GST Bill: Here's the real reason and game plan behind Congress' U-turn

Beyond the euphoria following the passage of Goods and Services (GST) Constitutional amendment Bill in the Rajya Sabha lies the hard fact that the Congress party has skillfully retained its bargaining edge in the whole GST affair. This will continue to weigh very heavily on the Narendra Modi-government in the days ahead as it strives to clear the many roadblocks that are present on the road to the final roll out. The deadline for the implementation of the new indirect transactional tax regime is currently set at 1 April, 2017. But, there is a fair chance that the government will overshoot the deadline.

Let’s take a close look at Wednesday’s GST debate and evidence emerges why Congress continues to be in the game. The Congress party clearly walked into the house well-prepared with two definite strategies. One, to say ‘aye’ when the Constitutional Amendment is up for vote, else it will be seen as anti-development and regressive. Two, while doing so, put forward two crucial demands before the NDA-government, a cap of 18 percent GST standard rate in the law and, status of GST Bill as a Finance Bill, not as money Bill, to retain its command in the affair. These two demands will effectively make sure that the Congress party is still in the game and has an indispensable role till the last day of the GST roll out, so that it can tell the electorate that why the Congress party played an equally critical role in the passage of the critical reform, if not more, as the BJP.

Union Finance Minister Arun Jaitley. PTI

Union Finance Minister Arun Jaitley. PTI

Finance Bill vs Money Bill

First, let's take a look at the logic of the Congress's demand for presenting the GST Bill as Finance Bill, not as Money Bill. If GST is a money Bill, it doesn’t matter what the Congress’ voice in Rajya Sabha is. The Bill can be introduced in the Lok Sabha and Rajya Sabha cannot make changes to it. If the RS doesn’t return the Money Bill within 14 days of passing it, the Bill will automatically get passed. In other words, the Congress party, which has a clear say in the Rajya Sabha but not in the Lok Sabha (where the NDA has clear majority) will be merely reduced to onlookers if the GST Bill comes up as Money Bill. Can BJP indeed present it as a Money Bill? One cannot rule out that chance.

According to rules, a Money Bill can contain provisions for imposition and abolition of taxes, for appropriation of moneys out of the Consolidated Fund, etc. This is the reason Finance Minister Arun Jaitley strictly refused to commit to the status of the GST bill as Finance Bill despite heavy pressure from Congress-led opposition parties and said he’ll only go by what the Constitution says. If Jaitley surprises the Congress and makes it a Money Bill, the next round of GST battle (passage of supporting legislations likely in Winter Session) will be a one-sided affair, an easy win for BJP. But, that’ll antagonize Congress and make future rounds of the game (ratifying the law by 16 State Assemblies and formation of GST council) extremely tough for BJP. It’s a risky call.

Second, the issue of a standard GST rate. Throughout the debate on Wednesday, every Congress leader who spoke -- be it P Chidambaram, Anand Sharma or Ghulam Nabi Azad --  stressed on the point that the GST rate shouldn’t exceed 18 percent, citing Chief Economic Advisor (CEA) Arvind Subramanian’s recommendations. Sharma even mildly warned the BJP before he concluded his speech that his party had agreed to the whole affair thinking that BJP will finalize the rate at 18 percent.

To understand how risky this condition is for BJP, one needs to only listen to some of the state finance ministers who spoke on Wednesday and in the preceding days on the issue of rate. Kerala Finance Minister Thomas Isaac in an interview to CNBC TV 18, said that most states want a standard GST rate above 20 per cent. If one sees this in the context of Congress leaders’ demand, the significance of this becomes clear. The Centre's task looks too difficult given that most states have demanded a standard GST rate way above the 18 percent, fearing revenue losses despite getting an assurance from Jaitley that they will be compensated in full for five years.

At a presser on Thursday, Jaitley didn’t specifically say anything on the contentious issue of a standard GST rate, beyond saying, ‘what we need is an optimum rate”, or inclusion of the rate cap in the GST Bill. But, the comments of the Chief Economic Advisor Arvind Subramanian, after the passage of the Constitutional Amendment, makes it clear that the thought process in the NDA-government is the rate can be even above 18 percent. Subramanian said that even if the GST rate is 18-20 per cent, there would be no average impact on inflation.

"Our calculation suggests that if you allow 18-20 percent (GST rate), there is no inflation impact on average,” Subramanian said. Subramanian’s comments assume significance, given that the Congress leaders on Wednesday were highlighting the CEA-panel’s recommendation of 18 percent standard GST rate to support their demand that the rate should not exceed 18 percent. Jaitley too said, in the conference, that while the rate will certainly come down from the average 27-0 per cent rate, a balanced rate needs to be arrived at so that states won’t take a major hit. One can safely conclude that the government hasn’t made up its mind on the rate issue. The question is what will be Congress’ strategy if the BJP fails to meet the condition of 18 percent? Will it blackball the Bill again?

Congress calculations

One can suspect a well-thought out Congress game plan here. Agree for the Constitutional Amendment for now and avoid being seen as anti-development, anti-national given the hype attached to the historic reform. But, calculate moves closely in the subsequent rounds of the game to delay the roll out, if possible beyond 2017 to the pre-election year of 2018-19. This has a clear benefit. The immediate negative impact of GST roll out on consumer-heavy states (prices of certain services will go up in the initial years when GST is rolled out), will create an anti-incumbency wave. The common man is typically not too worried about big reform transformation in the economy but rather on the increase in the burden of his household kitty.

Make no mistake here, the Congress agreed in favour of the Constitutional Amendment in the last moment only after it was isolated on the issue. Regional parties, including some of its regional allies such as the RJD, supported the Bill and most states agreed in favor of the Bill after getting assurance that they’ll get adequately compensated. The Congress, too, perhaps realized the lack of sense in its demand for inclusion of GST rate in the Constitution 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 in the affairs that led to a historic Wednesday evening. But, perhaps, the party was working out a plan-B to counter the BJP even after agreeing to the Constitutional amendment. The Congress is very much in the game even after the Constitutional Amendment. If the BJP refuses to agree on the 18 percent rate cap issue in the Bill, it will trigger another major standoff between the two parties, further delaying the implementation.

Updated Date: Aug 04, 2016 16:51 PM

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