National Herald case: Why Congress’ defiance in Parliament can strangle India's GST hopes in Winter Session

In an exclusive interview with Firstpost and Forbes India on Tuesday, renowned American economist and former US Treasury secretary, Larry Summers said India’s prospects in the emerging world are bright, only if it can pull off key-reforms in the economy and bolster its domestic fundamentals. Summers didn’t hide his concern on the current political logjam in Indian parliament that is delaying the key legislative business of the House. “I think it is right to be concerned,” Summers said. “But I remain optimistic India will undertake reforms.” When asked which reform step he wants to see first, Summers response was quick. “GST (Goods and Services Tax). I think GST is an important start.” [caption id=“attachment_2540456” align=“alignleft” width=“380”]  File photo of Sonia and Rahul Gandhi. PTI[/caption] Not just Summers, almost all economists and economy experts watching India both here and abroad have noted the critical importance of pushing the GST bill in the current Parliament session itself citing multiple reasons. Political logjam The Congress-party’s aggressive defense in Parliament in the National Herald case, thus delaying the negotiations on the crucial Bill in the process, can ultimately hurt the prospects of economy. It is also a bad political move from Congress’ side, particularly so, in the context of BJP’s willingness to reach out to the opposition to allay their concerns on the Bill, the CEA panel’s proposals largely favouring Congress demands and, the fact that it is difficult for Congress to keep on defending the case in question (National Herald) for too long since the ruling (summoning Sonia and Rahul) is from a Court and not one of the government ministries. The Congress clearly doesn’t have a strong case to build a ‘political vendetta’ strategy beyond a point to stall the GST passage. If the party continues to delay the Bill, ignoring all these three factors, it will score an own-goal in the game that wouldn’t augur well for the grand old party, readying for state elections next year. More critically, there are several reasons to believe that a failure to pass GST Bill can hurt the prospects of economy badly. First, if, for whatever reasons, GST fails to see the light of the day in this session, the April 1 deadline for the roll out is a sure miss. This can send a wrong signal to the outside world about the ability of the Modi-government to undertake large reform steps. GST is a long-delayed reform. As Firstpost has noted before, Modi-government has been so far not managed to bring about large-ticket reforms in a reality. GST is the only probability at this stage since other major items on the reform-agenda such as Land Bill and labour laws do not seem to be on the priority list. Time is running out for the government to kick off the process. More importantly, for the foreign investors, where Modi has hard-sold the India story during his trips, progress of key reforms in the country matters a lot. This is even more critical in the aftermath of the Bihar-defeat, post which critics are questioning Modi’s ability to pull of large-ticket reforms. Second, passage of GST will tremendously help the economy to move into a high-growth path. Since GST is designed to roll in several complicated taxes into one and can broad base the tax base, it can improve the tax revenue over the next few years. Most economists expect the GDP itself to gain by 1-1.5 per cent if GST becomes a reality. As Summers said, India’s prospects to emerge as a world economic power depend on its ability to resolve the areas of weaknesses in the economy. These include rescuing a heavily stressed banking sector, addressing the infrastructure bottlenecks, stepping up domestic manufacturing, addressing rural stress and simplifying the tax regime. As Summers pointed out, GST is an important start In fact, if Parliament is allowed to function, factors supporting the passage of the GST Bill in Winter Session are stronger than those that could possibly stall the crucial legislation. The big positive is the CEA-panel recommendations. The Congress Party has raised three major demands to let the passage of GST. One it wants to cap the standard GST rate at 18 percent, second it wants to scrap the 1 percent tax for inter-state trade and third it wants an independent dispute resolution committee on issues related to GST. The recommendations of the Subramanian panel perfectly align with two of these demands–18 percent standard GST rate and scrapping of 1 percent inter-state trade tax. These two factors are already largely accepted stance on GST by industry, investor community and experts as an ideal GST structure to begin with. The BJP is unlikely to question these recommendations since these recommendations also offer a convenient solution to resolve the political deadlock. If the government accepts these proposals, it would be seen as a positive move. Also, some section of the opposition—such as Trinamool and JD (U) are of the opinion that the GST Bill shouldn’t get stalled beyond a point. It will be difficult for Congress to put up a prolonged protest in Parliament in the National Herald case, convincing political allies and voters that a reform bill such as GST needs to be stalled for it. If they still choose to do that it would be seen not just as bad politics, but bad economic strategy too, that will ultimately harm the general economy.