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PM Modi: India should resolve this Paradox at the earliest to hit the 5T economy
One estimate is India could be losing as much as Rs 1500 Crores or more annually.
The situation of street vendors in India presents a fascinating economic contradiction. While they make virtually no direct contribution to GST revenue, they generate nearly half of India's Gross Value Added (GVA). This seeming paradox can be understood through several key factors:
1. Understanding GVA Contribution:
GVA measures the value of goods and services produced in an area, sector, or economy.
Street vendors create significant economic value through their services, labour, and the markup they add to products.
They serve millions of customers daily, facilitate last-mile distribution, and create employment.
Their aggregate economic activity, though individual transactions are small, adds up to a substantial portion of India's GVA.
2. Zero GST Contribution Despite High GVA:
Most street vendors operate below the GST threshold (currently ₹40 lakhs annual turnover).
They deal primarily in cash transactions that remain unrecorded.
Some of these vendors sell basic necessities that are GST-exempt.
Their informal status keeps them outside the tax network entirely.
3. The Economic Disconnect:
This situation creates a "missing middle" in India's economy.
A large segment of economic activity remains untaxed.
The formal sector bears a disproportionate tax burden.
This leads to revenue loss for the government despite significant economic activity.
4. The Value Chain Effect:
Street vendors are often the last link in a value chain.
While they don't pay GST directly, they indirectly contribute through purchases from formal sector suppliers.
However, the value they add after these purchases goes untaxed.
This creates a break in the GST chain.
This paradox highlights why bringing street vendors into the formal economy is crucial for:
Broadening the tax base
Ensuring equitable distribution of tax burden
Capturing the true value of economic activity in the tax system
Creating a more balanced and sustainable economic structure
The challenge lies in formalizing this sector without disrupting its vital economic function or burdening vendors with excessive compliance requirements.
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