GST Bill: How Narendra Modi coaxed a defiant Congress to clinch the deal

In 2000, when the then Prime Minister Atal Bihari Vajpayee asked a panel chaired by the then West Bengal Finance Minister Asim Dasgupta to chalk out a uniform tax regime, the Goods and Services Tax (GST), little did he imagine that it will take a good 16 years for the idea to translate into reality. The Vajpayee government couldn’t make much headway in the GST story beyond that point.

Four years later, the term GST yet again returned to public discussions when the Kelkar panel mooted the need for such a tax reform. But, GST remained a pipe dream, with not much progress being made in subsequent years. It emerged in national focus during the Congress-led UPA government’s time, when then finance minister P Chidambaram mentioned about it in the union budget speech in 2006-07 by reading out these lines: "It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I propose that we set April 1, 2010 as the date for introducing GST," adding that the world over, GST was the norm of a single tax for both goods and services India should follow the path. “People must get used to the idea of a GST,” Chidambaram said.

 GST Bill: How Narendra Modi coaxed a defiant Congress to clinch the deal

Prime Minister Narendra Modi. AFP

However, the date 1 April 2010 came and went with nothing happening on the GST front.

Chidambaram too couldn’t do much, neither could his successor Pranab Mukherjee. Mukherjee set another deadline — another 1 April (2011) for the GST rollout. This created a buzz once again but with no material progress. Mukherjee too failed to keep his promise. The word GST was once again forgotten by the public till March 2011 when the 115th Constitution Amendment bill was introduced in Lok Sabha to levy GST on all goods and services excluding certain items. The matter was left to a standing committee.

It submitted its report to Parliament in 2013. But, then emerged political opposition and ironically, from the Bhartiya Janata Party (BJP), the new and ultimate hero in the GST episode. The UPA bid to clear the Bill failed miserably after many states, especially the ones ruled by the BJP, including the then Gujarat chief minister, Narendra Modi, opposed and fought the idea tooth and nail. The legislation lapsed with the dissolution of the 15th Lok Sabha.

But, the story didn’t end there.

Modi emerged in his mighty new avatar in 2014 May, this time as the Prime Minister who guided the BJP to a historic win crushing the Congress. Modi’s trusted aide Arun Jaitley assumed office as the finance minister. The nearly buried GST was once again revived from the grave and was showcased by the Modi-government as the biggest tax reform in post-colonial India, which it was for sure. Modi called up on the opposition parties including the Congress to support the Bill.

Yet another April 1 (2016) deadline was set, but failed.

Congress game plan

Jaitley set another deadline of 1 April, 2017.

The Congress, on the other hand, was a tad baffled about how to go about this time. After all, it too was fighting the same battle till a few months back. The AICC wasn’t sure about supporting the Bill right away since that would amount to running most of the race and passing the baton to the opponent in the last lap, who would take home the trophy. GST was too big a prize for the Congress to let go of easily. It wasn’t ready to yield an easy walkout to its formidable political opponent.

It was the days of hard political bargaining then. A political script that was to be played out was in the making, on both sides. To begin its counter strategy, the Congress made its first move by asking the NDA-government to send the Bill to a standing committee. But, an overconfident Modi-government, which was still basking in the glory of a record mandate didn’t yield. It saw a weak opponent in the Congress (which was true in the case of the Lok Sabha), and hence didn’t feel the need to listen. The BJP pushed the GST Bill in the Lok Sabha in May 2015 without any problems, but realized the extent of the problem when it moved the Bill to the Upper House. Only then, it turned to Congress’ help. But, by then, the Congress had tasted blood.

The realisation that it was facing a massive deadlock in Rajya Sabha was slowly dawning on the BJP camp. Even if it managed to win numbers, grouping the smaller parties, it would have been only a temporary victory for two reasons. First, the GST was a constitutional amendment and needed 2/3rd support of the House (that is support from 163 members in a 243-member house). Second, even after the amendment, the Bill still had to be ratified by more than 50 per cent of the state governments, including Congress-ruled states and involves the creation of a GST council (a body comprising centre and state governments).

The BJP couldn’t afford to discard the Congress party’s support. The whole affair had become a political puzzle even for PM Modi. The PM was forced to fire his ultimate ‘Brahmastra’, the issue of larger national interest, to push the Congress to extend its support.

Forced consensus

The BJP's strategy began to work, with Congress finding itself isolated on the issue after regional parties, including some of its allies such as the RJD, supported the Bill. But, on the other side, the BJP too was forced to give up its initial authoritarian approach and come to a consensus mode. The Congress was realizing its impending defeat, but it still had to put up a fight and not give an easy win for the BJP. It raised three crucial demands to offer its consent on the GST Bill. 1) Include the GST rate in the constitution, 2) Create a separate, independent dispute resolution mechanism preferably headed by a High Court judge, and 3) Waive off the 1 percent inter state levy proposed in the BJP’s GST Bill.

The BJP, which was fighting its own political ego and helplessness, denied outright the fist demand and rightly so. The demand didn’t make any sense. The Congress, too, perhaps realized the lack of sense in its demand and eased up. White flags were first waved by experienced Congress leaders Anand Sharma and Jairam Ramesh, who agreed for an alternative mechanism. This was a major breakthrough.

The other two demands were rather simple to resolve. In two successive GST meetings with state finance ministers in Kolkata, the BJP agreed to waive of the 1 percent state levy — a second major breakthrough. But the big question of compensating the states for possible losses was still left. Jaitley had to finally agree for full compensation of states in the first five years instead of compensating them partially ‘up to’ five years. This addressed the worry of bigger, manufacturing states that if the GST rate is kept too low, it would erode their revenues but a counter argument was made by other states which said if the rate is too high, that would be be akin to killing the service industry.

By agreeing on compensation for a full five years, most states nodded in favor of the Bill. Similarly, the issue of a dual control arose. Here too the government managed to work out a solution saying states will have full control on tax assessment of companies with a turnover below Rs 1.5 crore and above that there will be dual control. In principle, the BJP had to concede to the third demand of the Congress too, the creation of an independent dispute resolution mechanism. The government is learnt to have agreed to leave the decision to the GST council to set up a dispute resolution mechanism that will be a legally binding solution. Thus, the Congress had its final say in two of its three demands and the BJP-government finally clinched the deal.

The game isn’t over yet. Even if the amendment is passed in the Upper House, it is only the start of a long journey to the date of the final roll out of the new tax regime. It wasn’t easy an easy win for PM Modi and his finance minister, Jaitley when they finally cinched the 16-year old GST political deal. The party was under tremendous pressure considering that this was their last shot at GST in the NDA’s current term as it was facing criticism on its failure to make serious progress on big ticket economic reforms.

With the GST breakthrough, India finally joins the list of 160 plus countries that are implementing GST.

For Modi, it’s a big-ticket reform item to showcase in his political rallies and silence his critics. For Jaitley, it is an achievement in his résumé as FM. As for the Congress, it is a lost political opportunity and for 1.25 billion Indians, the GST is an assurance that lawmakers haven’t totally forgotten their fundamental constitutional responsibility of law-making.

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Updated Date: Aug 03, 2016 13:00:11 IST