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Gujarat election results: Narendra Modi's GST gambit validated; govt must pivot to rural distress and unemployment

Bharatiya Janata Party’s (BJP) spectacular electoral victory in the Uttar Pradesh Assembly election was, among other things, a validation of the 8 November, 2016 demonetisation decision of the Narendra Modi government.

 Gujarat election results: Narendra Modis GST gambit validated; govt must pivot to rural distress and unemployment

File image of Prime Minister Narendra Modi. Reuters

Uttar Pradesh is one of the poorest states in India. Modi’s detractors, including the Congress, launched a frontal attack on this decision, saying demonetisation disproportionately affected the poor, farmers and small and medium-size industries by rendering them cashless for nearly two months. Cash drove the Indian economy, especially the unorganised sector, they argued. Ergo, demonetisation of the high denomination notes (Rs 500 and Rs 1,000) put the poor out of business, they contended.

Former prime minister Manmohan Singh has been in the forefront of no-holds barred attack on the Modi government for what he calls the 'mindless' demonetisation decision. But the Uttar Pradesh electorate gave a thumbs up to the decision, thus fortifying Modi and Finance Minister Arun Jaitley’s argument that the decision, bitter as it was, took aim at people holding black money. The poor were indeed caught in the crossfire, but as the Uttar Pradesh election results showed, they bore the brunt cheerfully.

The other decision the Modi government has been pilloried for is rolling out of Goods and Services Tax (GST) from 1 July, 2017. In fact, the Congress and Singh never tire of attributing the slack in growth to what they call twin economic blunders of demonetization and GST.

In fact, in the Gujarat Assembly election, GST was blown up as a major issue by the Opposition, especially in predominant business centers such as Surat and Ahmadabad. That the BJP has scored resounding victories in these centers is another electoral validation of a seminal economic policy of the Modi government, despite the teething troubles GST posed for traders.

To be sure, the Modi government woke up to the practical difficulties of GST and initiated corrective action. A stitch in time saves nine. Modi government did precisely that and the Gujarat electorate appreciated its gesture in humbly owning up its mistakes and heeding public opinion.

The intelligent people of Gujarat, known for their business acumen, appreciated the twin planks of GST:

1. Preventing tax on tax or cascading effect of the erstwhile multiple taxes at multiple stages without recognising the tax on inputs already paid.

2. Preventing tax evasion by its self-policing mechanism that consists in the successor in the supply chain insisting on tax paid invoice from his predecessor.

The Modi government would now be emboldened to go full throttle on cracking down on benami properties, which are believed to be the bane of the Indian economy and which act as a stumbling block on collecting full tax. It is also likely to get full public support for linking immovable properties to Aadhaar.

Of course, this would yield results only insofar as properties owned by individuals are concerned. But then, the government is separately and effectively addressing the dubious immovable properties held by shell companies.

The Modi government might not have lived up to all promises made in the run up to the 2014 Lok Sabha election. But its corruption-free administration, crackdown on black money and mainstreaming of the economy are going to be its seminal contributions in its first term, which, by themselves are likely to ensure a second term in 2019.

The government, however, needs to prove that it is not obsessed with black money alone. It has to address rural distress and unemployment. One hopes in the short time between now and the 2019 election, it takes concrete steps to address these two festering problems.

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Updated Date: Dec 18, 2017 19:22:54 IST