A question to PM Modi and Sonia Gandhi: What is the fate of GST?

So, here’s how things stand now. There are three days for Parliament’s Budget Session to end. And, till now, it’s all about Sonia Gandhi’s alleged links with the Agusta helicopter deals and Narendra Damodardas Modi’s ‘fake degrees’. There is mudslinging; there are fiery speeches, accusations/counter accusations and emotional appeals, both inside and outside Parliament. It’s nothing short of a spectacle for 125 crore Indians to watch on TV. Sadly, the only word missing in both houses is Goods and Services Tax (GST), which typically rises to stardom in the days prior to every Parliament session and ends up getting nothing as the play progresses. It isn’t different this time too. Politics has yet again won over business in Parliament. [caption id=“attachment_2766516” align=“alignleft” width=“380”]  Parliament of India. PTI[/caption] The GST, described as the most critical piece of legislation in a decade to construct a unified tax regime abolishing several layers of levies, isn’t on the agenda for the remaining sittings. Since the passage of Bill requires constitutional amendments, two thirds of both Houses need to support it. The Lok Sabha, where the BJP has a majority has cleared it, but not in Rajya Sabha, where the party has weak strength. The NDA-government has already missed the April 1 deadline set for GST and with no progress in the budget session too, the country will have to wait more for this to happen. There is no consensus between Congress and BJP on GST with both parties defiantly sticking to their arguments, even though both would accuse the other in public as the reason for the deadlock. Last week, speaking to NDTV in Frankfurt, Finance Minister Arun Jaitley agreed that there are no second thoughts on the passage of GST. “The law (GST) has to be passed. You cannot have a teaser going on indefinitely session after session,” Jaitley said, adding he would talk to Congress again on this. That’s something Jaitley has been saying for long. But, on the other side, the Congress party has been blaming the BJP-government for not returning to the discussion table. What is the truth and who is the villain here? Points of contention There are three major points of contention between Congress and BJP on GST issue. Whether to include the GST rate (agreed around 18 per cent) in the constitution, do away with the inter-state levies and constitute an independent dispute resolution mechanism. Of the three, the only major point of difference is capping GST in the Bill, but not something that has the potential to perennially block the passage of the crucial piece of reform. For instance, a solution such as empowering a joint committee involving the centre and state governments (including Congress-ruled states) to set the GST rate, isn’t difficult to agree upon. The other two demands are actually non-issues. Neither the BJP, nor the Congress party seems to be serious about GST. Else, it wouldn’t be an issue to be locked through three consecutive Parliament sessions. As they say, if you don’ want to do something, you’ll have thousand reasons to explain that. With the Congress cornered by BJP in Agusta deal and the PM Modi degree row, chances of the Congress party extending support to GST is very unlikely. And that is no good news for the Modi-government and the economy. As Firstpost has noted several times before, GST is the biggest tax reform Indian has ever seen to make the process transparent and broad base the tax net. This is critical for India’s ambitions as a global manufacturing hub. That’s the reason even IMF highlighted this as an area of concern in its annual article IV consultation report released in March. “To remain in the economic sweet spot, Indian must ensure forward momentum of its programme of economic reforms,’’ IMF said. IMF officials once again highlighted the issue in May by saying structural reforms, including GST and in areas like land and labour, will be key to boost India’s economic growth potential going forward. “India’s growth outlook is favourable, with GDP growth projected to strengthen to 7.5 per cent in the current fiscal year, even in the absence of major structural reforms,” said Ranil Manohara Salgado, Chief of Regional Studies Division, Asia and Pacific Department of IMF. For Modi too, prolonged delay in the passage of GST is no good news since it raises serious questions on the NDA-government’s ability to push forward the reforms juggernaut. His government, which completes two years in office later this month, doesn’t have any big-ticket reforms to show on the report-card, except the bankruptcy code, where again the Rajya Sabha nod is required. Compared with GST, there shouldn’t be any problems with the bankruptcy code. To remain in the economic sweet spot, India must ensure forward momentum of its programme of economic reforms, especially when the economic recovery is weak and considering that the investment cycle is yet to pick up with the desired pace. As the IMF has noted, structural reforms is key for India and, of all, GST is key that should be followed up with addressing the long-standing supply bottlenecks and revamping of labor laws. The bottomline is this: As we have seen in the previous sessions, amid charges and counter charges that often turn into personal attacks, politicians have once again put the reforms process in the cold storage. If the intolerance issue, JNU and Vyapam did the job in the past, it is the Agusta deal and row over PM’s educational qualifications that is playing spoilsport this time around. Sadly, GST is the biggest casualty, once again.