Gujarat elections: GST tweaks help restore BJP's edge

Discontent in industrial clusters ebbs

Hardly a fortnight before Gujarat goes to Assembly polls, recent policy changes, especially in the goods and services tax (GST), seem to have assuaged the negative mood against the ruling Bharatiya Janata Party (BJP).

The latest downward revision in GST rates in November seem to have placated the anti-establishment mood in major industrial clusters of textiles, diamonds, ceramics and pharma-chemicals.

While textiles saw a downward rate revision from 12 per cent to five per cent on job work of zari/embroidery and from 18 per cent to 12 per cent on synthetic yarn, the Morbi-based ceramic tiles and sanitaryware cluster saw the rate being revised from 28 per cent to 18 per cent.

As a result, K G Kundariya, president of Morbi vitrified tiles association, said the mood in Morbi was slowly changing to positive. “There are no major issues plaguing the industry here and people are happy after the GST was reduced. The government has surely done some damage control, and it seems to have worked.” 

Manufacturers said the effective tax rate on ceramic products was 27.5 per cent (value added tax and excise duty combined). Initially, it was in the 28 per cent GST slab. However, after it was brought into the 18 per cent category, the industry has got a 10 per cent breather. “The units’ turnover will now increase as people no longer prefer to have cash deals as the taxation rate has come down. This would benefit both the government (in terms of tax collection) as well as the industry,” said a manufacturer in this cluster.

However, there are others who still continue to reel under the new tax regime — chemical units in Bharuch-Ankleshwar belt and the diamantaires of Surat.

People in the chemicals and bulk drugs belt in Ankleshwar, Vapi and Bharuch in South Gujarat are worried about the export refund situation. “Apart from that, there is no palpable anger among industry in South Gujarat. Demonetisation woes are over, and the GST transition has been ironed out. We are yet to have much clarity on the export refund situation. But that does not mean people will vote against the current government,” said the promoter of a major firm that operates in this belt. 

Also, the local industry admitted benefits of the demonetisation exercise (that encouraged less-cash transactions) have started to trickle in. 

For example, Kalpanik Choksi, a jeweller and trader from Manekchowk, which is a jewellery and bullion trading market in old Ahmedabad, pointed out an interesting trend — cashless transactions were on the rise. "In the past one year, the share of cheques and online banking transactions has increased from 40 per cent of 70 per cent now. People don't shy away for sharing PAN details and big deals are happening through online banking,” Choksi said. He also said the downward rate revision of GST in several trade sectors, too, has worked well for jewellers in this wedding season and that business was brisk. 

However, small traders are still grappling with the sweeping changes. They find compliance with online filings difficult. In Surat, for example, the small-time traders of diamonds (in Surat, they are called home industry) continue to operate in cash. “They have no option. If they go for GSTN and eventually hire an accountant to comply with the new set of norms, their entire margin would be gone,” said a trader. 

Dinesh Navadia, former president of the Surat Diamond Association and regional chairman of the Gems and Jewellery Export Promotion Council, said the Surat diamond industry was suffering from the three per cent business-to-business tax applied by the government. “While manufacturing happens in Surat, the diamonds are traded overseas. The manufacturer thus ships the diamond to its overseas unit or branch. There is a tax on that. This is eating into the margins and blocking capital for business.” 

Also, the export refund is a critical issue for the Surat diamond industry, which exports 94 per cent of its production. "We have spoken to the government several times and they sound very positive. We feel it is the bureaucracy that is delaying the process," Navadia said. 

There is also a fall in fresh investments among small and medium enterprises (SMEs) across verticals. According to Shailesh Patwari, president of Gujarat Chamber of Commerce and Industry, against an average annual 25-30 per cent fresh investments and unit additions, especially in sectors like auto-ancillary, pharma-chemicals and textiles, in the previous four years, the past one year has seen single-digit growth.

The economic challenges have also led to a five-year high rate of closed units at 20 per cent against five per cent earlier. As a result, 20 per cent of the total 468,000 SMEs in Gujarat are non-functional.

However, observers said the negative mood across clusters was subsiding. There wasn’t enough anger for the Congress to capitalise.