GST will normalise inter-state trade in the country, have a positive impact on tax revenue: Economic Survey

New Delhi, Jan 31 (KNN) India’s internal trade-GDP ratio at about 54 percent is comparable to that in other large countries, highlights the Economic Survey 2016-17 adding that for creating one economic India, technology, economics and politics have been surging ahead.

The Survey says it is time for the laws to catch up to further facilitate this surging internal integration.

Meanwhile, the Survey also finds that trade in goods is high within India which may be a consequence of the current system of indirect taxes which in some important cases perversely favours inter-state trade over intra-state trade.

The Survey says that GST by ironing out these oddities will normalise inter-state trade in the country which may reduce trade in some cases, and yet have a positive impact on tax revenue because of improvements in compliance, competitive enhancements and other channels.

According to the Survey, the smaller states like Uttarakhand, Himachal Pradesh and Goa trade more; the net exporters are the manufacturing powerhouses of Tamil Nadu, Gujarat, and Maharashtra

Otherwise agricultural Haryana and Uttar Pradesh are also trading powerhouses because Gurugram and NOIDA, respectively, have become part of the great Delhi urban agglomeration.

Intra-firm trade across States is surprisingly large (about 68 per cent of inter-firm inter-state trade), and is affected by trade costs to a greater extent than inter-firm trade.

It may be noted the Indian Constitution provides the Centre and States considerable freedom to restrict trade and commerce; the needs of creating one economic India were actually subordinated to the imperatives of preserving sovereignty for the states.

In practice, courts’ interpretation of these constitutional provisions have also been in favour of protecting the sovereignty of states over economic integration.