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.