Greatest Spur Towards Double Digit GDP: GST
Passed At Last!
Hovering at 7.5% in GDP today, the passage of the
constitutional amendment bill for GST in the Rajya Sabha on 3rd
August, heralds the potential to add 2% to it, via the implementation of this
legislation alone.
The leaky and cumbersome tax-on-tax regime will, by December
2016, be replaced by a single ‘common market’ tax, with great potential for
broader compliance, via its IT based implementation architecture.
With better monsoons likely not just this year but for
another two years going forward, another percentage point in agricultural/rural income can safely be
added to the tally.
With a projected acceleration in business, industry,
manufacturing, services, infrastructure, and agriculture/related rural
constructs, forming a virtuous cycle; it may well be possible for India to iron
out its cyclical economic volatility as well.
With a double-digit growth, stabilising, in one of the
largest economies in the world, with immense unrequited demand potential for
decades going forward, India has the prospects of an unblemished run, similar
to that experienced by China, with Deng Xiaoping at the helm. Except, that our
growth will most likely be driven by domestic demand, instead of exports.
Finance Minister Arun
Jaitley launched the seven hour long debate on GST in the Rajya Sabha by
characterising it as the most significant tax reform since independence.
In saying this, Jaitley
emphasised the simplicity and efficiency of this one nation, one indirect tax,
being ushered in now.
The breakthrough was
prior- enabled by extensive discussions to arrive at an informal consensus. The
Congress, as the originators of the earlier versions of the Bill, starting more
than 10 years ago, were, as expected, centre-stage.
And while a huge
number of uncertainties, unclear meanings, and teething problems are clearly
expected in the GST implementation, its desirability, and its potential to be transformative,
was recognised by all.
And now that the
constitutional amendment with changes has been passed, it will be harmonised
with the previous version in the Lok Sabha from earlier this year, and passed
again there; before being ratified by at least 15 out of the 29 states.
Then, the specific tax rates applicable, and
final inclusions and exclusions, will be legislated around November-December
2016, prior to implementation, perhaps as early as the 1st April 2017.
The tone of this
historic Rajya Sabha debate was cooperative, if apprehensive, with many
speakers anticipating revenue losses at first. This is new territory, even
though GST legislation has been adopted in a number of countries already.
Former Finance
Minister P Chidambaram admitted that indirect tax collections overtook direct
taxes in 2006 - natural when it addresses under 1% of the population!
And though indirect
taxes are considered ‘regressive’ in theory, because they fall with the same
strength on the rich and poor alike, it is today what the Indian government
lives on, both at the centre and in the states.
Chidambaram and most
others plumped for no more than 18% as GST. He cited developed countries which
charge 16.8% , and developing/emerging nations, that charge an average of 14.1%.
This even though it wasn’t capped in the constitutional amendment, after much
prior wrangling.
Jaitley clarified
that the states were currently realising revenues at 25-29% in toto, and
were not willing to be capped at 18% .
Several members also
demanded an equitable, ‘revenue neutral rate’ - meaning that a state should
keep on taking in the same amount of indirect taxes, that is does at present.
Paradoxically, Chidambaram and others also felt that rates higher than 18%
would stoke inflation, even though current cumulative revenues, are in effect
higher!
Most of the
Opposition wanted an assurance from this majority government, that the nitty-gritty of the GST- namely the
dividing of the spoils between the centre, (CGST), the integrated GST(IGST), should not be
rammed through as money bills.
Jaitley refused to
foreclose on future options, but said he would strictly conform to constitutional
provisions, and the suggestions of the empowered committee that would draft the
legislation. After some toing and froing, the Congress agreed.
The AIADMK was the
sole outright dissenter, saying that GST was unconstitutional and unfair to the
states.
Some felt the centre
had a tacit veto power on the detailed provisos, though Jaitley rejected the
contention, clarifying that it was incumbent for both centre and states to work
together.
Sitaram Yechury, true
to form, warned the implementation of the GST
should not end up blatantly favouring the ‘dollar billionaires’, instead
of the 90% of households who earn less than Rs. 10,000/- per month . He
also wanted not just a ‘revenue neutral rate’, but a ‘fair revenue rate’.
Yechury’s formula,
echoed by some others, would put pressure on the fiscal deficit, as the centre
might have to borrow more, to pay for huge shortfalls, if the revenue
collections are set too low.
Some demonstrated
their ambivalence to this unified tax by wanting freedom for states to impose
additional levies, particularly on tobacco.
However, the success
of the GST going forward, rests not so much on the haggling and the complexities of the coming
fine-print; but the demand push of a dynamic country of over 1.2 billion
people. India will have an ever growing appetite for more goods and services
for decades to come.
Anand Sharma, former
Commerce Minister, and leading Congress interlocutor on GST, somewhat bitterly,
reprised the years of political, rather than substantial opposition, this
legislation has had to face from the present government when it was in
Opposition. But, he also went into the exclusions from the purview of the GST
in its present amended avatar, and questioned their logic.
Jaitley however said
no state of the union was willing to countenance the GST Bill in its 2011 form,
because it didn’t pay compensation for shortfalls, and the UPA government had
not paid central sales tax (CST) amounts to the states as promised between 2010-12.
These had to be made
good by the NDA since 2014, as a prior condition for the states, including the
BJP ruled states, to come to the table.
In the medium term,
GST revenues will rise substantially and its passage will
be noted by foreign investors as a signal that India has embarked on its second
stage of structural economic reforms.
The knock-on effect on the confidence in the Indian economy
going forward, will have a beneficial effect on marquee government programmes
such as Make in India, Skill India, Start-Up India and so on.
Our endeavour to manufacture a proportion of our $150
billion defence purchases, the largest such shopping list in the world, is
likely to also receive a fillip.
It is a happy day, when an essentially bureaucratic polity
like India takes a definitive leap of faith like this to meet its promising
future square-on.
For: The Sunday Guardian
(1,119 words)
August 3rd, 2016
Gautam Mukherjee
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