GST: The Foundation For Data Innovation

KC Krishnadas

Last year’s demonetization and the recent implementation of the Goods and Services Tax Network (GSTN) have put the Indian government’s digitalization drive on steroids. The resulting wealth of data could create an unprecedented opportunity for the government, as well as India Inc., to innovate.

The long-awaited GSTN regime is finally here. Much has been written about the long and rocky path GSTN has taken to reach its present form, and about how it could cure everything that has ailed the Indian business since eternity. However, given the enormity of scale of this landmark reform, the next few months are likely to be uncertain at best for business.

But for all its growing pains, GSTN is more than just tax reform for India. For a nation repeatedly held back by archaic and notoriously complex indirect state and central tax systems, GSTN could well be the single most important catalyst to turbo-charge India’s growth.

Firing on the engines of the economy

Of the many well-documented benefits of GST, foremost is the promise of a simplified and more transparent tax system, which subsumes a myriad of taxes and levies into one across the nation.

The GSTN regime is likely to expand the government’s tax net significantly by moving the under-the-radar unorganized sector from the “gray side” into the mainstream. Casting a wider tax net could create incremental financial resources and reduce tax rates.

The unified tax paradigm will necessitate a complete remodeling of existing supply chains. The traditional enterprise supply chains that were originally built to capitalize on tax subsidies can now be modernized for cost and process efficiencies.

What does all this mean? Good times are in store for India in the long run. A recent statement from the Confederation of Indian Industry (CII) sums it up well: “The reform agenda has picked up with substantive policies such as the GST. It is possible to target 1 percent additional growth each year, to reach 10 percent in the next three years.”

“At a transactional level, GSTN will reduce the cost of doing business because it is automated and creates a single market, and that is the original purpose. Goods can travel anywhere without friction, so you design your warehousing, logistics, and supply chain not driven by tax benefits, but by where it makes sense,” said Nandan Nilekani, chairperson and co-founder, EkStep Foundation, and former chairman of UIDAI, the institution behind Aadhaar.

The data windfall

However, one of the least talked-about and probably the most potent virtue of GSTN is data. With GSTN in play, the number of value-added tax assessees at the state level would increase from 7 million to at least 10 million. And with an expected $3-$5 billion tax invoices making their way to the GSTN network every month, we are talking about some seriously Big Data. When the new tax regime stabilizes, every single B2B transaction in the country would be recorded digitally.

“GSTN enables data as a vehicle for advancement. The digital footprint of GSTN will become a huge driver to credit for small businesses, so it has multi-layered benefits.” -Nandan Nilekani, chairperson & co-founder, EkStep Foundation, former chairman Unique Identification Authority of India (UIDAI)

And this is where we find the game-changing capability of GSTN—a treasure trove of economic information waiting to be exploited in countless ways.

Now imagine the present day. The current GDP data produced by the government is the only authentic source of knowledge that economic pundits, business leaders, and other decision-makers rely on to assess the health of the economy. This information is not only dated, but it represents only the formal sector, which means only half of the Indian economy. Data for the unorganized sector is captured only once every few years, and through not-so-reliable surveys. With some ingenuity from the government, the GSTN data deluge, coupled with cutting-edge Big Data analytics, could change this forever.

Vital insights in real time

This has the potential to take guesstimates out of the equation where vital economic indicators are concerned. With the enormous amount of insights available, the quantum and nature of economic activity can be measured in real time with never-before levels of accuracy. For instance, interest rates can be set based on genuine measures of demand, investment, and fiscal returns rather than ill-informed guesswork.

With billions of sales invoices uploaded monthly and tagged under the Harmonized System of Nomenclature (HSN) and industry tags, sales and pricing trends across industry sectors could be made available in real time.

“India has a unique opportunity to use data as an empowerment tool for individuals, SMEs, and the like, rather than data benefiting a few large companies like in the West. Our law should enable both data protection and data empowerment (right to ownership and access of my data). That’s the only way a society like ours can benefit from digital participation and all my digital interaction data becoming my asset,” said Pramod Varma, GSTN advisor and chief architect of the company’s ID project, Aadhaar. “We should look at data as a digital asset, just as we look at physical assets.”

Many unpleasant surprises could be avoided with visibility into manufacturing and services output trends ahead of the Index of Industrial Production data. Bill payment systems could also provide a real-time view of how the utilities sector is performing.

With data analytics innovation in GSTN and payment systems, infrastructure could enable the government to receive critical economic data in real time—an invaluable asset for decision-making and policy formation.

“Big Data is set to become a more familiar concept with the immensity of the digitization process of GST-related data online, ” said Neeraj Athalye, head of SAP S/4HANA for SAP India.

“The digital infrastructure for invoice reconciliation leads to immense power to analyze data and gain a competitive edge over peers. GSTN makes B2B transactions cashless, payments become digital, massive insights can be had into purchase patterns and B2B transactions,” noted Kedar Upadhye, global CFO of Cipla.

A digital dividend for the private sector

While data analytics will empower the government to capitalize on insights to drive efficiencies and growth as large corporations do, the private sector also has a tremendous opportunity to innovate and disrupt current business models.

GSTN will offer a level playing field to all businesses, regardless of size, where the true differentiators would be customer experience and process efficiencies. Businesses will need to digitally transform their core and adopt a digital-first approach in every aspect of the enterprise.

With immense amounts of secondary sales data available down to the SKU level, consumer companies will have a massive opportunity for disruptive innovation by identifying previously unknown patterns in consumer behavior. Chander Khanduja, CIO, Luminous Schneider, said, “Prior to GST, the demonetization initiative increased customer data as cash transactions were reduced. GSTN will further increase the pace of this process. Now you are closer to your secondary sales than ever before, and a lot of analytics will be needed going forward.”

In conclusion, as India moves from being a data-poor to a data-affluent nation, government and the private sector alike will see new opportunities to disrupt the status quo and completely re-imagine the future. 

One unfortunate development in western society is the concentration of data in just a few companies. Learn more in this interview with Pramod Varma, chief architect and technology advisor for ID project Aadhaar and an advisor to the Goods and Services Tax Network (GSTN). Varma explains the technology behind GSTN, the power of data, and India’s privacy laws.

About KC Krishnadas

KC Krishnadas is the editor of FactorBranded, a brand solutions media agency. He has 25 years of experience covering technology at The Economic Times and later as the India correspondent for EE Times.