Inter-state flow of goods rose to nearly 70% of GDP after GST came

The value of the inter-state flow of goods in India increased to about 70 per cent of GDP in FY22 from nearly 55 per cent in FY18, taking into account movements of domestic and imported goods, shows a paper authored by Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council (PMEAC), signalling increasing economic integration among states after goods and services tax (GST) was introduced.

The paper, published by the Institute of Public Policy Research (IPPR), and written by Debroy, along with his Officer on Special Duty Devi Prasad Misra, found for domestically produced goods the inter-state trade flow amounted to about 35 per cent of GDP in FY22, up from 23.5 per cent in FY18.

Further, internal trade appears to be growing at more than twice the pace of growth of GDP.

In the four-year period, FY18 to FY21, nominal GDP grew 19.7 per cent to $3,173 billion from $2,651 billion, whereas the value of domestic goods transported among states increased 44 per cent, and the cumulative value of imports and movements of domestic goods increased 34 per cent.

“In many ways, this is indicative of the transportation efficiency gains that have accrued after the introduction of GST, as well (as) the enhanced economic integration of Indian states,” the paper reads.

GST, introduced in India on July 1, 2017, replaced a large number of national and state-level taxes and levies, thereby not only uniting India into a common market with minimal distortion and tax arbitrages but also putting in place administrative structures that provide for a regular reporting of tax data.

Using e-way bills as a measure, the paper notes goods belonging to sectors like textiles and textile articles; electrical machinery and equipment; machinery and mechanical appliances; iron, steel, and articles; and automobiles have been at the top in terms of movement from FY19 to FY21.

In terms of e-way bills, Gujarat has been the top state in inter-state trade, followed by Maharashtra, Haryana, Tamil Nadu, and Karnataka, the paper notes.

The paper also analyses the sources and destinations of goods by pairing states accordingly. This shows Maharashtra as the most important exporting partner for every state and also serves as the predominant importer of goods from almost every other state.

“Assam being at the other end of the colour spectrum — it ranks low in both exporting as well as importing relationships with all other states. More generally, states that are close to each other tend to trade more with each other, and states that are richer trade with each other more than with others – again underscoring the gravity effects of trade,” the paper said.

Besides, the analysis of distance travelled by goods, according to the e-way bill data, indicates a large percentage of e-way bills (58 per cent) travel within 200 km and may have implications for the possible location of manufacturing/trading hubs, because they could be located closer to the centres of consumption.

Also, around 17 per cent of the e-way bills pertain to goods that travel more than 1,000 km, which might reflect the likelihood that these may relate to export goods from the hinterland, en route to major ports on the eastern/western seaboard.