Globalisation. This term in itself seems to be a juxtaposition- both InternaI and Global at the same time. Till you pointed it out, I had never realised that what appears to be an economic breakthrough can have such social ramifications as well. Of course the introduction of GST was an economic boon which led to a surge in internal trade. It also brought the entire country under one umbrella of One Nation, One Tax. Same is the case with Aadhar, UPI payments, One Nation. One Ration Card and so on. The icing on the cake is the States becoming multilingual. It's a fact that people with transferable jobs- for instance the Defence Services- were always in a quandary. Their children couldn't possibly develop proficiency in a new language every couple of years or so. All that is now set to change for the better.
Dear Anil,
I also faced a problem this week in posting my comments.Very well researched article!! Enjoyed reading it!