Ep 121: How to Fix Our GST

**Amit Varma** (0:00)
Welcome, you're listening to the audio version of Everything is Everything. This show is a video show, there are sometimes visuals that help you appreciate the content better, but mostly the audio should be enough. Please, please, please do subscribe to us on YouTube also. Welcome to Everything is Everything. I'm Amit, and this is my good friend, Ajay, who has promised us today edge of the seat excitement. And that's what happened to the country a few days ago, a few mornings ago. This glorious moment happened when one opened the business standard by, when I say one opened, I didn't open because I don't subscribe to any paper. One opened the business standard and found this brilliant column written by Vijay Kelkar, Arvind Modi and Ajay Shah about the GST and how it could be made much better, that there is tremendous room for improvement and immediately policy makers across the country squealed in delight, unless they were part of government where they squealed in embarrassment because all their follies were revealed to the world. So, today's episode is not just about this brilliant piece by Ajay, which is incredibly insightful and which talks about the various ways in which the GST can still be improved, but it's also about GST itself. Because what many of you may not know is that in the early 2000s, a seminal paper came out, authored by three gentlemen, and the three gentlemen I just named, and the paper was in GST. So, that's when the concept first took fruition within India and started making its way through policy circles. It took many, many years, more than a decade, for it to actually take shape. They didn't like the shape it took. They don't like the shape it is in now. But I thought it's important to kind of talk about, you know, the origin story behind India's GST, why it was necessary, what could have been done differently, and how it can still be improved. And this is really important because a lot of people, a lot of the popular discourse I see around GST, you know, doesn't look at the larger context of it, and I think that larger context is super important.

**Ajay Shah** (2:20)
We should always start at economic growth.
Our job, in all questions around the state, is to create conditions for economic growth. How is that done? We know it's very easy. You just have to get high productivity firms, okay? You just have to get NVIDIA and Google to emerge out of the Indian soil. And then you're done. How do you get there? In 10 different glorious, I'm making it up, in 15 different glorious EIE episodes, we've told the story about high productivity firms. How do you create conditions for the emergence of high productivity firms? And there are basically three key ingredients for a country to become a host to high productivity firms. The first is specialization. This is Adam Smith's pin idea, that if you're a jack of all trades, you're a master of none. A firm needs to focus and do a few things and do them really well. So specialization is very important. The second principle is learning by doing. Experience curves, rights law, which we covered in an episode about Moore's Laws. Gentle reader, if you think you're a business person or an economics person, and Moore's Law is not interesting to you, I promise you, that episode on Moore's Law is central to understanding economic growth in India. And you need it, and please be sure to get that episode. So that's the second one. It is cost experience curves. You specialize, then you do the damn thing over and over. In the phraseology of the great Amit Varma, you put in volume. If you've made 10,000 pins, you ain't seen nothing yet. When you get to 100,000 pins, you'll be better at doing it and so on. So specialize, hang in there, get economies of scale, and then write rights law, which are cost experience curves. Your lifetime production of pins determines your cost efficiency in making pins. And the third piece is globalization. Remove all barriers at the border. If capital, labor, goods, services, enterprise will move freely across the border, we will better create conditions for Indian excellence. It's in our self-interest as India to create conditions for Indian excellence by removing the thicket that is there at the border, remove barriers to movement of labor, remove barriers to movement of capital, remove barriers to movement of goods, remove barriers to movement of services, remove barriers to enterprise, i.e. Indian firms operating abroad, foreign firms operating in India. This is the grand theory of economic growth. We do all this. We create conditions for Indian genius to make high productivity firms. We make high productivity firms, we get GDP growth. That's it. That's all there is. There is nothing else to the journey to getting economic growth. It's very easy. You should try it one of these days.