Economy

Yes, the GST Delay is Hurting Growth, but Modi Has as Much to Answer For as Sonia

Finance minister Arun Jaitley has charged the opposition, especially the Congress, with deliberately hurting economic growth by blocking the GST bill for “purely political reasons”. Jaitley has further asserted that the Goods and Services Tax (GST) is getting blocked largely because of the obduracy of Sonia Gandhi and Rahul Gandhi. What is implied is other senior Congress leaders want the GST legislation to be passed.

Ironically, every charge Jaitley has made is tantamount to holding a mirror to himself and to his supreme leader Narendra Modi.

A little flashback

There has always existed a broad political consensus over the GST legislation. It got stuck in recent years because of the sheer obstinacy of Modi who, as Chief Minister of Gujarat, blocked the Centre’s efforts in this direction for political ends. It is an open secret that the BJP disrupted several sessions of Parliament in 2011 because cases of terror involving extremist Hindutva elements were coming to the fore. For the Sangh Parivar, the greater national interest then was to somehow force the Centre to dilute the probe into Hindutva terror cases. GST wouldn’t have figured anywhere near that paramount interest of the Parivar.

Jaitley has argued that precious economic growth is being sacrificed because of the delay in the implementation of GST. It is true that a robust, single GST replacing the myriad cascading state-level taxes that currently exist, will reduce the overall tax rate, create a common market and reduce inflation. There is an estimate that the implementation of a proper GST could boost GDP by up to 2 percentage points a year.Today, the large number of varying and cascading taxes result in a total indirect tax incidence of close to 30% for both the Centre and states taken together. A single GST at 18-20% could reduce indirect tax levels by a full 10 percentage points. That would undoubtedly serve as a big boost for GDP growth.

If this is true, then the BJP must first explain why it allowed the nation to sacrifice 2 percentage points of additional GDP over the last 4 to 5 years. If the BJP had cooperated with the Manmohan Singh government, the GST would have been operational by 2012. Now it is scheduled to kick off only by April 2016, if everything goes right in Parliament.

Jaitley says this is the biggest tax reform since India got independence. Indeed, if this was so critical to national interest, why did the then Gujarat CM, Narendra Modi sacrifice this measure on the altar of narrow Parivar politics? The BJP had a lot to answer for even as their leaders present themselves today as great upholders of India’s economic interest.

Arrogance on land issue

Another important reason for the delay of GST has been the manner in which the NDA aggressively, even arrogantly, sought to push the highly contentious Land Acquisition Bill down the opposition’s throat.

The land acquisition issue created so much bitterness in the relations between the BJP and the opposition that its shadow fell on other important parliamentary legislative business such as the GST. If Modi and Jaitley had referred the land bill to the states last year itself, the GST would have had a much smoother passage. This was a huge error of judgement on Modi’s part and the NDA must accept responsibility for this mismanagement of the legislative business in Parliament. But then, with 282 seats in the Lok Sabha, the BJP finds it difficult to show some humility when mistakes are made.

This lack of humility is so starkly visible in Modi’s recent speeches in Bihar, where he brazenly gives a clean chit to the BJP Chief Ministers of Madhya Pradesh and Rajasthan, describing them as development messiahs in the face of grave charges faced by them in the Vyapam and Lalit Modi scams.

The Prime Minister virtually gave a clean chit to Shivraj Chouhan even as the CBI, under the Supreme Court’s monitoring, goes about filing fresh criminal cases in the Vyapam case. If the PM gives a clean chit even before the CBI has examined the role of the accused officials who had worked closely with Chouhan, what signal is he sending?

While it accuses the opposition of disrupting Parliament and blocking development, the BJP leadership has no qualms about breaking established rules of governance. Partly, it is this hubris displayed by the ruling party which has led the opposition to harden its position on bipartisan matters like the GST legislation. Jaitley cannot blame the opposition alone and strike a posture of injured innocence on behalf of his party. The NDA cannot escape responsibility for the way Parliament is being managed.

Vat to do about liquor

The BJP is still trying work out a consensus on the GST bill as only three days of Parliament work remain. The opposition is likely to come around if the government agrees to some substantive changes. The Congress wants the single GST rate to be much lower, at 18%. The NDA bill seems to suggest a much higher GST rate of about 25% to 27% to start with. A rate as high as 25% to 27% will hardly act as a big booster for economic growth that the Finance Minister is talking about.

The GST rate can be kept at a lower level only if states agree to bring two critical sectors, liquor and petroleum, within the GST net. Both these sectors are cash cows for states, as recently seen in the way sales tax on petroleum has been hiked by many of them. If included in GST, states will not have flexibility to raise the tax rate on petro products. As for liquor, it is a big generator of black money for the funding of regional parties. One doesn’t know whether Tamil Nadu CM Jayalalitha will agree to bringing liquor within the GST net. Modi and Jaitley, inspite of their rhetoric on curbing black money, are not averse to giving states leeway on liquor. The Congress is testing the BJP on this. There are too many complexities yet unresolved. It remains to be seen how the BJP manages these contradictions in the next few days.

  • Matin

    good article ….nicely written

  • NARENDRA M APTE

    (1) GST is most desired financial reform but each stakeholder (trade and
    industry, Union and State governments and consumers) has own views and apprehensions.
    (2) I would like to know whether State
    governments have done some homework to substantiate their claims for
    compensation after Goods and Service Tax, (GST) regime is in place. (3) When
    Mr. Pranab Mukherjee) was the Union Finance Minister in UPA government was
    making efforts to introduce GST regime, he made it a point to involve the State
    governments in his bid to introduce GST. For this purpose he had appointed a
    committee which came to be known as ‘Empowered Committee of Finance Ministers
    of States’. Mr. Sushil Kumar Modi (Bihar’s finance minister and BJP leader),
    was the chairman of this committee. I believe he had submitted a report to then
    Union Finance Minister. It is worth
    finding out what efforts were made by this committee to iron out differences
    between the Union govt. and various State governments on the subject of GST. (4)
    NDA government has wasted the whole year and still has not been able to come to
    terms with the fact that without cooperation from opposition parties it would not
    be able to implement reform measure like Goods & Service Tax or pass amendments
    to the Land Acquisition law.

  • change2014India

    Spot on article.
    Modi can become a hero if he admits BJPs previous mistake and says sorry, ok now let’s take the country forward. Am not a Congi or tard I voted for Modi ok. He has forgotten humility and is exhibiting only arrogance, that pains me more and the way these politicians are ruining my country, sad and shame

  • Mesquite Ice

    I agree with the author partly. He is right that Modi’s inability to make deals with opponents shows his lack of craft and tact. But the the author is completely wrong in justifying the present based on the past. Modi opposed GST as a CM where he thought that the GST did not give the industrial states sufficient compensation. He did not run and disrupt parliament from functioning.

    The author is also trying to blur over BJP stalling parliament to save hindutva. The Author has not come out with one single instance of the same . Subject to correction, the only times that BJP stalled parliament was for PM to explain the allotment of 2g and coal which was purely centered on the PM. They wanted MMS to come and tell the country that he did no wrong. What is wrong in telling people that I did no wrong? Here Sushma gave a statement in parliament.

    But the congress demand of punishment before trial is unheard of in any country that has a rule of law. I could have understood if they had asked for appointment of a SIT but not resignations without right to be heard in a court of law.

    While i do not know what the land bill does are does not do for the farmers, the farmers are being taken for ride by politicians by using them to launch their political careers.

    The Farmers after 60 year have themselves to blame if they dont have hospitals, colleges, roads and electricity. They have remained poor for the past 60 years for the sake of the pseudo-activist politicians. If they continue to support them they will remain like this for the next 60 years.

    I have seen my grandmother saying that electricity is dangerous and should not be used. It would be really naive to stay like that now. The author can claim to be a spokesperson for farmers, but does he ever think that how rural india can get hospitals, roads, schools and companies. He wont because it does not suit him at this moment.

    All great scientists and scholars from archimedis to wright brothers to copernicus to edison to tesla were ridiculed for trying to push the bar of possibility, by pesudo intellectual like the author who were only able to see the risks but not the reward. Finally we know who was right