The Core Discovery: Greenspan, Productivity Measurement, and India's GST

 In the late 1980s, Alan Greenspan, then Fed Chairman, noticed something curious. The U.S. economy pulsed with innovations, barcode scanners, digital supply chains, lean retail, yet official statistics showed weak productivity growth.


So Greenspan dug deeper. He realized aggregate numbers were masking sectoral transformations. By measuring productivity business by business, the hidden story emerged: technology was quietly reshaping growth in retail, finance, and logistics.

This discovery changed not just policy, but how productivity itself was measured.

And it carries a profound lesson for India today.

I still remember the VAT era, the nightmare of cascading "tax on tax," compliance barriers, and interstate check posts. A product's actual selling price would seem to have only a tenuous bearing to input costs. The dreaded C Form was perennially out of stock, forcing businesses to either forgo revenue or navigate the labyrinthine system through less-than-transparent means.

Then came GST in 2017, India's great unifier:
• No more cascading taxes
• No more fractured state regimes
• Digital compliance replaced endless paperwork
• Interstate trade became frictionless

Productivity gains began to show, sector by sector. Logistics got leaner. Warehouses consolidated. E-commerce and FMCG thrived.

In Greenspan's language, GST exposed and eliminated "hidden inefficiencies."

Now, with GST 2.0 reforms, two slabs, faster ITC reconciliation, AI-enabled GSTN compliance, and even the prospect of petroleum and alcohol entering the net, the productivity dividend is only widening. The reform momentum hasn't stopped at GST. With the new income tax framework (zero tax up to ₹12 lakh), households enjoy unprecedented disposable income. ₹2.5 lakh crore flows back into the economy, fueling demand.

Just as Greenspan showed us that technology's productivity was understated in the 1990s, India's GST and tax reforms may be underestimating their impact today. The real growth story lies beneath the aggregates, in sector-level efficiency, in working capital freed up, in reduced logistics costs, in compliance turning digital-first.

And just as the internet catalyzed a U.S. productivity surge, AI and GST reforms could be the dual engines of India's next growth wave.

The revolution is not only technological but also institutional and fiscal, and its true power becomes visible only when measured at the granular level.

Comments

  1. Suresh KumarOctober 5, 2025 at 12:17 AM

    Great perspective Sridhar. Agree that Technology and GST are game changers. Would love to hear more on you thoughts of combining these with the demographic strength that India is going to witness for the next 30 years - 750 million productive population.

    ReplyDelete

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