Economy

GST is Only One Sixer in the Long Innings Ahead For India

A refusal to change our traditional adversarial approach to governance has the potential to hold GST reform hostage. This should not be allowed.

A labourer loading a goods truck. Credit: Reuters

A labourer loading a goods truck. Credit: Reuters

Tharman Shanmugartnam, the erudite deputy prime minister of Singapore, delivering the first lecture in the NITI Aayog lecture on transforming India series recently. He asked the government to hit fours and sixes, using cricket terminology, to achieve faster transformation and growth. The goods and service tax (GST) bill, adopted with bipartisan support, is a step that can be counted as a six in terms of the movement for transformational reforms.

However, this is but one six in an innings where we need to make at least a century. Many more steps will be needed for the idea of an integrated national market, where goods can move seamlessly across various internal borders, and add at least 1% to our growth. None of them can wait for a decade to kick-in, as the GST did, neither can we afford to get stuck in political bickering or become hostage to vested interests. What are the next steps that desperately need to be taken?

Learn from past mistakes

India needs to design an implementation strategy for GST. We are known to spend much of our government’s precious available time in blocking, discussing and eventually passing laws, policies, programmes and schemes. There are copious examples of legislations being passed without estimating the increased burden it would mean on judicial and quasi-judicial authorities and making provisions for the same. Unfortunately, we do not accord equal importance to processes of design, implementation, challenges involved, generating awareness and building capacity. For instance, the Make in India programme is long on vision but short on strategy to deal with the impact of automation and disruptive technology. While cosmetic changes to improve rankings in ‘ease of doing business’ reports have been made, our interactions with stakeholders reveal limited improvements in practice.

Similarly, while states have set up single windows for clearances, multiple windows exist in the background and applications still travel to multiple departments. An entrepreneur still has to run from pillar to post to get things done and nothing moves without grease. One businessman tells us that 90% of his time continues to be spent on chasing babus, time he could have used gainfully in productive work.

Changing mindsets

Often, we find that right intent behind policies does not translate into good execution, indicating a lack of understanding or sheer inertia among officers tasked with implementation. Absence of interaction is evident when a prospective clarification on non-application of tax results in over-enthusiastic tax officers issuing demand notices for past transactions. Procedures focused on the prevention of wrongdoing, rather than catching the wrongdoer, often impose avoidable costs on the poor and vulnerable. For instance, one method by which we check tax evasion – the need to mandatorily quote one’s permanent account number (and the requirement of filling a detailed form in its absence) for financial transactions – imposes significant avoidable costs on illiterate and poor consumers and small vendors who genuinely want to benefit from the formal financial sector.

Such status quo-ism and a refusal to change our traditional adversarial approach to governance has the potential to hold GST reform hostage. This should not be allowed.

Set up Inter-state Trade and Commerce Commission

Article 307 of India’s constitution empowers parliament to set up an authority to carry out the purposes of part XIII of the constitution, which deals with trade and commerce within the territory of India as part of our cooperative federalism agenda. Many trade bodies and research think-tanks have been pushing for the establishment of such authority for a long time. The setting up of an Inter-state Trade and Commerce Commission, in addition to the GST council, is crucial to ensuring the success of the GST. Such a commission can consist of independent experts and stakeholders to design a time-bound strategy that will aid transitions to a GST regime with the hand-holding required. It can design customised solutions to address challenges involved in the implementation and work with states, the Centre, industry and consumers to make this transition as painless as possible.

The commission can review several patent and latent distortions in intra-state and inter-state trade and commerce and provide expert suggestions to the government to address those at minimum cost. The constitution of such body has also been recommended by the Justice Sarkaria Commission in 1988, the National Commission to Review Working of Constitution in 2000 and the Punchi Commission in 2010.

Implement awareness and capacity building initiatives     

In order to ensure that the full force and intent of the GST bill is communicated to all stakeholders within and outside the government, especially mid-level officers and small and medium enterprises, comprehensive awareness and capacity building initiatives need to be implemented at the central, state and local levels. The message should be precise: while there could be initial challenges such as an increase in prices in the short-term, GST will ensure long-term benefits and equity.

The government should collaborate with non-state actors who continuously engage with beneficiaries of government schemes and programmes and are also aware of the government’s capacity to deliver, including challenges in the current mechanism. Continuous training and capacity building would be required to break the existing approach of operations and adopt a refreshing and transparent mechanism to do business and pay taxes.

All these are small steps, but great steps towards economic governance transformation which the GST has initiated. These steps also have the potential to break the remaining shackles on the path towards sustainable and inclusive development

Pradeep S. Mehta and Amol Kulkarni work for CUTS International, a public policy research and advocacy group