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Economic Survey 2017: 'It is time for the laws to catch up to create economically integrated India'

Finance Minister Arun Jaitley today presented the Economic Survey 2016-17 in the Parliament. The document suggested that as the politics, technology and economics of the country are surging ahead, this would be the right time for the laws to catch up to further enhance the integration among the states.

BT Online   New Delhi     Last Updated: January 31, 2017  | 14:08 IST
Economic Survey 2017: 'It is time for the laws to catch up to create economically integrated India'

Finance Minister Arun Jaitley today presented the Economic Survey 2016-17 in the Parliament. The document suggested that as the politics, technology and economics of the country are surging ahead, this would be the right time for the laws to catch up to further enhance the integration among the states.

The Economy Survey  found high levels of internal trade between the states. The estimates for inter-state trade flows indicated that cross-border exchanges between firms amounted to at least 54 per cent of the GDP, which implied the relevance of the domestic trade.

India seemed well integrated internally,according to the Survey. A more technical analysis showed that the business costs reduced trade by roughly the same extent in India as in other countries.

The Economic Survey found out that that the smaller states like Uttarakhand, Himachal Pradesh and Goa trade more; the net exporters were the manufacturing powerhouses of Tamil Nadu, Gujarat, and Maharashtra.

Agricultural states Haryana and Uttar Pradesh were also trading powerhouses because Gurugram and NOIDA, respectively, became 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 was affected by trade costs to a greater extent than inter-firm trade.

However, there is a potential dampener on the finding that trade in goods is high within India. The high level 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.

If true, the GST by ironing out these oddities would normalise inter-state trade in the country. This might reduce trade in some cases, and yet would have a positive impact on tax revenue because of improvements in compliance, competitive enhancements and other channels.

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.

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