During the initial chaos that followed the GST rollout, two sets of people who seemed to be the worst hit were Small and Medium Industries (SMEs) and those into exports. Anecdotal evidence suggested that both sets were hit because of working capital shortage due to delayed refunds.
Now a research done by Saurabh Ghosh, director of Strategic Research Unit (SRU), Shekhar Tomar, Manager Research (SRU) and Sankalp Mathur, Research Associate (SRU) of the Reserve Bank of India (RBI) provides evidence in support of the hypothesis that exports were hit because of working capital shortage. The research has been published as part of the Mint Street Memos of the RBI.
The researchers used sectoral data of exports in the months immediately following the implementation of GST. Their data showed that the sectors with highest working capital/ sales ratio showed the biggest impact when their refunds were delayed. Because of implementation snags in GST, firms were finally supposed to file their GST returns by September 2017 under the last revision. Exporters were supposed to get 90 per cent of their input tax credit refunds within seven days of filing their returns. However, because of snags, their refunds were delayed quite a bit. The most working capital intensive sectors - especially the Gems and Jewellery sector showed the maximum hit in October 2017.
In November, however, data showed that exports had registered a significant jump. This was partly because of the low base of November 2016 (demonetisation month) and partly because the government had taken a number of initiatives to help exporters, conclude the researchers. They say that December data also confirms their hypothesis that exports are now on an even keel.
- By Prosenjit Datta