Who needs GST: Five ways FM Jaitley can thumb his nose at the Congress

So the goods and services tax (GST) regime – touted as the biggest tax reform ever – is going to miss its 1 April 2016 deadline. There’s going to be no special session to clear the GST Bill, which means it will now get taken up only in the Winter Session of Parliament. The government has been quick – and right - to blame Congress stubbornness for this fiasco. Expect more sound-bytes from Finance Minister Arun Jaitley and other BJP bigwigs that the Congress is blocking growth. We’ll overlook the minor matter of the BJP messing up on political management – how else could a badly bruised party force another party with a brute majority to repeatedly hunker down after aggressively pushing an economic agenda. [caption id=“attachment_2427110” align=“alignleft” width=“380”]  Finance Minister Arun Jaitley. PTI[/caption] The delay in GST could actually jeopardise the 0.9-1.7 percent boost to gross domestic product (GDP) that the National Council of Applied Economic Research had estimated it would bring. But is there nothing else the government can do to wrest this gain back? Not everyone believes this gain would have come in any case. DK Srivastava, chief policy advisor at Ernst & Young, notes that the GST Bill the government had tabled was defective and would not have brought the efficiency effects that the tax theoretically brings to the table. “It is quite misplaced to think this Bill would have changed things,” he says. But even if, for argument’s sake, one assumes that the gain would have come, all is not lost for growth. There are still some things the government can do to nullify the negative effects of the rollout delay and bring back business sentiment to the peak levels it had reached last year this time. One, the government could try getting the efficiency gain that GST was to bring in through another door. Apart from preventing the cascading of taxes (which will now get delayed), the GST would have helped create a unified national market and that can still be done, says Pronab Sen, chairman of the National Statistical Commission, by getting entry tax abolished. That is something the Centre can’t do; state governments and municipalities are responsible for this. Sen, however, feels it will not be a bad idea for the Central government to try and persuade states to do away with entry tax. The Centre, he says, can possibly think of a side deal with states on abolishing entry tax and compensating them for the loss. That, however, he admits, may put a strain on the central government budget but the efficiency gains for the economy could be significant. Two, the government needs to get public capital expenditure up. To be fair, this has been happening. Data on public finances in the first four months of this fiscal year show that the share of capital expenditure (Plan and non-Plan) in total expenditure was 14 percent in April-July 2015 against 12 percent in April-July 2014. That’s not good enough, says Sen, it has to be much more. Doing this is important, says DK Joshi chief economist at Crisil, because infrastructure spending has a huge spill over effect on demand – for steel, cement, metals - and, more importantly, create jobs in large numbers. Joshi thinks the government should step up roads and railways projects quickly, which will bring in benefits in the short term and medium term respectively. If the Centre has fiscal constraints, it can get the public sector undertakings to dust up their expansion and capital expenditure plans and get moving on those. The public sector companies, Sen and Srivastava both insist, are sitting on huge piles of cash and this can be brought in to perk up the economy. The Centre can also get state governments (at least the BJP-ruled ones) to boost infrastructure spending, says Srivastava. States are in a better fiscal situation – the average fiscal deficit is less than 3 percent, even 2 percent in many cases. In any case, the 14th Finance Commission gives states headroom to take the fiscal deficit to 3.5 percent in a particular year if they have behaved well on two parameters in the previous year – debt as a percentage of gross state domestic product (GSDP) and interest payments as percentage of revenue receipts. Many states have this cushion and can utilise this, says Srivastava. He estimates that spending on infrastructure through these routes could give a 2 percent boost to the economy. Importantly, this, he says, could also pave the way for the Reserve Bank of India bringing down interest rates by 50 basis points. The RBI has currently put the ball on reviving demand in the government’s court; if the government is seen to have taken credible measures to do this, the central bank can cut rates. Three, the government needs to give top priority to the entire gamut of issues relating to agriculture – rain-proofing of farming through improved irrigation facilities, minimising wastage of fruits and vegetables through better storage infrastructure, addressing the distorted cropping pattern which is the result of a skewed procurement price policy. “The government needs to come out with a clear programme on how to address each part of the agricultural chain,” says Joshi. Four, action needs to be taken speedily on the bankruptcy code. If rightly framed and seen to be effective, this, says Joshi, will change a lot of things and modify expectations positively. The lack of a bankruptcy code is at the root cause of non performing assets of banks not getting resolved speedily and bond markets not taking off. Five, restoring business confidence also requires the tax bureaucracy to be reined in. While the entire focus on tax terrorism has revolved around direct taxes, Sen points out that there is immense scope for improving the indirect tax machinery, especially in the case of excise, where businesses do face a lot of harassment. If the government is serious about promoting economic growth, it will act on all these. None of these require legislative action, where the Congress can play spoilsport. If it is not, it can use the GST delay as a cloak to hide its own inaction and lack of purpose. After all, as Sen points out, the economy did grow 9 per cent when there was no GST. The ball is entirely in the government’s court – the best way to thumb its nose at the Congress is to push on things the principal opposition party cannot block.