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Government of Karnataka
“Comparison of Estimated Consumption vis-a-vis Declared
Consumption of a Commodity”:
A Study with reference to Iron and Steel commodity.
Fiscal Policy Institute
Economic Analysis Cell
Page | I
Page | II
Acknowledgement
I am grateful to Smt. Prachi Pandey, Director, FPI and Sh. K. K. Sharma, Advisor &
Faculty, FPI encouraging me to complete this study.
I am immensely grateful to my guide Shri Subraya M. Hegde, JCCT-Audit (Rtd),
Consultant, FPI for giving shape to my thoughts.
This research was supported by Commercial Taxes Department (CTD), Karnataka. A
special word of thanks to team of Economic Intelligence Unit, CTD, Karnataka headed by Dr.
Ravi Prasad, JCCT, for designing methodology. His insights, expertise and words of
encouragement greatly helped me to complete the study.
A special word of thanks to Dr. Ramesh Babu, DCCT, Sh. Ranganath, CTO and Sh.
Chandrashekhar, CTO for valuable inputs and helped deepen my understanding.
I thank my colleagues and officers of Learning Resource Committee (LRC) at FPI who
provided insights that helped the research.
Page | III
Table of Contents
Executive Summery IV
List of Chapters V
List of Tables VI
List of Charts VI
List of Acronyms VII
Page | IV
Executive Summary:
Consumption of a particular commodity can be estimated by conducting a survey.
However, survey method is not cost effective. The national average consumption in respect of
certain major commodities is available with Governmental Agencies / Departments /
Ministries. Although these figures hold good for a country as a whole, the state level data on
consumption particulars is not readily available. A logical rationale for deducing the state
figure from the national average is required to be worked out in the absence of credible
information with regard to the state consumption. As part of this, two new methodologies have
been developed for the analysis and in particular to estimate the average consumption in respect
of a state using the new methods based on the national average as estimated by government
agencies/ departments.
The Commercial Taxes Department (CTD) is a rich data source for such data relating
to transactions. This data needs to be properly utilized and analysed as they also have policy
implications. Therefore, it is needless to emphasise the fact that a scientific study of such
important commodities which have significant revenue implications for the State’s exchequer
is required. It would definitely help in high and efficient revenue mobilization by plugging
loopholes, if any. Hence, the Department intends to maximize the advantage of data availability
with it by adopting an appropriate methodology to get meaningful information for better
revenue collection.
Present study tries to develop a general methodology to estimate the consumption of
commodities at State’s level to observe the actual consumption with reasonable accuracy. As
part of this, two new methodologies have been developed for the analysis. One is GSDP – GDP
(Gross State Domestic Product-Gross Domestic Product) methodology and another one is
Commercial Tax Department Methodology (CTD Methodology). GSDP-GDP Methodology is
presumed as a better alternative method to survey method to calculate the estimated
consumption of a commodity at the State level. In order to calculate the consumption of the
commodity in the State, turnover reported on local supply and purchases made from outside
the State were taken into consideration. To empirically test the methods, consumption of Iron
& Steel commodity is being used in the study. Interestingly, it was found that, on an average
32% gap exists between the declared average consumption of Iron and Steel and the estimated
one and Karnataka’s per capita consumption of Iron and Steel is 22% less than the National
per capita consumption.
Page | V
List of Chapters Page No
CHAPTER – 1 Introduction ...................................................................................................... 1
1.1 Introduction: ..................................................................................................................... 1
1.2 Objectives of the study: ..................................................................................................... 2
1.3 Methodology, Time Frame & Data Sources: .................................................................... 2
1.4 Sources of Data: ................................................................................................................ 2
1.5 Structure of the report:...................................................................................................... 3
CHAPTER – 2 Methodology...................................................................................................... 4
2.1 GSDP-GDP Methodology: ............................................................................................... 4
2.2 Commercial Taxes Department Methodology: ................................................................. 6
CHAPTER - 3 Comparison of Estimated vis-a-vis Declared Consumption of a Commodity:
A Study with reference to Iron and Steel commodity ...................................... 8
3.1 Iron & Steel industry India and Global scenario: ............................................................ 8
3.2 Karnataka Scenario: ....................................................................................................... 10
3.3 Iron and Steel Supply chain: ........................................................................................... 10
3.4 Data collection and Calculation: .................................................................................... 11
3.4.1 GSDP- GDP Methodology: ...........................................................................................11
3.4.2 Commercial Tax Department Methodology (CTD Methodology): ...............................11
3.5 Assumptions: ................................................................................................................... 15
3.6 Challenges faced: ............................................................................................................ 15
3.7 Results: ............................................................................................................................ 16
3.7.1 Estimation of the estimated consumption of Iron and Steel in Karnataka using the
GSDP-GDP Methodology. ..............................................................................................16
3.7.2 Total availability of Iron and Steel in Karnataka for consumption using CTD
Methodology. ..................................................................................................................16
3.7.3 Per capita Iron and Steel consumption (declared) in Karnataka vis-a-vis National
average consumption ......................................................................................................18
3.7.4 Gap between the averages estimated consumption and declared consumption of Iron
and Steel in Karnataka: ..................................................................................................19
CHAPTER - 4 Conclusion ....................................................................................................... 21
References…………………………………………………………………….23
Page | VI
List of Tables Page No
Table 1 Average consumption of Iron and Steel in advanced countries. 9
Table 2 Estimation of estimated average consumption of Iron and Steel in Karnataka 16
Table 3 Total Availability of Iron and Steel for Consumption in Karnataka 16
Table 4 Local sale of Iron and Steel by Manufacturers of iron and steel. 17
Table 5 Interstate purchase of Iron and Steel by Secondary Manufacturers. 17
Table 6 Interstate Purchase of Iron and Steel by Works contractors. 18
Table 7 Average consumption of Iron and Steel in Karnataka V/s India. 18
Table 8 Karnataka V/s National Per Capita GSVA of Construction sector. 19
List of Charts
Fig-1 Total availability of the commodity in the State for consumption. 8
Fig -2 Iron and Steel consumption in advanced countries . 11
Page | VII
List of Acronyms:
CTD Commercial Taxes Department, Karnataka
CSO Central Statistical Organisation
DPCC Declared Per Capita Consumption
DES Directorate of Economics and Statistics
DMG Department of Mines and Geology, Karnataka
EPCC Estimated Per Capita Consumption
e-SUGAM Electronic Uploading of Sales and Purchase Statement of Goods Under Movement
GDP Gross Domestic Product
Govt. Government
GSDP Gross State Domestic Product
GSVA Gross State Value Added
GVA Gross Value Added
IBM Indian Bureau of Mines
JPC Joint Plant Committee
MoSPI Ministry of Statistics and Program Implementation
MT Million Tonnes
PCC Per Capita Consumption
RET Returns
VAT Value Added Tax
Page | 1
CHAPTER - 1
Comparison of Estimated Consumption vis-a-vis Declared Consumption of a
Commodity: A Study with reference to Iron and Steel commodity
1.1 Introduction:
The Commercial Taxes Department (CTD), Government of Karnataka is the biggest
revenue earning department in the state contributing nearly 60% of the total budget outlay. The
major emphasis of the Department is in respect of commodity taxation along with administering
certain Acts like The Karnataka Value Added Tax Act, 2003, The Central Sales Tax Act, 1956,
The Karnataka Sales Tax Act, 1957, The Karnataka Tax on Luxuries Act, 1979, The Karnataka
Tax on Entry of Goods Act, 1979, The Mysore Betting Tax Act, 1932, The Karnataka
Entertainments Tax Act, 1958 and The Karnataka Tax on Professions, Trades, Calling
Employment Act, 1976.
Presently, the CTD, Karnataka renders services to more than 6.2 lakhs dealers (Tax
Payers) registered under the provisions of the Karnataka Value Added Tax (VAT) Act, and
collects volumes of data on a regular basis about taxpayers.
Value Added Tax alone contributes 31.20 percent of the total tax revenue of the
Government of Karnataka, which it is 35.57 percent of the total revenue from indirect taxes and
73.87 percent of the total tax collected by CTD.
Commercial taxes are directly correlated with macroeconomic factors and business
performance in the state. The CTD collects taxes on sale and purchase of commodities carried
out by different types of dealers i.e. manufacturers and traders etc. The entire data relating to
such transactions is readily available with the Department as it has initiated computerisation of
all its business processes. The rich data source needs to be properly utilized and analysed as it
has greater policy implications. Analysis of data is expected to provide inputs to formulate proper
policies and strategies to ensure high and efficient revenue mobilization by plugging loopholes,
if any.
In this context, initially it is pertinent to understand the trend of tax collection on account
of major commodities having wide usage both in industry and in domestic sector. In order to
understand this phenomenon, a deep insight into the way commodity behaves right from the
stage of production/procurement to the stage of consumption is required to be developed. The
intervening stages are very important to taxmen to ensure that whatever goods produced/
Page | 2
procured within and from outside the State are effectively brought under the tax net to realise
entire tax leviable on sale of such goods to the State exchequer. Therefore, it is needless to
emphasise the fact that a scientific study of important commodities having profound revenue
implication to the State exchequer is the need of hour. Present study will provide proper insight
into the commodity behaviour and its impact on revenue collection.
In order to assess the compliance level of tax payment on sale of such commodities, a
simple logic could be adopted. The compliance level could be assessed by taking the declared
quantity consumed in the State during a particular financial year and comparing with the official
estimates by different Governmental Agencies for the same period. The value of commodity
consumed is available with the CTD at reasonable level of accuracy. This constitutes the base
line on which a comparative study of the consumption could be made vis-à-vis the consumption
particulars estimated by different Governmental Agencies for the same period. The compliance
level could be assessed with reasonable accuracy by working out the gap between the declared
consumption and the one estimated by the official agencies.
1.2 Objectives of the study:
1. To develop a methodology to estimate the consumption of a commodity at State level
2. To compare the estimated vis-a-vis declared consumption of commodities in the State of
Karnataka.
1.3 Methodology, Time Frame & Data Sources:
Two new methodologies have been developed for the analysis. Detailed description of
the methodologies is provided in Chapter-2. The period of study is 2011-12, 2012-13 and 2013-
2014 (3 years).
1.4 Sources of Data:
Following are the sources of data for the analysis:
Annual Reports, Finance Department, Government of Karnataka.
Karnataka Economic Survey Reports. Directorate of Economics and Statistics, Karnataka.
Ministry of Steel, Government of India.
Department of Mines and Geology, Karnataka.
Joint Plant Committee, Ministry of Steel, Government of India.
Reserve Bank of India database on Indian Economy.
Commercial Tax Department data.
Dealers’ registration data from efs software, DLR_MASTER.
Page | 3
e-returns data from efs software, WEB_RET_100.
e-SUGAM data from efs software, WEB_VAT_505.
1.5 Structure of the report:
The rest of this chapter presents the structure and application of the methodology developed to
measure gap between decaled and estimated consumption of major commodity. Chapter 2
presents structure of two new general methodologies have been developed for the analysis of
average consumption of major commodity. It also discusses the importance of methodology in
estimating consumption of commodity at state level in the absence of credible information. The
third chapter examines execution of methodology in particular to estimate the average
consumption of a commodity. As part of it, it (new developed method/s) has been tested on a
major commodity say Iron and Steel. The chapter also compares estimated consumption of a
commodity with declared one at state level and with National level. The chapter also discusses
reliability of results of the methods and summarizes the key assumptions made, challenges faced
during execution of the methods and limitations of application of the methodology. The final
chapter summarizes the functioning of methodology and reliability of results given by them. The
chapter also discusses the identified the gap between declared and estimated values at state level
and between state and national level.
Page | 4
CHAPTER – 2
Methodology
Introduction:
Consumption of a particular commodity can be estimated by conducting a survey.
However, survey method is not cost effective. The national average consumption details in
respect of certain major commodities are available with Governmental Agencies / Departments
/ Ministries. Although these figures hold good for a country as a whole, the State level data on
consumption particulars is not readily available. Therefore, there is an urgent need to work out a
methodology to estimate average consumption figure in respect of the State based on national
average estimated by government agencies/ departments. A logical rationale for deducing the
State figure from the national average is required to be worked out in the absence of credible
information with regard to the State consumption.
2.1 GSDP-GDP Methodology:
It is presumed that GSDP-GDP Methodology is reliable alternative method to estimate
the consumption of a commodity at the State level. This methodology can be termed as ‘work-
back method’. In this method, firstly we need to compute the State’s contribution to the Nation’s
Gross Domestic Product (GSDP- GDP ratio). Secondly, estimated consumption of a commodity
at National level is being computed by multiplying the reported national average consumption
with population of the country. And finally, estimated consumption of a commodity at State level
is being computed based on the estimated consumption of commodity at National level.
Why Per Capita?
As the data available at the National level is in terms of per capita consumption of a
commodity the same parameter is adopted in this study.
Application of GSDP-GDP Methodology:
To obtain GSDP-GDP ratio, divide the Gross Domestic Product by Gross State Domestic
Product and multiply by 100.
[A] GSDP-GDP ratio =
𝑮𝒓𝒐𝒔𝒔 𝑺𝒕𝒂𝒕𝒆 𝑫𝒐𝒎𝒆𝒔𝒕𝒊𝒄 𝑷𝒓𝒐𝒅𝒖𝒄𝒕
𝑮𝒓𝒐𝒔𝒔 𝑫𝒐𝒎𝒆𝒔𝒕𝒊𝒄 𝑷𝒓𝒐𝒅𝒖𝒄𝒕 × 𝟏𝟎𝟎
Page | 5
National total estimated consumption of a commodity is computed by multiplying the National
per capita consumption of a commodity (Reported) with population of the Country.
[B] National Total Estimated Consumption =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 × 𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒕𝒉𝒆 𝒄𝒐𝒖𝒏𝒕𝒓𝒚
Total estimated consumption of a commodity at State level is computed by multiplying GSDP-
GDP ratio with the National total estimated consumption (in kgs).
[C] State’s Total Estimated Consumption =
𝑵𝒂𝒕𝒂𝒊𝒐𝒏𝒂𝒍 𝑻𝒐𝒕𝒂𝒍 𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 × 𝑮𝑺𝑫𝑷/𝑮𝑫𝑷 𝑹𝒂𝒕𝒊𝒐
Or
𝑪 = 𝑩 × 𝑨
Estimated average consumption of a commodity at State level is being calculated, by dividing
State’s total estimated consumption of a commodity from Population of the State.
[D] Estimated Average Consumption = 𝑺𝒕𝒂𝒕𝒆𝒔 𝑻𝒐𝒕𝒂𝒍 𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏
𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒕𝒉𝒆 𝒔𝒕𝒂𝒕𝒆
Or
𝑫 =𝑪
𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒕𝒉𝒆 𝑺𝒕𝒂𝒕𝒆
As an example we have chosen Iron and Steel commodity for the present study. Using the
formula explained earlier per capita estimated consumption of Iron and Steel for State of
Karnataka has been calculated.
Challenges:
Conventionally average consumption of a commodity is being calculated on the basis of
production of that commodity not on the consumption.
Consumption statistics related to major commodities are not properly available either
with the Government organizations or with the private organizations.
National level statistics available on the consumption of commodities while State level
consumption statistics are not available for all the commodities.
Sector wise or commodity wise state level consumption information is not reporting.
Page | 6
Limitations:
GSDP-GDP methodology, being used as an alternative method to sampling methods in
estimating the consumption of a commodity, is not applicable to all commodities.
E.g In case of fuel it is difficult to estimate the fuel consumption by using this method.
2.2 Commercial Taxes Department Methodology:
This methodology is being used to compute declared consumption of a commodity based on
the data available with the Commercial Taxes Department.
In order to calculate the consumption of the commodity in the State, turnover reported on local
supplies and purchases made from outside the State is taken into consideration. Local supply
transactions include local sales made by manufacturers, who are situated in the State while
inter-state purchases transactions cover purchases made from outside the State or rest of the
country.
a. Local supply of the commodity:
[a] Total local sales made by the local manufacturers (in tonnes) =
𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒄𝒂𝒍 𝒔𝒂𝒍𝒆𝒔 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒂 𝒄𝒐𝒎𝒎𝒐𝒅𝒊𝒕𝒚
𝑷𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒕𝒐𝒏
b. Interstate purchases of the commodity
[b] Total Inter-State purchases (in tonnes) =
𝑻𝒐𝒕𝒂𝒍 𝑰𝒏𝒕𝒆𝒓𝒔𝒕𝒂𝒕𝒆 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒂 𝒄𝒐𝒎𝒎𝒐𝒅𝒊𝒕𝒚
𝑷𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒕𝒐𝒏
[c] Total declared consumption of the commodity in the State (in tonnes) = (a) + (b)
[d] Total declared consumption of the commodity in the State (in kgs) = (c) × 100
[e] Per capita consumption of commodity in the State = 𝒅
𝑺𝒕𝒂𝒕𝒆′𝒔𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏
Note: Price per ton, keeping in view the variables in quality of the commodity, is the average
market price of the commodity in a year.
Page | 7
Graphical representation of the CTD Methodology
Fig -1
Source: Author’s computation based on CTD, Karnataka.
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CHAPTER - 3
Comparison of Estimated vis-a-vis Declared Consumption of a
Commodity: A Study with reference to Iron and Steel commodity
Introduction:
Steel is crucial to the development of any economy and is considered to be the backbone
of human civilization. Iron and Steel is the most widely used of all the metals, accounting for
95% of worldwide metal production. Almost everything is made of steel or iron, or has been
made with tools and machinery of these metal. Its low cost and high strength make it
indispensable in engineering applications such as the construction of machinery and machine
tools, automobiles, the hulls of large ships, and structural components for buildings, even the
safety pin is made from steel. The steel industry is often considered to be an indicator of
economic progress, because of the critical role played by steel in infrastructural and
overall economic development. The level of per capita Iron and Steel consumption is treated as
an important index of the level of socioeconomic development and living standards of the people
in any country which gives an indication of the technological advancement of a nation. Iron &
Steel is a product of a large and technologically complex industry having strong forward and
backward linkages in terms of material flows and income generation.
3.1 Iron & Steel industry India and Global scenario:
In 2014 the world crude steel production reached 1665 million tonnes (MT) and showed a growth
of 1% over 2013. China remained the world’s largest crude steel producer in 2014 (823MT)
followed by Japan (110.7MT), the USA (88.2MT) and India (86.5MT) at the 4th position. (World
Steel Association (WSA)).
India emerged as the 3rd largest producer of crude steel in the world in 2015 as per ranking
released by the WSA. (Ministry of Steel, GoI)
Steel industry constitutes around 2% of GDP in India. (Ministry of Steel, GoI)
Per capita finished steel consumption in 2014-15 is estimated at 233 kg for world and 540 kg for
China and 65 kg for India (Statistical Year Book 2015, WSA).
Rural per capita steel use in India is 9.74 kg per annum as on 2015-16. (Joint Plant Committee
JPC).
Page | 9
Table 1
Per capita consumption Iron and Steel in advanced countries.
Country Iron and Steel Consumption
(in kilograms)
South Korea 1057.0
Czech Rep 546.8
Japan 516.0
China 515.1
Germany 460.2
Canada 425.0
Turkey 415.0
Austria 414.5
Belgium 378.1
Sweden 368.8
Italy 354.3
Russia 301.9
USA 300.2
Poland 266.9
Australia/ New Zealand 235.4
Spain 221.0
Iran 219.0
Netherland 205.8
France 196.0
Taiwan 193.4
Mexico 158.7
Brazil 131.9
South Africa 105.8
India 57.8
Source: World Steel Association.
Fig-2
Source: World Steel Association.
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Jap
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Russ
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.8
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tity
in K
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Country
Average consumption of Iron and steel in advanced countries
Page | 10
3.2 Karnataka Scenario:
Karnataka is the leading producer of Iron ore. The resources of Iron ore in the State are
estimated at about 9000 million tonnes (MT). Karnataka has 73% of the country’s magnetite Iron
ore and 12% of the hematite Iron ore resources. Hematite Iron ore, estimated at about 7801 MT
and occurring in Bagalkot, Bellary, Bijapur, Chickmagalur, Chitradurga, Dharwad, Gadag,
Uttara Kannada, Shimoga and Tumkur districts. Magnetite Iron ore, is estimated at about 2268
MT and is found in Chickmagalur, Hassan, Uttara Kannada, Dakshina Kannada and Shimoga
districts. (National Mineral Inventory at a glance (as on 1-4-2013), Indian Bureau of mines,
india)
Production of Iron ore in 2011-12 was 13.3 MT as it came down from 37.88 MT due to
ban on iron ore production in the state. (Performance Audit report, NMDC, Ministry of Steel,
GoI)
3.3 Iron and Steel Supply chain:
A supply chain is a system of organizations, people, activities, information, and resources
involved in moving a product from supplier to customer. On the supply side local manufacturers
of Iron and Steel, who consume iron ore as raw material, sell Iron and Steel locally to traders,
industries, contractors and individual end users. Iron and Steel is supplied by manufacturers
directly to the end users and supplied through the resellers or traders. These manufacturers also
sell Iron and Steel commodity outside the State, however such interstate transactions of
manufacturers are not included in the present study.
On the demand side, industries (secondary manufacturers), works contractors and
individual end users exist who use Iron and Steel as raw material. They effect purchases both
within the state and interstate side by side. Purchases made outside the state, i.e. Interstate
purchase transactions, are taken into consideration in present study.
Page | 11
3.4 Data collection and Calculation:
3.4.1 GSDP- GDP Methodology:
Using the formula explained earlier (GSDP-GDP Methodology, Ref 2.1 in chapter-2), we
have calculated the estimated consumption of Iron & steel for State of Karnataka from the
following data sources:
A. GSDP-GDP ratio
Statistics on Gross State Domestic Product and Gross Domestic Product at Current
Prices collected from the Directorate of Economics and Statistics, Karnataka
(Karnataka Economic Survey -2015)
B. National total estimated consumption:
Details of Per capita consumption of Iron and Steel at national level are collected from
the Ministry of Steel, Government of India.
C. Total Estimated Consumption at State Level:
Total estimated consumption of a commodity at State level is computed by multiplying
GSDP-GDP ratio with the National total estimated consumption (in kgs).
D. Estimated Average Consumption at State level:
Estimated average consumption of a commodity at State level is being calculated, by
dividing State’s total estimated consumption of a commodity from Population of the
State.
3.4.2 Commercial Tax Department Methodology (CTD Methodology):
Using the CTD Methodology /formula explained earlier (CTD Methodology, Ref 2.2 and
Fig-1 in chapter-2), we have calculated the declared consumption of Iron & steel for State of
Karnataka from the following data sources:
3.4.2.1 Local sale of Iron and Steel by registered Manufacturers of Iron and Steel;
196 traders are identified as registered Iron and Steel manufacturers in Karnataka through
the e-SUGAM database. Such manufacturers use iron ore as input and produce Iron and Steel.
They produce different categories of Iron and Steel, E.g. Slabs, flat products, blooms, girders,
beams, billets, bars and rods etc.
Page | 12
Findings related to local sales transactions by manufacturers of Iron and Steel:
Transactions recorded in all the three years:
154 of 196 manufacturers’ registered their sale(s) of Iron and Steel in all three years i.e. during
2011-12, 2012-13 and 2013-14.
Transaction recorded in two years:
11 manufacturers have shown their sales in first two years only i.e. in 2011-12 and 2012-13
but no sales records were found for the same manufacturers in 2013-14. 11 manufacturers
recorded their sales in last two years only, i.e. in 2012-2013 and 2013-2014, but no sales
records were found by the same manufacturers in 2011-12.
Transaction recorded in one year only:
9 manufacturers have shown their sales in 2011-12 only, but not shown in 2012-2013 and
2013-2014. One manufacturer has shown his sales only in 2012-13 but not shown in 2011-12
and in 2013-14. 9 manufacturers have shown their sales in 2012-2013 and 2013-2014 but not
shown in 2011-12.
No sales record found in all the three years:
19 manufacturers have not been shown any sales transactions in the study period.
The e- Returns data has been used which pertains to the quantity of Iron and Steel sold locally
by the manufacturers of Iron and Steel. Total sales in terms of quantity, is calculated in tonnes
on the basis of total value of local sales made in a year by dividing with the average price per ton
of Iron and Steel of that year.
3.4.2.2 Interstate purchase by Secondary Manufacturers, who are using Iron and Steel as raw
material:
3304 dealers, who are using Iron and Steel as raw material (as input) and produce finished
products, are called as Secondary manufacturers. Their role is crucial in the development of an
economy. They use Iron and Steel for various purposes and make products that are more likely
to be consumed by individuals. Secondary manufacturers effect both local as well as interstate
purchases. Only their inter-state purchases of Iron and Steel has been considered for the present
study.
Page | 13
Findings related to inter-state purchases made by the Secondary Manufacturers:
Transaction recorded in all the three years;
741 of 3304 secondary manufacturers have shown interstate purchases of Iron and Steel in all
three years i.e. 2011-12, 2012-13 and 2013-14.
Transaction recorded in two years only;
541 of 3304 secondary manufacturers have shown interstate purchases in first two years only,
i.e. in 2011-12 and 2012-13, but not shown interstate purchases in 2013-14. In the same way,
142 of 3304 secondary manufacturers have shown their interstate purchases in last two years
only, i.e. in 2012-2013 and 2013-2014 but not shown in 2011-12.
Transaction recorded in one year only;
164 of 3304 secondary manufacturers have shown interstate purchases in 2011-12 only, but
not shown in 2012-2013 and 2013-2014. 197 of 3304 secondary manufacturers have shown
their interstate purchases in 2012-13 only but not shown in 2011-12 and in 2013-14. 199 of
3304secondary manufacturers displayed their interstate purchases in 2012-2013 and 2013-
2014 but not in 2011-12.
No sales record found in all the three years;
No interstate purchases were shown by 1255 secondary manufacturers in all the 3 years, i.e.
2011-12, 2012-13 and 2013-14.
Using the e-SUGAM data the quantity of steel purchased from outside the State by secondary
manufacturers of goods using Iron and Steel as raw material, is prepared and total inter-state
purchase in terms of quantity is calculated in tonnes on the basis of total value of purchases of
Iron and Steel made in a year by dividing with the average price per ton of Iron and Steel of that
year.
3.4.2.3 Inter-State purchase made by Works contractors;
Works contractors play significant role in using of Iron and Steel for construction
purposes. Contractors involve in construction activities (eg: Construction of buildings, dams,
roads and bridges etc.) and in this context works contractors are considered as end users. Works
contractors’ effect both local as well as interstate. We have considered the only the inter-state
transactions of works contractors for the present study.
518 traders identified as registered works contractors (including 50 individual civil
contractors) with dealer’s registration database.
Page | 14
Findings on inter-state purchases made by Works contractors:
Transaction recorded in all the three years;
106 of 518 works contractors have shown interstate purchases of Iron and Steel in all three
years say 2011-12, 2012-13 and 2013-14.
Transaction recorded in two years only;
12 of 518 works contractors have shown interstate purchases in first two years only i.e. in
2011-12 and 2012-13 but not shown in 2013-14. 53 of 518 works contractors have shown
their interstate purchases in last two years only i.e. in 2012-2013 and 2013-2014 but not in in
2011-12.
Transaction recorded in one year only;
19 of 518 works contractors have shown their interstate purchases in 2011-12 only, but not in
2012-2013 and 2013-2014. 21 of 518 works contractors have shown their interstate purchases
in 2012-13 only but not in 2011-12 and in 2013-14.
80 of 518 works contractors shown their interstate purchases in 2012-2013 and 2013-2014 but
not in 2011-12.
No sales record found in all the three years;
Interstate purchase transactions have not been shown by 214 works contractors in all the 3
years, i.e. 2011-12, 2012-13 and 2013-14.
Using the e- SUGAM data we have computed the quantity of steel purchased from outside
the State by works contractors. Quantity is calculated in tonnes on the basis of total value of
purchases made in a year by dividing with the average price per ton of Iron and Steel of that
year.
Page | 15
3.5 Assumptions:
Turn over declared in e-SUGAM as belonging to commodity code “44” is assumed to be
related to iron and steel, if it is not prima-facia related to other commodities.
The entire turnover declared as sales to the end consumer is assumed to have been
consumed in the same year.
It is assumed that the opening stock is equal to the closing stock in these dealers and all
the purchases are sold to that extent.
National Consumption of Iron and Steel is taken on the basis of the Per Capita
Consumption (PCI) of Iron and Steel reported multiplied by total population.
The Karnataka state consumption of Iron and Steel is arrived on the basis of the
contribution of the state to the National Income on proportionate basis.
3.6 Challenges faced:
Consumption is calculated on turnover values instead of quantity in the absence of
quantity details
Commodity classification details does not exist.
In the absence of commodity classification it is difficult to gather proper statistics on a
particular commodity.
Available data with the department is raw data and needs to be filtered. Data cleaning
and filtration is time consuming process.
Data extracted from e-SUGAM and e-returns on commodity is not consistent, hence it is
a challenging task to conduct statistical test on available data with advanced statistical
tools/techniques.
Page | 16
3.7 Results:
3.7.1 Estimation of the estimated consumption of Iron and Steel in Karnataka using the GSDP-GDP
Methodology.
Consumption of Iron and Steel in Karnataka is estimated based on State’s contribution
(GSDP) towards the Gross Domestic Product (GDP). The ratio obtained is considered to estimate
the State’s consumption of a particular commodity say Iron and Steel (ref 2.1 D chapter – 2).
The estimates are presented in Table 2.
Table 2
Estimated per capita Iron and Steel consumption in Karnataka
Year Estimated Per Capita Iron and Steel consumption
(in kgs)
2011-2012 59.15
2012-2013 60.59
2013-2014 64.67
Source: Author’s computation based on CSO, MoSPI, GoI.
Table 2 clearly depicts an increasing trend in estimated per capita Iron and Steel
consumption in Karnataka. In 2011-12 the estimated per capita Iron and Steel consumption was
59.15 kgs and it has increased to 60.59 kgs in 2012-13 with growth of 2.3%. Continuing the same
trend it moved up to 64.67 kgs in 2013.14 with a growth of 6.7%.
3.7.2 Total availability of Iron and Steel in Karnataka for consumption using CTD Methodology.
Total availability of Iron and Steel for consumption in Karnataka is computed based on
total sales made by the local manufacturers in the state and the total interstate purchases made
by secondary manufacturers and works contractors. (Total local sales by the manufacturers in
the state plus total interstate purchases of iron & steel)
Table 3
Total Availability of Iron and Steel for Consumption in Karnataka
(in Lakh tons)
Dealers 2011-12 2012-13 2013-14
A) Local sales by manufacturers of iron and steel 14.79 18.70 15.39
B) Total interstate purchases of iron and steel 20.03 14.14 7.74
Total Availability of Iron and Steel for
consumption in the state (A+B) 34.82 32.84 23.13
Source: Author’s computation based on CTD, Karnataka, data
Table 3 reflects the declining trend in the total consumption of Iron and Steel in
Karnataka. The total availability of Iron and Steel for consumption was 34.82 lakh tonnes in
Page | 17
2011-12, which decreased to 32.84 lakh tonnes in 2012-13, with a decrease in consumption by
6% over the previous year. Consumption declined to 23.13 lakh tonnes in 2013-14 with a negative
growth of 42% over the previous year. The reason for huge decrease in consumption is mainly
owing to the drastic decline in inter-State purchase of Iron and Steel. However it has been
observed that there is no significant decline in local sales of Iron and Steel during the same period.
Table - 4
Local sale of Iron and Steel by Manufacturers of iron and steel
Year
No. of Manufacturers
of iron and steel
Local Sale (in value(@ 5 % Tax)
(in crores)
Quantity sold (in lakh tonnes)
Growth Over previous year
2011-2012 175 ₹6532.31 14.79 -
2012-2013 177 ₹6900.96 18.70 20.90%
2013-2014 169 ₹6727.56 15.39 -21.53%
Source: Authors computation based on CTD Karnataka, data
Table 4 depicts the local sale of Iron and Steel by manufacturers during 2011-2012, 2012-
2013 and 2013-2014.
It shows fluctuation of local sales by manufacturers of Iron and Steel in Karnataka. it is
noticed that 14.79 lakh tonnes of Iron and Steel was locally sold by them in 2011-2012 and it
increased to 18.70 lakh tonnes in 2012-13. It was nearly 21% higher sales recorded than previous
year (in terms quantity it is 4 lakh tonnes). However, in 2013-2014 the sale of Iron and Steel by
manufacturers has decreased to 15.39 lakh tonnes, showing 21.53% decline ( or 3.31 lakh
tonnes).
Table - 5
Interstate Purchase of Iron and Steel by Secondary Manufacturers
Year No. of
Secondary Manufacturers
Interstate Purchase
(value in crore)
Quantity Purchased
(in lakh tonnes)
Growth over previous
year
2011-2012 1494 ₹ 8369.92 18.96 -
2012-2013 1612 ₹4683.87 12.69 - 49.33%
2013-2014 1133 ₹2864.35 6.5 - 93.73%
Source: Authors computation based on CTD, Karnataka, data
Table 5 explains the purchases made from outside the State by the secondary
manufacturers. 18.96 lakh tonnes (of worth INR 8369 crores) of Iron and Steel was purchased
from outside the State by secondary manufacturers in the year 2011-2012, which was decreased
to 12.69 lakh tonnes (worth INR 4684 crores) in 2012-13 showing a decline by 6.27 lakh tonnes
Page | 18
(49.33% of less Iron and Steel purchased than the previous year 2011-12. And decreasing trend
was continued in 2013-2014 as well. The interstate purchases of Iron and Steel has decreased to
6.50 lakh tonnes (worth of INR 2864 crores) showing a decline by 6.19 lakh tonnes (93.73%) of
Iron and Steel purchased than 2012-13. It has been noticed that there was a huge decrease in the
interstate purchase of Iron and Steel between 2012-13 to 2013-14.
Table - 6
Interstate Purchase of Iron and Steel by Works contractors
Year No. of
Works contractors
Interstate
Purchase turnover
(in crores)
Interstate
Purchase
(in lakh tonnes)
Growth over
previous year
2011-2012 146 ₹467.75 1.05 -
2012-2013 192 ₹529.13 1.43 26.13%
2013-2014 248 ₹513.57 1.17 -22.06%
Source: Authors computation based on CTD figures/ data, Karnataka, data
Table 6 depicts the purchase of Iron and Steel from outside Karnataka by the works
contractors during 2011-2012, 2012-2013 and 2013-2014. It shows fluctuation in inter-state
purchases of Iron and Steel. 1.05 lakh tonnes of Iron and Steel purchased from outside the state
by the works contractors in the year 2011-2012 and it has been increased to 1.43 lakh tonnes in
2012-13. The purchase has increased between 2011-12 and 2012-13 by 26.13% and again it has
been declined in subsequent year by 22.06%.
3.7.3 Per capita Iron and Steel consumption (declared) in Karnataka vis-a-vis National average
consumption Table 7
Per capita consumption of Iron and Steel Karnataka V/s India. (in kgs)
Year India Karnataka
2011-2012 59.00 56.65*
2012-2013 59.00 52.86*
2013-2014 60.00 36.82*
Source: JPC, Ministry of Steel, GoI, CTD, Karnataka, data Note: * Author’s computation based on CTD, Karnataka, data
Table 7 provides comparative picture of the per capita Iron and Steel consumption in
Karnataka (computed using CTD methodology) vis-a-vis National per capita Iron and Steel
consumption. National per capita consumption of Iron and Steel was 59 kgs in 2011-12 but
Karnataka’s per capita consumption of Iron and Steel was 56.65 kgs which is 4% less than the
National per capita , and National per capita consumption of Iron and Steel was 59 kgs in 2012-
Page | 19
13 but Karnataka’s per capita consumption of Iron and Steel was 52.86 kgs, that is 12% less than
the National per capita and in 2013-14 National per capita was 60kgs but Karnataka’s per capita
was 36.82 kgs which is 63 % less than the National average consumption of Iron and Steel.
It has been observed that Karnataka’s average Iron and Steel consumption is having a
decreasing trend whereas National average has an increasing trend. Karnataka’s per capita Iron
and Steel consumption for the study period is on an average 21.64% (or 10.56kgs) lesser than
the National per capita consumption of Iron and Steel.
3.7.4 Gap between the averages estimated consumption and declared consumption of Iron and
Steel in Karnataka:
Average (three years say 2011-12, 2012-13 & 2013-14) gap between declared and
estimated average consumption of Iron and Steel in Karnataka is 32% (12.70kgs). At the same
time Karnataka’s per capita consumption of Iron and Steel is 22% (10.56kgs) less than that of
National per capita consumption.
As a robustness check for the above findings, Gross value added by Construction activity
has been considered. Iron and Steel being a key input for construction sector, the differences in
growth of former vis-a-vis later would reveal approximate differences in estimated and declared
consumption of Iron and Steel.
Table 8
Karnataka V/s National Per Capita GVA of Construction
Particulars 2011-12 2012-13 2013-14
Karnataka’s Per Capita GSVA (in Rs) 7340 7826 8604
Growth Rate (in %) - 6.62 9.94
National Per Capita GVA (in Rs) 5654 6154 6542
Growth Rate (in %) - 8.84 6.31
Difference between National and
Karnataka Per capita GSVA (in %) 30 27 32
Source: Author’s computation based on GSDP and GDP, 2004-05 series, CSO, MOSPI, GoI
Table 8 depicts the gap between Gross Value Added of construction at the State
(Karnataka) and National level. The difference between India’s and Karnataka’s per capita GVA
of Construction sector stood at 30% , 27% and 32% for the years 2011-12, 2012-13 and 2013-
14 respectively. It indicates that Karnataka’s per capita GSVA of construction sector is on an
average 30% more than that of National average GVA. It is interesting to note that, in the year
2013-14, GSVA of construction sector in Karnataka has grown at 9.9% whereas declared per
capita consumption of Iron and Steel in the same year recorded a negative growth of 63% i.e.
Page | 20
declared per capita consumption has declined to 37 kgs from 53 kgs in the previous year (refer
Fig-8). It clearly reveals that Potential consumption of Iron and Steel in Karnataka is more than
declared consumption.
Page | 21
CHAPTER - 4
Conclusion
Present study is focusing on an economic tool (what come out with the present study) to
gauge the tax mobilization assessing the gap between declared and anticipated consumption of a
commodity by analyzing behavior of commodity which play significant role in producing income
to the State.
Consumption of a particular commodity can be estimated by conducting a survey.
However, survey method is not cost effective. The national average consumption in respect of
certain major commodities is available with Governmental Agencies / Departments / Ministries.
Although these figures hold good for a country as a whole, the State level data on consumption
particulars are not readily available. A logical rationale for deducing the State figure from the
national average has been worked out here in the absence of credible information with regard to
the State consumption. As part of this, two new methodologies have been developed for the
analysis and particularly to estimate the average consumption in respect of the State using the
new methods based on the national average as estimated by government agencies/ departments.
Two new methodologies have been developed for the analysis. One is GSDP – GDP
(Gross State Domestic Product – Gross Domestic Product) methodology and another one is
Commercial Tax Department methodology. GDP-GSDP Methodology is presumed as the best
alternative method survey method to calculate the estimated consumption of a commodity at the
State level. This methodology has been used to compute declared consumption of a commodity
based on the data available with the Commercial Taxes Department. In order to calculate the
consumption of the commodity in the state, turnover reported on local supply and purchases
made outside the state were taken into consideration. Local supply transactions contained local
sales made by the manufacturers, who are situated in the state. Inter-state purchases transactions
cover purchases made outside the state or rest of the country. In order to verify the methods
empirically, Iron and Steel commodity has been chosen for the analysis.
In the empirical analysis, it was noticed that on an average 32% gap exists between
declared per capita consumption of Iron and Steel and estimated per capita consumption in
Karnataka. Further 22% gap exists between per capita consumption of Iron and Steel in
Karnataka and in India i.e. Karnataka’s per capita consumption of Iron and Steel is lesser
compared to India’s per capita consumption. In order to ensure the robustness of these findings,
GVA by construction activity has been considered as an alternative. It was assumed that Iron and
Steel being a key input for construction sector, the differences in growth of former vis-a-vis latter
Page | 22
would reveal approximate differences in estimated (anticipated) and declared consumption of
Iron and Steel. This exercise indicated that on an average per capita GVA of construction sector
in Karnataka is 30% more than the national average. Despite the fact of substantial growth in
construction sector, the growth of declared per capita consumption of Iron and steel has declined
by 32% in Karnataka. This finding substantiates that actual consumption of Iron and Steel in
Karnataka is more than that of declared consumption.
Page | 23
References
Ministry of Statistics and Program Implementation, Government Of India (2015):
http://www.mospi.nic.in
Central Statistics Office (CSO), Ministry of Statistics and Program. (2015). Retrieved from
Central Statistics Office: www.mospi.gov.in/central-statistics-office-cso-0
Department of Mines and Geology. (2015). Retrieved from DMG Home: khanija.kar.ncode.in
Finance Department, Government of Karnataka,Bengaluru, India. (2015). Retrieved from
Government of Karnataka Finance Department: http://www.finance.kar.nic.in/
Government of Karnataka Commercial Taxes Department. (2015). Retrieved from
Commercial Taxes Department: http://www.ctax.kar.nic.in
Government of Karnataka Directorate of Economics and Statistics. (n.d.). Retrieved from
Directorate of Economics and Statistics: des.kar.nic.in
Indian Bureau of Mines, Ministry of Mines, Government of India. (2015). Retrieved from
www.ibm.nic.in: http://www.ibm.nic.in/