Before Bihar, after Bihar

In the past week, we have witnessed a marked change in Prime Minister Narendra Modi’s attitude in conducting legislative business. On Friday, he issued an invitation to Congress president Sonia Gandhi and his predecessor Manmohan Singh about stalled legislation on the goods and services tax (GST). On the same evening in the Parliament, Prime Minister Modi made an interesting speech that brought the Constitution Day debate in Lok Sabha to a close. Among other themes, Modi spoke about how the Constitution is a document that continues to inspire people in a changing world and can be appropriated by one and all and not just one political party or an ideological block. Besides possessing the form of a legal document, however, Modi argued that the Constitution is a social contract. That contract, he argued, had bound together a myriad of diverse, complex sensibilities. BR Amdebkar, bereft of malice, despite the treatment meted out to his caste community, led the entire process of framing such a contract. The underlying spirit, which Modi probably wanted to emphasise, is of a shared purpose maintained by the political class for the benefit of its populace. And the road to achieving that spirit of shared purpose in a parliamentary democracy lies in building consensus. Whether Modi felt the need to express such sentiments after the trouncing his party received in the Bihar elections is a matter of conjecture. However, one can safely assume that in order to fulfill the promise of economic reforms, which remains central to his electoral appeal, Modi has taken the right path. Although the stench of bad blood from the Bihar election campaign still remains between the BJP and Opposition parties, Modi has decided to don the role of statesman or pragmatist, depending on how one assesses his change in tack. In the process, the Congress party has also realised that it cannot hold onto its role of a willful confrontationist, with other regional parties getting behind the Centre on GST.

For the economy to really move ahead, key structural reforms need to be implemented. The goods and service tax (GST) Bill is one particular structural reform that the Centre has been unable to pass through Parliament. The GST Bill is a Constitutional Amendment Bill which requires the support of two-thirds of the members of each House. Although the NDA government is comfortably placed to pass the Bill in Lok Sabha, it does not have the requisite numbers in the Rajya Sabha. One of the major points of contention for the Congress in the BJP’s GST bill is the additional, non-creditable tax of 1 percent on the inter-state movement of goods. This tax on inter-state commerce directly contradicts everything the GST stands for. This means that inter-state trade will not be seamless as Arun Jaitley has promised and compliance difficulties will translate into long lines at the state borders. Another key point of contention is the “revenue-neutral rate” – the tax rate that will ensure no loss in pre- and post-GST revenue to the government –to be applied. Minister of State for Finance Jayant Sinha has reportedly said that the government has established the parameters to have the best possible rates for GST. However, an actual figure has not been forthcoming. Suffice to say, a high rate of 25 percent, which was earlier being bandied about, could significantly hamper business across India. Tax reform is a tricky process. The Congress has sought to bring that rate down 18 percent. The GST in its current form must not pass muster without debate. The Centre, however, now seems to be open to certain changes in the Bill. Even if the Centre does manage to incorporate certain changes, experts have argued that the chances of the indirect tax reform kicking in by the next fiscal are slim. The road ahead is stills long and hard.