ISED proposes a new approach to mitigating livelihood crisis 

The SME think-tank, Institute of Small Enterprises and Development (ISED) has proposed a new
approach to mitigating India’s livelihood crisis. The recommendation comes through the
Institute’s annual document, India Micro, Small and Medium Enterprise Report, to be released
on Monday.
The United Nations and several economists have warned of a ‘K’ shaped model of global
economic recovery, and an impending livelihood crisis, along with possible food scarcity.
Remarkable growth in self-employment
The recent edition of the Periodic Labor Force Survey Report, brought out by the National
Statistical Office has pointed out indications of remarkable growth in self-employment in the
country. It indicates a post-Covid trend towards the growth of self-employment rates.
While the pre-Covid level of rural self-employment was 51.7 per cent, it has grown to 54.5 per
cent during the post-Covid period. The urban growth, however, is from 31.8 per cent to 33.2
per cent.
While the reasons for such a change have been debated by economists, from the point of view
of sustained economic growth, an increased shift from wage employment to self-employment is
a welcome step, provided it adds to the entrepreneurial capabilities of the country.
Entrepreneurial capabilities, however, are conditional on planning and nourishing the
entrepreneurship resources of the country, the report said.
Alternative income opportunities
Growth of self-employment, in itself, need not necessarily be a positive signal of uptake of the
economy, says the Report. On the other hand, it can also be an indicator of labour market
distress by which labour is on a constant search for alternative income opportunities.
The ISED Report discusses the framework of ‘Social and Solidarity Economy’, as an alternative
that addresses the concerns thrown up by the Covid-19 crisis. “The forthcoming ISED report
focuses on the theme ‘Enterprise Security & the Social and Solidarity Economy’,” said PM
Mathew, Director, ISED.
Based on a multi-modal evidence base, it forms part of the Institute’s unique programme of
Development Communication, India MSME Communication Programme (IMCP).
ISED Small Enterprise Observatory is a dedicated knowledge-sharing platform of the Institute.
The India MSME Report forms part of a unique development reporting and communication
programme that has been organised at the national level with the active participation of major
stakeholders including State governments, financial institutions, and promotional agencies.
Several of the recommendations of the report series were implemented by the Union and State
governments and by the Reserve Bank of India from time to time.

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How digitalisation can green the MSME sector

It is apparent that the Indian economy’s backbone is the Micro, Small and Medium Enterprises
(MSMEs) sector. This sector consists of nearly 64 million enterprises, second only in size to
China’s in terms of GDP. MSMEs also created about 600,000 new jobs this past year, besides
employing over 110 million people and contributing to nearly 50 per cent of the country’s
exports.
But this sector also contributes significantly to greenhouse gases (GHGs), as it is energy
intensive. Studies indicate that India’s small business sector’s energy consumption is equivalent
to about 50 million tonnes of oil and gas annually.
As 70 per cent of the country’s power consumption is met by coal, the segment’s indirect
contribution to global warming is significant. So addressing how to reduce MSMEs’ energy
consumption is vital for climate mitigation.
With the pandemic hitting India’s small businesses hard, exacerbated by the global economic
slowdown and inflation induced by Russia’s invasion of Ukraine, the MSME sector urgently
needs solutions that could help it tide over a likely stagflation.
Demand for MSMEs’ products is unpredictable, their working capital needs are considerable,
they lack a steady labour supply, institutional finance, and they find it hard to repay loans.
There are other problems, like lack of knowledge of the most energy and resource efficient
production processes and technologies.
This significantly contributes to the sector’s energy use intensity, which often has a direct
bearing on profit margins. There are several government initiatives to reduce GHG emissions in
this sector. But, scalability, lack of data, capacity building and finance are still major barriers.
Digitalisation promise
One of the solutions that holds promise is digitalisation of small businesses production
processes. Digitalisation would mean embracing automation and artificial intelligence as
integral parts of business strategies. But it is not limited to these alone. Other efforts include
developing and adopting appropriate software for workflow management.
Digitalisation could accelerate the MSME sector’s clean energy transition, improve energy
efficiency and reduce resource use and waste. Here’s how digitalisation could do this:
Mapping solar potential using GIS: India’s small businesses are being encouraged to adopt
rooftop solar (RTS). Global Horizontal Irradiation (GHI) can be calculated using satellite data
products. GHI is the total amount of shortwave radiation received from the Sun by a surface
horizontal to the ground.
Since these values measure the solar potential in an area, they are of particular interest to solar
PV developers. Using high-resolution satellite images, the total footprint of MSME buildings, or,
available real estate where RTS could be installed, can be mapped. Feature extraction can be
scaled using machine learning tools. By correlating the feature extraction data to GHI, and peak
power consumption, and allowing for a spike in demand, one can estimate the yearly potential
for solar electricity generation in kilowatt hours.
This will allow owners of small businesses, cluster associations, solar developers, and financial
institutions to build an evidence-based solar potential estimation and create solutions.

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Data monitoring, synthesis and analysis: Machine learning enables businesses to use data for
better results. It also fills a gap in sectors without deep technical knowledge. Machine learning
provides in-depth understanding of operations in a digestible format. A GIS enabled SCADA
system can allow MSMEs to monitor dynamic processes with fixed geographical locations.
When there is an error, the SCADA system immediately raises an alert. This enables timely fixes.
Sensors and site controllers could regularly monitor the health of electronic components. Smart
meters would provide past power consumption data, consumer behaviour and consumption
patterns. This could then predict future demand. This will eventually allow businesses to
optimise their production, reduce consumption, leading to greater revenue margins.
Digital platforms: Digital platforms with or without AI, will allow users to track orders, manage
warehouses, and optimise processes. Data dashboards allow for remote monitoring and
effective prioritisation to find optimal solutions for manufacturing problems.
These are just some examples of how digitalisation can transform India’s MSMEs in the coming
years.
The Centre and various States have extended support to the MSME sector. West Bengal has
begun a geospatial survey of MSMEs aiming to provide technologically advanced infrastructure.
However, these efforts focus on financial support, marketing, infrastructure and skill
development. There is a need for digitalisation policies, funding for technology upgrades, and
improving technical expertise. We envisage that as MSMEs digitise, their already significant
contribution to the economy will only increase, while also enabling a transition to cleaner forms
of energy, thereby reducing GHG emissions.
Kajol is a senior manager, and Akansha Saklani is a manager at WRI India’s Energy Program

State of dependence

The contentious issue of extending compensation payable to States by the Centre will occupy
centre-stage in the upcoming GST Council meeting on Tuesday and Wednesday. Compensation
payments will cease on June 30. . The Centre had promised to compensate the shortfall in
revenues to States and Union Territories that failed to record 14 per cent annual growth in GST
for five years beginning July 1, 2017, as part of implementation of the landmark tax reform. The
compensation payments were made despite the economic slowdown in 2019-20 and the
pandemic that followed, taking States’ GST revenue growth far below the target. With the
compensation cess collection proving inadequate to meet the shortfall in FY21 and FY22, the
Centre borrowed ₹2.69-lakh crore to make the payments, thus necessitating an extension of
the cess until March 2026..
Some States now demand that compensation period be extended as their revenues have
suffered due to the pandemic-induced lockdowns. This issue was debated in depth at a GST
Council meeting in September 2020. The decision arrived at then was that the Centre would
compensate for the shortfall arising from GST implementation issues and not for the Covid-
related deficit. While it is tempting to argue in favour of an extension of the cess given the
perilous fiscal position of some States the fact is that doing so will not help solve the fiscal
problem. The States’ debt issues have more to do with fiscal profligacy that predates the

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pandemic. The benchmark of 14 per cent revenue growth on which compensation is pegged is
too high when the rate of growth in taxes subsumed under GST between FY13 and FY17 — of
just 8 per cent — is taken into account. The uniform protected growth of 14 per cent for all
States has meant that States (for example, Punjab and Delhi) that had lower rate of growth in
tax revenue pre-GST became eligible for higher compensation cess. There is also a moral hazard
of States becoming too dependent on these payments to bridge their fiscal gap. GST
compensation receipts accounted for more than 20 per cent of tax revenue in FY22 in States
such as Bihar, Karnataka, Himachal Pradesh and Delhi.
With the original guarantee fulfilled by the Centre, it is time to end compensation payments. In
fact, there cannot be a better time than now to wean States away from an assured payment as
GST revenues are growing strongly — they grew 27 per cent in FY22.. Around 24 States/UTs saw
GST revenue growth of over 20 per cent and 11 recorded over 30 per cent growth in this
period. These numbers show that the GST system is well established and there may not be any
need to hand-hold States and Union Territories anymore. The Centre also needs to keep in
mind the negative impact of compensation cess on consumers and industries, especially the
automotive sector. The funding of compensation payment will have to come from consumers
which means that the cess collection will extend well beyond 2026, and that would be more
than a decade after launch of GST. This is unfair on consumers and industry and will also have a
cascading effect on inflation. Assuming that the Council concedes the demand for extension
now, there is no guarantee that a demand for further extension will not arise again in future,
especially if the economy under-performs then. With GDP set to grow at 7-7.5 per cent this
year, this is the best chance to end compensation. Buoyancy in GST revenues will by itself
compensate the shortfall that some States may experience from the ending of compensation
payment.

A case for extending GST compensation period

A major concern before the States was revenue foregone from loss of fiscal autonomy, as they
decided to subsume their taxing powers under GST. The States came on board as revenue
compensation was guaranteed in full for five years. As the compensation period is about to end
this month, States, especially non-BJP ruled ones, have demanded its extension. The issue is
likely to figure at the forthcoming 45th GST Council meeting.
A major argument against extension of compensation is that it would induce a moral hazard
problem. Some say there is no sanctity with respect to the 14 per cent protected revenue when
subsumed taxes between 2013-14 and 2016-17 grew at 8.1 per cent per annum. Others argue
that the guaranteed income provide no incentive for States to explore ways to tap potential
GST revenue.
However, there are many reasons why the compensation must continue for some more years.
First, many States’ revenue receipts have dried up, expenditure has shot up, and debt has
ballooned owing to Covid-19. Since the previous two years were Covid affected, when States
had limited space for increasing revenues, extending compensation for two-three years would
help stabilise the economy.

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A study by Kavita Rao, a professor at NIPFP, shows that 14 States are likely to face a revenue
shortfall in 2022-23 if 14 per cent growth is applied. Another study by Renjith PS of Gulati
Institute of Finance and Taxation shows that the debt position in most States would be
unsustainable in the absence of GST compensation. Thus, failure to extend compensation may
worsen the States’ fiscal capacity, which is already in bad shape as a recent RBI Bulletin paper
shows.
Second, the technology platform was not ready in the initial years. This resulted in the misuse
of input tax credit using fake invoices, which affected revenue collections and tax
compliance/buoyancy of States. On the other hand, the complex return filing process through
GSTN has also been a significant challenge for small businesses. As the system is still stabilising,
an extension of compensation could cushion State finances during the transitory phase.
Third, even if the compensation is extended, it does not imply that all States will require it. Only
States falling short of the assured revenue are entitled to it. Given that the recent GST
collection figures show promising growth, not many States are going to ask for it. But the very
presence of guaranteed compensation gives the States a sense of comfort.
Fourth, some commentators have pointed out that the GST revenue growth has picked up and
shown resilience. There are two holes in this argument. First, the growth in 2021-22 came over
a low base of 2020-21. Second, the high GST figures are inflated by rising inflation.
Fifth, we still don’t know how the rate restructuring will affect States’ revenue. Going by media
reports, it’s likely to happen in the next couple of years. It would be better if this could be
finished before three years so that the States, in case they lose revenue, are protected by the
compensation guarantee.
Sixth, it is useful to ask who pays the compensation amount. The Centre does not pay from the
Union Budget but from a compensation fund paid by taxpayers when purchasing sin and super-
luxury goods. Since GST cess has already been extended to 2026 for repaying the borrowings,
extension of compensation by proposing a new win-win formula will maintain the spirit of
cooperative federalism. Thus, the Center does not lose a penny by extending the compensation
period.
Finally, an extended compensation window can be used for a reform agenda such as rate
restructuring, pruning exemption, widening the tax base, bringing electricity duty, motor
vehicle taxes, fuel items, and the entire real estate supply chain under GST, and streamlining
the ITC in the entire supply chain, and so on.
Rework compensation formula
If the demand for extending compensation is reached, both the States and the Center must
renegotiate the terms of the new compensation formula. Four issues come before the GST
Council. First, by how many years should it be extended? Three years is a reasonable demand
by States.
Second, what should be the assured revenue growth? When 14 per cent growth in States’
revenue was guaranteed, the Indian economy was clocking a growth rate of 6.5 per cent per
annum. Considering the ongoing inflationary pressures, the protected revenue could equate
with the rate of inflation. Third, a new compensation formula could be arrived at by using 2018-
19, a normal year, as the new base year.
The new compensation formula must take into account the possibility of moral hazard, on the
one hand, and reduce the dependency on compensation, on the other.

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Considering the Indianised GST paradigm has been designed to foster cooperative federalism,
extending compensation beyond June would be a win-win for the States, the Center and, above
all, fiscal federalism. Canada took more than a decade to stabilise its GST system. Failure on the
part of the Centre to realise this would lead to non-cooperation by States in the GST Council —
more so after the recent Supreme Court ruling that says GST Council only has a
recommendatory value.
The writers are on the faculty of Gulati Institute of Finance and Taxation, Thiruvananthapuram.
The views are personal

Farm ponds as an agent of rural transformation

Can a small investment of, say, ₹97,000, for digging farm ponds make for increase in farm
incomes and improvement in farmers’ livelihoods? Can such farm ponds lead to an increase in
cropping intensity and higher productivity? Can these minor investments then be replicated
across the country as only 50 per cent of India’s net sown area of 140 million hectares is
currently irrigated?
Evidence from the ground in North Karnataka and Telangana under the initiative of an NGO, the
Deshpande Foundation, indicates that with awareness creation among farmers, CSR spends by
corporates, focused lending by banks like SBI and support of institutions like NABARD, big
changes at the grassroots level are possible.
In districts like Dharwad, Bellary, Kalaburagi and Karim Nagar, farm ponds of the size of 100 feet
by 100 feet with a depth of 12 feet, constructed under the aegis of the Foundation are now
helping farmers draw water for their crops without even the availability of large irrigation
systems. Instead of single cropping, the beneficiaries now do multiple cropping and naturally,
output has increased.
Thus, even as the sector is roiled by controversy at the national level over the three farm laws
and their proposed repeal, there are low-key transformational activities in various States which
is perhaps why agriculture turned out to be the only positive contributor to our GDP last year,
despite Covid. The trend continues this year too.
Deshpande Foundation
The Deshpande Foundation started work in 2014 in Navalgund Taluk, Dharwad, to help farmers
in the drought-prone area cope with erratic availability of water. Initially it was funded with CSR
allocations but soon enough, it turned into a demand-driven programme when farmers
experienced benefits.
So far, more than 6,200 farm ponds have been dug, the latest ones with bank loans which are
till now being promptly repaid. The Foundation is also involved in promoting micro
entrepreneurs, skilling of rural youth and encouraging start-ups from its India headquarters in
Hubli.
The latest in the initiatives of the Foundation is a Rural Transformation Technology Centre in
Hubli which gathers real-time data with IOT devices, satellite imagery to understand ground
conditions, provide accurate and actionable technical advice to farmers in addition to helping in

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other objectives like micro-entrepreneurship, start-ups and skilling of rural youth. The Centre,
which employs the latest technology, is ready for operations and is open for preview now.
The Chief Executive Officer of the Foundation, Vivek Pawar, narrates the evolution of the farm
pond concept: “Frequent episodes of drought can have a devastating impact on agriculture in
affected regions. We need a sustainable agricultural system that uses water optimally and
reduces expensive and environmentally challenging inputs such as fertiliser and pesticides. The
farm pond initiative is one such programme initiated in 2014 by the Deshpande Foundation in
association with the Ratan Tata Trust.”
Impact assessment
These observations have also been validated by an impact assessment study by KREA University
recently. Apart from improving water availability and efficiency of usage, the most impressive
outcome has been the increase in the income of small and marginal farmers, following the
Deshpande Foundation’s intervention.
The KREA study reports that, based on its sample, 77 per cent of the farmers observed an
average of 64 per cent increase in their incomes. Across all farmer categories, income more
than doubled for 15 per cent of the farmers. Further, for the rabi season, small farmers
reported 78 per cent increase in profits while semi-medium farmers experienced 73 per cent
improvement in profits.
All this was possible because of a fundamental shift in tapping a key resource: 74 per cent of
farmers observed an improvement in water availability while 88 per cent of farmers observed
an increase in irrigated land, thanks to the farm ponds. There was a marked enhancement in
land-use efficiency too, which rose to 89 per cent after the farm pond was constructed. After
the construction of farm ponds, farmers cultivate more land, and their fields are occupied for a
longer duration
The only other programme of a similar nature in recent years was the earlier Maharashtra
Government’s Jalyukt Shivar Abhiyan which aimed to make 5,000 villages free of water scarcity
every year and make farmers believe that “every drop of rainwater is owned by me and it
should percolate in my land”. Though it gained traction initially, the programme has been now
given up almost.
In Karnataka, NABARD’s experience with the farm pond initiative by Deshpande Foundation has
also been good. According to Neeraj Varma, CGM of NABARD, it has signed a tripartite MOU
with SBI and Deshpande Foundation, under which it will provide incentives for formation of
1,000 Joint Liability Groups (JLGs), credit linkage after formation and monitor repayment.
A JLG is an informal cohesive group of 4-10 members who agree to be responsible for the credit
taken, ensuring that the group has a close peer-to-peer engagement. In the present project, the
JLGs would take up construction of another 10,000 farm ponds in water stressed areas to be
facilitated by the Foundation and financed by SBI. From a banking perspective, these are
replicable national models for credit-support if mediation of such NGOs, functioning on
scientific and disciplined lines, is ensured.
The writer is a top public sector bank executive. Views expressed are personal

Suspense continues

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So, it was a rather tame end to the much-awaited 47th GST Council meeting in Chandigarh, the
first since the landmark Supreme Court verdict in the Mohit Minerals case, with no decision
being taken on the contentious issue of extending compensation period to States. Considering
that the period ends today, “no decision” on extension can mean that either the issue will be
mulled over and decided upon later or that the Centre has decided to let it lapse. If the
objective is to dwell on the issue, the Centre should consult the other stakeholders involved,
which is industry, and the consumer, who ultimately has to defray the compensation payment
through a cess.
GST revenue for both the Centre and States will move a little higher, thanks to the rate
adjustments made on a slew of goods and services. The Council has accepted the proposal of
the Group of Ministers (GoM) on rate rationalisation headed by Karnataka Chief Minister, BS
Bommai, on the issue of inverted duty structure in some sectors and removing some goods and
services from the exemption list. While expansion of the list of products and services under GST
is good, it could be bad for consumer inflation which is currently at an 8-year high. For instance,
the removal of exemption for branded and labelled food items is going to hurt consumers of
these products. The unbranded and unlabelled items will continue to remain exempt thus
protecting smaller manufacturers and consumers. Similarly, removing services such as hotel
room rentals up to ₹1,000 per day, hospital room rents above ₹5,000 per day, services provided
by regulators such as RBI, SEBI and IRDAI from the list of exemptions cannot be faulted. For
these are not essential services and do not require concessional or nil rates of taxations. But
some of the actions to address the inverted duty structures — such as increasing tax rates on
printing ink, pumps, machines used in agri-commodity processing, work contracts in
infrastructure projects such as building roads, bridges, metro and so on — will result in
increasing the input cost for companies, which is likely to be passed on to consumers. Also,
Finance Minister Nirmala Sitharaman has indicated that the GoM has been given few more
months to revert on rationalising the tax rates on all the items under GST in order to move the
revenue neutral rate back to 15.3 per cent from a little under 12 per cent currently. Hopefully,
inflation will also soften by then because there is no option but to widen the GST base to
increase revenues.
Paving the way for implementation of e-way bills for movement of gold and precious stones
with a minimum threshold of ₹2 lakh will go a long way towards checking tax evasion in this
sector. Similarly, allowing small companies which supply to e-commerce operators to operate
under the composition scheme and easing their compliance burden will give a leg-up to e-
commerce players. Asking the GSTN to implement IT reforms on its portals to verify the
antecedents of the applicants and to do risk-based monitoring will bring down undue
harassment of taxpayers and help check leakages more effectively.

Sustaining farm export performance

Doubling farmers’ incomes was the policy objective behind farm reforms. However, the policy
ambition had to confront the ‘Problem of Plenty’. Procurement at higher prices kept it

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attractive for many farmers to dispose of their produce to government agencies until a year
ago.
Increased procurement ended up testing the mettle of the food storage system. Healthier
procurement led to overflowing granaries and higher open storage that meant foodgrain
wastage.
Augmented procurement led to higher storage of wheat (38 million tonnes) and paddy (21 mt)
in end 2021. While some of these stocks get distributed through the public distribution
mechanism, much of it has to be disposed of in the open market before it spoils.
MSP conundrum
What was kicked off as incentivising the farming economy through higher support prices to
ensure food security eventually became a white elephant of the system draining the exchequer
through mounting food subsidies. Thus, the higher support prices (higher than the market
prices) continued to severely burden the exchequer besides stretching the storage capacity.
However, the huge foodgrain stocks came in handy for supplying grain to the needy during the
pandemic. FY21 also saw food subsidies peaking due to higher distribution to people hit by the
pandemic. At the same time, global supply chain snarls allowed India to connect with other
Asian nations looking for grain supplies.
Additionally, the supply shortages due to impaired weather/climatic conditions of a few Asian
nations and the South American exporters augmented the demand for Indian grains. As the
supply chain woes cleared up post the second wave, India's exports dwindled.
On the other hand, India's FY22 crude oil and natural gas imports moved north, pushed by
global markets and a strong dollar. Grain prices also moved north after the Russian invasion of
Ukraine. Stubborn energy costs and the halt of Russian supplies increased fertiliser costs as
much of it was imported.
With fertilisers’ significant role in increasing crop productivity, it is time policymakers plan on
sustainable exports of excess grains. The prices of fertilisers (with a high import content) have
risen more sharply than those of wheat and rice, which implies that there should be no let-up in
the effort to augment export of grain. In other words, higher exports will be needed to shore up
the declining terms of trade of agriculture.
As nations dependent on Russia/Ukraine started looking for an alternative supplier of wheat, it
was a blessing in disguise for India to enter new markets and consolidate grain exports in 2022.
Wheat — the grain of temperate region — was the forte of Russia and Ukraine, which
accounted for 28 per cent of global exports.
Flexible approach
Firstly, given the WTO commitments on limited procurement at fixed prices, India needs to
adopt a flexible policy tied to domestic wheat price levels to allow private-sector exports.
Indian grain exporters must work with the respective Indian missions to promote and sustain
exports in potential markets. Personnel at Indian missions abroad using their network of
connections at the policy level could help exporters to connect with importers besides
appraising the Indian exporters of local markets, trade policy, etc.
Despite the potential, India’s grains export performance has not been consistent in the last two
decades as it has never been a vital part of trade policy. Our historical export performance
indicates that to sustain India's agricultural exports, it's not mere government institutions or
schemes that will help. Taking a cue from the experience of major farm goods exporters,

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growers must be organised under commodity boards/councils/committees empowering them
to represent their interests.

Professionals funded by stakeholders should run such producer bodies. Their primary objective
should be to ensure the economic well-being of their stakeholder growers through sustainable
connectivity to markets — internal/external. They should also assist their stakeholders through
appropriate negotiations on tariff/non-tariff barriers, export markets intelligence, and
promotion.
Role for missions abroad
On the institutional front, all Indian missions located at the major agricultural export
destinations should represent the Ministry of Agriculture/Animal husbandry and India's export
interests appropriately. These missions must be asked to monitor issues in agricultural trade
and collect critical market intelligence empowering Indian agricultural markets ecosystem
stakeholders.
In addition, such a mission would remain a good connection for the Indian stakeholders at their
destination and resolve trade issues cost-effectively. Further, Agriculture Ministry officials
operating out of the diplomatic missions with the help of local employees can also collect
market and competitive intelligence and share it periodically with our farmers.
Indian missions can also organise (reverse) trade missions to connect the local importers with
the producer bodies to appraise the market terrain and help Indian exporters participate in
local food fairs in the potential export markets.
Global agricultural trade has always been fickle. Concerns over phytosanitary issues make
export of unprocessed agricultural commodities more sensitive. Identifying target importing
nations and developing policy-level interactions and relationships will be critical to sustaining
India’s exports.
More than that, the recent ban on wheat exports shows how volatile the situation is and
underscores the need for planning.

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How do we sustain our exports and safeguard our food security at the same time? Exports will
help in reducing the procurement quantity, and hence the huge costs incurred in storing grains.
They can reduce excess stocks, provided these become permissible under the WTO with
respect to government-to-government transactions.
Sustainable and planned production will always create a surplus of foodgrains that can be
exchanged with those in need and import those which can’t be grown economically in India.
The writers are with the National Institute of Securities Markets. Views expressed are personal

The unsung workers: Why social security is vital for gig workers

The workforce worldwide has evolved from hierarchical, enclosed assemblies to manager-free
forms of work. Freedom, flexibility and autonomy are the three aspects that drive new
generation workers. More employees are flocking to the gig economy, from delivery executives
to freelance consultants.
The post-pandemic world has surely noticed an increase in self-employed workers, who have
rebounded and are significantly contributing to the economy.
Where once we had the “corporations,” today we are witnessing the ascendancy of 'platforms'
redefining the new workforce.
So why are gig businesses treated as an outlier?
Despite the phenomenal growth and potential of gig workers, lakhs continue to work amid little
to no access to social security. Currently, the platform workers or freelancers do not fall under
any labour legislation, except the recently introduced Social Security Code, which is yet to come
into force. The policies favouring gig workers hasn't been rolled out yet as the current business
model followed by most gig platforms is unfair.
Social Security Code
Currently, gig workers are dependent on the generosity of various gig discovery platforms and
corporates. Given the vulnerability and risk that gig workers got themselves exposed to during
the pandemic, it is high time these workers get covered under the statutory employee benefits.
In today's labour market, traditional work models will not work, and platforms that want to
scale their talent management will have to offer compelling benefits to employees.
The existing gig model offers inexpensive ways for employers to recruit workers without
worrying about their insurance, pension, safer working environment, annual break, minimum
pay scale, etc.
Moreover, down the line, they are also deprived of other unsaid benefits compared to the
organised sector workers .
The written petition filed by the Indian Federation of App-based Transport (IFAT) workers in
September 2021 is a welcome move considering the fact that it requests gig workers to be
declared as “workers” under social security laws and directs the government to recognise all gig
workers as “Unorganised workers” under the Unorganised Workers’ Social Welfare Security
Act, 2008.
Some issues of the gig economy have also been addressed through the Code on Social Security,
2020 (SS Code).

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As per the SS Code, a gig worker is “a person who performs work or participates in a work
arrangement and earns from such activities outside a traditional employer-employee
relationship”. The emphasis on the need for social security in the SS code and the judgement on
the written petition would provide more clarity in terms of the rights of the gig workforce.
Gig workers should be provided with benefits like disability insurance, maternity leave, gratuity,
old age protection, and health insurance covers, like any other employee. Wellness
memberships and teleconsultation sessions with psychologists and psychiatrists should be an
added benefit.
Considering the gig economy is here to stay, it is also necessary to think about physical and
emotional well-being of gig workers. A few of the other unique insurance concepts that are
suitable for the gig economy and have been in the talks/implementation phase include:
Daily and Weekly Insurance Covers: This kind of facility provides insurance cover during their
working hours. Once a gig worker logs in to the platform/app, their insurance activates and
automatically gets deactivated once the worker logs off.
AI-based risk exposure calculator: Insurance platforms that register gig workers utilise AI-
driven technology to determine the nature of the gig job and analyse the risk factor involved,
thereby providing an insurance cover most suitable for them. Gig workers will also have an
option to give their health history on the platform. In this way, companies can regulate the
benefits to their gig workers.
Cyber gig working and InsurTech: Given the scope of delivery executives and consultants, AI-
driven technology will potentially disrupt gigs in the future. Cyber gig working and autonomous
cars are bound to replace gig workers in the near future. While there is scope for the gig
economy to grow it is also mandatory to look at the benefits offered to the existing gig workers.
With the help of external ecosystem partners that collect real-time data, InsurTech players can
provide customisation and desired flexibility at an affordable cost to gig workers.
Lack of such social security benefits will create an apprehension in the minds of the youth, who
could likely be a part of the gig economy. It may, in turn, lead to higher attrition.
These unsung/unheard gig workers have also contributed to the system, especially during the
pandemic. Therefore, there is a need to give utmost priority to their rights and the
implementation of the law governing the gig economy.

How to make GST more efficient

In its two-day meeting held at Chandigarh on June 28-29, the GST Council increased tax rates on
several products. This should not disturb the macro picture as the current weighted average
GST rate at 11.6 per cent (RBI calculation, September 2019) is still below the revenue-neutral
rate of about 15 per cent. With this comfort, on GST’s fifth anniversary, the GST Council should
now focus on introducing bold reforms to usher in the next high-growth phase of GST and the
economy.
Proposed below are five such transformational reforms. The proposals are based on insights
drawn from data and interactions with users.

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First, set the small firms free by raising the exemption limit. GST data show that of the total 1.4
crore registrations, firms with less than ₹1.5 crore annual turnover account for 84 per cent but
contribute less than 7 per cent of the tax collected.
Currently, registration for GST is optional for firms with an annual turnover of less than ₹40 lakh
for goods and ₹20 lakh for services. The exemption limit must be raised to ₹1.5 crore for goods
and services. This amounts to ₹12-13 lakh monthly turnover, which at 10 per cent of profit
margin, translates into just ₹1.2 lakh. Only a fraction of this money will remain with the
business owner after payment of working capital and fixed expenses.
The new limit would reduce the load on the GST system, which will deal with less than 23 lakh
taxpayers in contrast to 1.4 crore now. The reduced load will allow the GSTN to introduce an
invoice matching concept, which will result in 100 per cent compliance, solving the problem of
fake invoices and tax theft.
The increased tax collection will adequately compensate for the 7 per cent tax loss.
The proposal will take out 99 per cent of small firms from the tax net, increasing their profit and
making them more competitive. The step will revolutionise the small sector. Free from GST
hassles, small firms can invest in technology and create more jobs. Everyone gains.
Second, do away with State-wise registrations. Today, if a firm does business in 10 States, it
must obtain 10 GSTINs and maintain a separate account for each. The GST rules set a restriction
on the use of available credit.
For example, if a firm has a surplus SGST credit in Maharashtra, it cannot use this credit to pay
SGST dues in Karnataka or CGST dues to the Central Government. This restriction results in
capital blockage. Essentially, GST has converted one firm into 10 independent entities. This
defeats the ‘One Nation, One Tax’ concept. A mindset change is needed.
GSTN has precise location information of all transactions. It can calculate States’ dues from this
data. The GSTN software may be tweaked to allow credit transfer between two States or
between the Centre and States. This flexibility of credit transfer will not impact a State’s
revenues. The GSTN will credit the due amounts to the State’s account, keeping the principle of
destination-based tax intact.
Too many rates
Third, fewer rates and machine-compatible classification. Many countries implementing GST
have just one rate for all items. From zero to 28 per cent, India has seven rates. This number
increases if we also consider compensation cess rates. The tax slabs should be reduced to three.
Mining the past five years’ GST data will identify less important categories from a revenue angle
and help reduce tax slabs without compromising revenue. The government must open this data
for research purposes after suppressing commercially sensitive information.
There is also the need to simplify the GST rate list and make it compatible with machine
processing. The GST uses Harmonised Structure (HS) codes for classifying most items. HS codes
are an accepted product classification system in over 180 countries. Also, HS codes are
expressed in 2,4,6, or 8 digits. The larger the digits more precise the product description. For
example, HS 62 denotes apparel, 6204 is girl’s suits, 620419 is girl’s suits made of silk, and
62041911 is embroidered girl’s suits made of silk.
But here lies the problem: GST rules have exempted small firms from mentioning any HS code.
The product description is sufficient. Others must mention the HS 4-6 digit code; exporters

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must mention the HS 8 digit code. Non-uniform criteria for mention of HS code ensures that the
computer cannot match the invoices.
There is another issue with the current rate list. While most products are listed at HS 4 level, no
specific HS codes are mentioned against many products creating hurdles in data processing
operations like linking transactions.
The government may mandate for everyone the use of the HS 6 digit code. This gives a
sufficient product description. A call centre may help firms in finding the correct code.
All GST rates should confirm to HS 6-digit standard description. The ideal way would be to take
a standard HS 6 digit table and insert the GST rate against each code. Such clean classification
will remove confusion caused by the current complex classification and help match invoice level
details.
Fourth, operationalise invoice matching and unify State portals with GSTN. The GST rules
provide system-driven invoice matching to enable quick tax credits and avoid the prevailing
fake invoice problem. The GSTN must gear up to implement this.
Fifth, reduce working capital blockage for exporters. The government collects GST from
exporters only to refund it later. This is because GST is a tax on domestic consumption while
exports go out of the country. The GST refund process blocks exporters’ money for a long time.
The GST Council in 2018 recommended a new e-wallet facility for exporters. The exporters’ e-
wallets will have notional credits. The exporters will use these instead of cash to pay GST. The
transactions have to be reconciled periodically to prevent misuse. The scheme must be notified
at the earliest. Using blockchain to maintain the integrity of the e-wallets may be explored.
The GST, launched on July 1, 2017, is regarded as the most significant tax reform in India since
Independence.
The reforms proposed here will prevent tax leakage and make GST more efficient and inclusive.
The writer, a former Indian Trade Services Officer, is author of the book ‘The GST Nation’

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