Economic reform: NDA govt in a hurry
Ever since the National Democratic Alliance (NDA) government took office in May 2014, it has sought to project its commitment to necessary economic reform. Finance Minister Arun Jaitley reiterated the NDA government’s position on Sunday. He said that the government hopes to pass the land mark Constitution Amendment Bill for the national Goods and Services Tax (GST), as well as the bankruptcy and insolvency bill through Parliament in the second half of the Budget session, which begins on April 20. As discussed in these columns earlier, the GST bill has already been passed by the Lok Sabha and is pending ratification by the Rajya Sabha, where the ruling NDA government does not hold a majority. After the Rajya Sabha approves the bill, it needs to be ratified by half of the 29 states. An ambitious overhaul of India’s labyrinth of indirect taxes, which is what the GST Bill seeks to achieve, would give business enterprises across the country a boost while also encouraging transparency. Unfortunately, the Bill has been stuck in the Rajya Sabha due to the intransigence of both the Congress and the NDA government on issues mostly unrelated to GST. On the contents of the bill itself, the Congress, which holds significant numbers in the Rajya Sabha, has remained steadfast in its demand that the cap on the Goods and Services Tax (GST) be specified in the Constitutional Amendment Bill. Finance Minister Arun Jaitley has called the demand “preposterous” and argued that including a cap on the tax rate would require an amendment to the law every time the tariff needs to be revised. “No tariff can be perpetual. If volumes increase, it can go down. In a crisis, it can go up. None of your Finance Ministers (Pranab Mukherjee and P.Chidambaram) proposed it. How can we go every time to the states if we want interest rates to be raised,” he said.
For the sake of the economy, this newspaper wishes to see the Congress play ball and ensure that the bill sees the light of day. Meanwhile, the government may have little problem in passing the ‘Insolvency and Bankruptcy Code 2015’, or the bankruptcy and insolvency bill. It was presented as a money bill in the Lok Sabha in December 2015. In matters of legislation, a money bill is only presented in the Lok Sabha and requires no assent from the Rajya Sabha. With the Lower House majority on its side, the Centre will face little legislative resistance. As far as its contents are concerned, the Bill presents the political class with the requisite legislative tool to tackle wasteful defaulters, who have raised the cost of borrowing money for the common man. If enacted into law, the government can ensure quicker resolution of bad loans, through a formal insolvency process of the defaulting business. The passage of both these bills will present a timely boost to the government’s reform plans, even in an otherwise weak global scenario, according to Jaitley. “We are trying to have special emphasis now both in terms of legislative changes and resources being put to strengthen the banking system. I do feel that the next few months, in bringing about structural change, are going to be extremely important,” Jaitley said. There is little doubting the government’s intent on fast-tracking its reform plans. In the past week, the Lok Sabha passed the Aadhaar Bill as a money bill, while the Real Estate Bill was approved by Rajya Sabha.
As stated in these columns earlier, the Real Estate Bill seeks to bring in much-needed regulation for the second largest employer in the country, after agriculture. One of the fundamental problems it seeks to resolve is the extensive level of information asymmetry, where one side (real estate promoters and agents) possess a lot more information than the other (home buyers). The bill, designed to bring transparency and accountability to the realty sector, is expected to revive investor and buyer confidence. Despite the criticism the unique identification card has received in recent months, the Aadhar Bill could become one of the most progressive pieces of socio-economic legislation in the country’s history, if implemented in a robust manner. It could play a major role in decreasing political and bureaucratic corruption in the delivery of social schemes through direct income transfers.