Fact behind fiction:Political brinkmanship

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If major parties agree on GST, it could help India’s growth jump to nearly 7% annually

The three national parties — Congress, BJP and CPI(M) — have promised in their 2014 Lok Sabha election manifestoes to implement the game-changing goods and service tax (GST) if voted to power. GST is no doubt a modern, simple and transparent indirect tax system aimed at covering the entire production and distribution chain of goods and services in the country. The industry too wants it. There are studies to suggest that GST rollout will make India’s nearly $2 trillion economy gallop by at least two percentage points.

This means India’s growth would straightaway jump to nearly 7 per cent annually from the slowing 4.9 per cent in 2013-14. Both BJP and Congress have said they would strive to get the economy back to high growth path of eight per cent and a little push with GST in place will take the economy there in no time.

But then why is it that GST has not happened despite the fact it was first mentioned in the 2005-06 general budget by the then finance minister P Chidambaram? It is now eight years since tax reform was conceived and it has missed the first deadline of 2010 and many more thereafter. It is strange that when all major parties want it to be implemented, be it left, right or centre, the measure does not kickin as apparently politics has had the better of economics.

It is very clear that the principal opposition party BJP has to take the major blame for stalling it. Prime minister Manmohan Singh as early as February 2011 had blamed BJP for the hold-up of economic reforms by disrupting Parliament during UPA-ll. Also, he had told a meeting with editors then that the BJP reversed its stand on GST because of certain actions by the centre on Gujarat. But the fact is GST rollout has not happened because economic rationale is not important, though political parties swear by it in their manifestoes.

That being the case, there is no guarantee that it would be rolled out anytime soon. If principal opposition BJP has played politics through its state governments thus far, it may be the turn of the Congress through its state governments to do the same, should the BJP capture power at the centre after the general elections.

There is another factor as well. The tax administration too has taken more time than necessary to gear itself to meet the technical challenges in its roll out. But the glitch is certainly not insurmountable. With the experience of VAT, state governments too can adapt quickly, what with near total computerisation and e-filing in revenue departments of both the centre and the states.

The empowered panel of state finance ministers has already done a lot of work, particularly with regard to compensation package in the event of a revenue loss. But the main dispute here is how to arrive at a consensus on the thorny issues that have cropped up between the central and state governments, a situation made more complex with different political parties in different states pursuing their own set of priorities. The unfounded fear of states losing the power to tax in a federal polity is often raked up to hold up a decision.

While the CPI(M) has said that it does not oppose goods and services tax, it will facilitate a rollout only after ensuring that the states get to partake of a higher share of revenue to partially correct their fiscal imbalance. The BJP has said it will bring all state governments on board by addressing their concerns on goods and services tax. The Congress manifesto says that within 100 days of forming a government, it will announce a one-year roadmap to implement GST.

While all have stuck to their guns, no party is willing to explain reasons for the delay when everything is ready, including the much-needed constitutional amendment to enable both centre and states to tax goods and services at the point of sale. The parliamentary standing committee, headed by BJP’s former finance minister Yashwant Sinha submitted its recommendations last year after some delay.

GST has the advantage of VAT, which clearly demonstrated that despite apprehensions of state governments, no state ever lost any revenue. They have only gained. Plus, generous devolution of funds to states from the central pool of taxes has ensured that most state governments have huge cash surplus and state fiscal deficits reinedin.

The industry can only gain by GST; the unified market that it would create will ensure multi-brand retail business, $500 billion industry doubles in a few years and a $1 trillion provision for new jobs, which all manifestoes have promised.

It is not that there is lack of understanding among political parties but the issue at stake is who should take credit for its implementation; that is good enough reason to hold up this crucial reform measure that may change the face of a slowing economy.

You can only hope that the elections become a turning point for our politicians to sit up and take note of the economic imperatives of a nation on the move. For that to happen, they will have to rise above political compulsions.


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