1.A smoother framework for GST (Live Mint)

2.Curious case of coal cess (Live mint)

3.Challenges of poultry farms in anti-microbial resistance (Down to Earth)

1.A smoother framework for GST (Live Mint)

Synoptic line: It throws light on the need of a more adaptive and better GST regime. (GS paper III)


  • There is an urgent need to restart the plan of a renewed GST which takes into consideration, all the distortion of multiple taxation slabs among others.

All wrong about the present regime of GST

  • India is moving towards a flawed GST. One part of the flawed start can be explained by political realities. The complicated federal bargaining in the GST council led to a system of five tax rates, along with a special rate for gold, as well as cesses that go against the very basic principles of value-added taxation.
  • Another part of the flawed start can be explained by poor incentive design. State finance ministers were less concerned about the growth impact of a poorly designed GST once New Delhi promised them a guaranteed 14% increase in tax revenue rather than a compensation formula calibrated to the growth in underlying nominal gross domestic product.
  • The rationalization of tax rates announced by the GST council last week is welcome against this backdrop. This is hopefully the first step towards a neater GST architecture and the move towards a less flawed system will hopefully be sooner than expected.

Task to reduce the number of tax slabs

  • The task now is to have fewer tax slabs, lower rates and wider coverage. The move to fewer tax slabs hopefully seems to have begun. The most significant decision taken by the GST council last week is to cut down the number of items at the top tax rates to 50, compared to an original list that was nearly five times bigger.
  • Nearly half the goods and services in the GST net will now be taxed at the modal rate of 18%. And two out of three items will be taxed at either 12% or 18%. The most logical step now is to merge these two rates, with a medium-term goal to see that something like 90% of the taxable goods and services are at the new modal rate. In other words, there will be only a small list of merit goods to be taxed below the new standard rate and a small list of demerit goods to be taxed higher than the new standard rate.
  • Such rationalization will in effect mean that indirect tax rates are lower than their current level, with higher economic growth ensuring that fiscal accounts do not take a hit.

Rationalization of tax rates

  • Indian GST rates are far higher than in most other countries. One reason is the problem of inadequate coverage. Only about half the Indian economy comes under the ambit of GST, so whatever is taxed has to be taxed stiffly. Important items such as petroleum, natural gas, alcohol, electricity, real estate and construction have been kept outside the GST net, mostly for political reasons.
  • The Union government needs to work with the states to bring these items into the GST net. One result would be that wider coverage will create space for more moderate GST rates.
  • However, it needs to be reiterated that even the messy GST we have now is far superior to the numbing maze of indirect taxes that it has replaced. The fundamental promise of GST is still important.
  • As we have argued earlier, GST will integrate the Indian market, promote economic efficiency by taxing final consumption rather than intermediate goods, encourage voluntary compliance and create a new architecture for cooperative federalism. There is no reason to shed crocodile tears for the indirect tax system it has replaced.

Way ahead

  • GST council needs to move towards a system of three rates, a moderate standard rate at which most items are taxed, a widening of the GST net to include items such as petroleum and real estate, removal of cesses, and streamlining of compliance procedures so that supply chains do not grind to a halt as a result of working capital stress.

Question–  How an effective GST will lead to more enhanced economic growth?

2.Curious case of coal cess (Live mint)

Synoptic line: It throws light on how burdening an important sector like coal and power with a steep GST cess seems unjustifiable. (GS paper III)


  • It is not quite one of the best-kept secrets that India is a power-starved country. With annual per capita consumption of about 1,100Kwh, India trails most of its developing world peer group. In countries such as Iran and South Africa, this exceeds 2,500 and 4,000, respectively. The global average stands at around 2,500.
  • On the other hand, the average PLF (plant load factor) for coal-based power plants, which constitute about 60% of India’s total power generation capacity, continues to languish below 60%. Such low-capacity utilization is causing extreme financial strain on the entire power value chain right from the lenders to the power distribution companies, to the power users. There is sizeable power capacity in the country, yet there are large pockets of unmet power demand. Systemic and regulatory shortcomings, largely legacy issues, have been responsible for this irony.

India’s power sector

  • India’s power generation can grow comfortably at a compounded annual growth rate (CAGR) of more than 12% over the next five years subject to demand. Improved utilization of existing power capacities and a healthy pipeline of new capacities clearly suggest that there will be enough power generation capacity in the medium term.
  • Poor availability at the consumer end, and low affordability are the key demand-side issues. Discoms’ (distribution companies, which are in most cases owned by state governments) poor financial health has been the biggest deterrent for power availability at end-consumers’ premises. They have been displaying a strange unwillingness rather, inability to increase power purchases, even though real demand by end consumers has been rising perceptibly.
  • Starved of cash and with continuing losses, they are not signing fresh PPAs (power purchase agreements), citing high cost of power. Thus, end consumers continue to get suboptimal quantities of power.

Areas to improve

  • Bolstering discoms’ power affordability can be a powerful way to enhance power consumption. This, in turn, can drive improvements in the standard of life for a large proportion of Indians, mitigate the distress of the power and banking sectors, and aid small and medium enterprises.
  • A close look at taxes levied on coal provides the answer here. It may sound implausible that total taxes on thermal coal work out to more than 65%, on an average, over Coal India’s basic price. Essentially, out of discoms’ cost of power of about Rs5.2/Kwh, more than Rs0.45/Kwh goes to the Central and state governments as taxes, cess, royalty and payment for DMF (district minerals foundation, aimed at the welfare of local communities)—just from coal. In particular, the GST compensatory cess (that has replaced the clean environment cess that existed before the GST roll-out) is a staggering Rs400 per tonne, i.e. about 40% of the average coal price. Other tax elements like royalty and DMF (together, about 17-18% of the coal price) and GST (goods and services tax, at 5% now) seem fair and logical, though.
  • Taxes on this part of power’s value chain need urgent rationalization. Total tax on the common grades of coal is more than 80%, which is higher than taxes on even alcohol, cigarette or luxury cars. Although optically these taxes and cess are applicable on coal miners and, hence, on power generators, ultimately, they are borne by end consumers across socio-economic segments, despite power being a basic necessity.
  • Removing the GST compensatory cess on coal can curb the cost of power by Rs 0.30/unit, which is almost half the gap between discoms’ cost of purchase, and price of power as per FY15 data. The tax revenue about Rs 22,000 crore that the Central government would forgo if this were to happen would effectively be transferred, in the shape of lower power cost, to discoms and thus to the state governments. So, the country’s total fiscal deficit math wouldn’t change much.
  • This could slash discoms’ losses (that stood at about Rs40,000 crore in FY17) by 55% and set them on course to restart buying incremental power to satiate consumer needs. Of course, this cannot be a substitute for power pricing reforms.
  • The GST compensatory cess has been put in place after the implementation of GST to compensate state governments for the potential revenue shortfall from GST. This cess may seem like a good way to smoothen the teething issues in GST implementation. However, burdening an important sector like coal and power that is already saddled with a multitude of debilitating issues with such a steep tax for this purpose, seems unjustifiable.
  • Even earlier, when a similar amount was being charged as environmental cess, such a high rate was unfair, futile and self-defeating, given that coal usage cannot be stopped for the 195 gigawatts (GW) coal-based power capacity (plus the 50 GW in the pipeline) in India.
  • Instead, the thrust on shutting down older, inefficient and highly polluting power plants should be intensified and permission should be refused to new coal-based power projects. Also, the government’s renewable energy push is showing results, more due to the latter’s commercial attractiveness, with fast-declining capital costs for renewable energy equipment. Not surprisingly, of the about Rs54,000 crore collected as clean environment cess since the latter was imposed in 2010, only about 30% has been spent on promotion of renewable energy sources.

Way ahead

  • Redressal of this flaw in our taxation system can be a game changer not just for the power sector, but for the entire economy, through the multiplier effect that it can unleash.

Question– What policy changes do you think that are required to change in the energy sector to make it more vibrant?

3.Challenges of poultry farms in anti-microbial resistance (Down to Earth)

Synoptic line: It throws light on how poultry farms in India are aiding in anti-microbial resistance. (GS paper III)


  • Poultry farms are reservoirs of multi-drug resistant bacteria and play a major role in their spread, shows the latest CSE study
  • Poultry farms in India use antibiotics not only to cure their chicken from diseases but also to help them gain weight and prevent diseases. The practice is common in the sector which has been growing at a steady pace of 10 per cent per year the past decade.

Impact of such a trend

  • This reckless practice could be responsible for the emergence of antibiotic resistant bacteria, which can survive an antibiotic that would normally kill them or stop their growth. A recent study by Delhi-based non-profit Centre for Science and Environment (CSE)highlights the high prevalence of antibiotic resistance (ABR) in the poultry environment. Worse, the study findings suggest that ABR is also spreading beyond the poultry farms because untreated litter is commonly used as manure in nearby agricultural farms.
  • On the one hand, antibiotic misuse is common in the poultry sector and on the other, the sector is plagued with poor waste management. The two are responsible for the emergence of ABR in poultry farms and its spread into the surrounding environment.
  • The findings should serve as a wake-up call for the government as India at present does not have adequate laws to contain ABR. Even the guidelines of the Central Pollution Control Board (CPCB)on poultry waste management do not adequately address ABR.
  • This is despite the fact that several studies over the past years have pointed towards misuse of antibiotics in humans as well as animals, and the emergence of ABR. In 2014, a study by CSEhad also found residues of multiple antibiotics, such as fluoroquinolones (enrofloxacin and cipro floxacin) and tetracyclines (oxytetracycline, chlorte-tracycline, doxycycline) in chicken meat samples because of rampant use of antibiotics in poultry.

State of farmers

  • According to National Sample Survey Organization, 45 per cent of the farmers interviewed wanted to quit farming. There are multiple factors, especially the declining productivity and profitability that acts as disincentive for younger generation forcing them to migrate.
  • FAO has called for creating conditions that allow rural youth to stay at home by providing resilient livelihoods to tackle the migration challenge. Creating business opportunities that are non crop based, in food processing and horticultural enterprises can lead to increased food security.  There is an urgent need to build sustainable growth based on long term recovery of the rural community

Slow reaction 

  • India has so far focused on combating ABR due to antibiotic misuse in humans. The Union Ministry of Environment, Forest and Climate Change (MoEF&CC) places poultry and hatchery in the green or low pollution potential category in its polluting industries list. Also, CPCB guidelines on waste from poultry farms do not focus on ABR.
  • This is despite the fact that India is among the top producers of fish, poultry and dairy, and the environment contribution of ABR through waste could be significant. The quantum of litter produced by about 800 million poultry population indicates towards the huge scale of the problem.
  • Another challenge for the country is the tropical climate and poor sanitary conditions that result in high incidence of infections, which in turn, increases the chances of antibiotic use and ABR.
  • In April 2017, India released its first strategic National Action Plan on Anti-microbial Resistance for 2017-2021. The plan was part of the country’s commitment to the Global Action Plan on Antimicrobial Resistance, which was endorsed by WHO, the Food and Agriculture Organization and the World Organisation for Animal Health in 2015.

Way ahead

  • While the action plan is a step in the right direction, India needs concrete measures to be able to contain ABR due to antibiotic misuse in rearing food animals. The first critical step should be that the Department of Animal Husbandry, Dairying and Fisheries regulate to limit the non-therapeutic use of antibiotics in poultry. The department should also adopt alternatives to antibiotics and implement bio-security measures. It should also ban the use of poultry litter as feed for aquaculture.
  • The sector requires ABR-centric environmental regulations, which can happen through a greater role by MoEF&CC and CPCB. The Union ministry should ensure that poultry sector waste is considered as an important ABR contributor. Meanwhile, CPCB, along with state pollution control boards, should prohibit the use of untreated poultry litter as manure and ensure the adoption of waste to energy measures such as biogas generation because they are a less risky manure management option than composting. The CSE study recommends biogas generation for big and integrated players and that it should be made mandatory for acquiring poultry farm licences. The study also suggests a nationwide programme to promote community biogas generation plants for small poultry farmers in clusters. It also says that farms where composting is the only option, it should be done under supervision through adequate laws on process validation and site-approval. The study says that CPCB has to strengthen its existing guidelines and notify them.
  • Lastly, the government should invest in research to better understand the impact of manure treatment on ABR and resistance transfer mechanisms.

Question–  Poultry farms are not just raising chicken but instead a wholesome diet of antibiotics. Comment.