How GST has affected small businesses


India’s goods and services tax (GST) has increased the regulatory burden on small businesses, according to an article in the Economic and Political Weekly by Sudipto Banerjee of the National Institute of Public Finance and Policy and Sonia Prasad, a practising company secretary. The low threshold, under which only companies with annual revenue below Rs20 lakh are exempt from registration, has hurt hundreds of thousands of companies. These companies were earlier exempt from paying excise duty under the small-scale industry exemption which let off firms with revenue of upto Rs1.5 crore. The authors warn that the huge compliance cost to small businesses may be disproportionate to the revenue generated by them. Also, mismatching of invoices due to technical glitches could hold up credits, a situation that has been seen in China and Brazil, further burdening small businesses. These hurdles, compounded by the complicated rate structure, may actually end up pushing enterprises to evade taxes.

Women make up less than 2% of bank chief executive officers (CEOs) and occupy less than 20% of board seats in banks and banking supervision agencies, but their presence on boards is associated with greater bank stability, according to a new paper by Ratna Sahay and co-authors from the International Monetary Fund. The paper uses data on women CEOs and women on banking boards from 72 countries over 13 years while the database for women on the boards of banking supervision agencies looks at 113 countries. Savings banks had a higher share of women in CEO positions than investment banks, bank holding companies and securities firms. Banks in low- and middle-income countries also did better on this count than those in advanced countries. However, the study did not identify the exact mechanisms through which greater presence of women resulted in higher bank stability.

Media attention on costs of transporting petroleum products have focused mostly on costs arising from accidents and oil spills. However, a new National Bureau of Economic Research paper by Carnegie Mellon University’s Karen Clay and co-authors argues that the expenses arising from air pollution and release of greenhouse gases are much higher. The authors examine the long-distance movement of crude oil over pipelines and rail in North Dakota in 2014, and find that air pollution and greenhouse gas costs are much greater for rail than for pipeline transport. The entire estimated cost of transporting crude oil from North Dakota in 2014 alone exceeded $420 million.

Risks of ethnic conflict are lower in areas where different ethnic groups provide complementary services to one another, according to Saumitra Jha, associate professor of political economy at Stanford’s Graduate School of Business. Immigrants who bring with them unique skills are often welcomed and protected by powerful locals. For example, Jewish immigrants in medieval Europe found favour from ruling classes as they provided valuable services such as trade and finance to the rest of the economy. However, powerful locals often try to extract ‘protection money’ from such minorities, who might be vulnerable to violence from other locals, notwithstanding their economic clout. Some minority communities have proactively acted to prevent such a situation. For instance, the trading community of Nizari Ismailis in East Africa have earned local goodwill by providing public goods, launching business ventures in collaboration with locals, and also publicly committing to not engage in corrupt practices such as “ethnic cronyism”.

The US Federal Reserve’s efforts to normalize policy rates are a case of too little, too late, according to a Project Syndicate article by Stephen S. Roach, senior lecturer at the Yale School of Management. Roach points out that quantitative easing had led to the expansion of the balance sheets of the US, euro zone and Japan by $8.3 trillion over the past nine years. However, nominal gross domestic product in these countries increased by only $2.1 trillion, meaning that the excess liquidity has contributed to frothiness in the global financial markets. Roach cautions that a slow process of normalizing rates could sow the seeds of another financial crisis. For instance, the slow normalization of rates after the dotcom bubble contributed to frothy financial markets that eventually led to the 2008 financial crisis. Roach also criticizes central banks’ obsession with inflation targeting.