No more stonewalling the GST Bill

What is the politics behind the delay in Parliament passing the Goods and Services (GST) Bill? Despite all efforts from the government of the day since 2007, this controversial Bill is the victim of politics. While the BJP blocked it during the UPA regime, it is now the turn of the Congress to do so. Prime Minister Narendra Modi said last week in Parliament that “in a democracy, a consensus is what gives the greatest strength”. Suffice to say, a consensus is eluding the GST.

Why are the political parties, particularly the Congress playing politics on a crucial Bill? The government is short of the two-thirds majority required to pass the constitutional Bill. Initially, the Modi government thought it could isolate the Congress and mobilise support from the rest. In the Rajya Sabha, the government requires 160+ in a house of 240. The current mobilisation includes NDA (66), TMC (12), BSP (10), JD (U) (12), BJD (6) and perhaps the AIADMK (12). The SP may also come on board, but it has dawned on the government that the bill cannot be passed without the support of the Congress, which has 68 seats. 

That is why Prime Minister Modi has been making conciliatory noises to the Congress party since the beginning of the Winter Session. It is perhaps the Bihar poll setback, pending Bills, and the need to let Parliament run, which made Modi climb down. To woo the Congress, Modi even praised India’s first Prime Minister Jawaharlal Nehru in his 70-minute speech in Lok Sabha. He referred to the speeches of Congress leaders Sonia Gandhi and Ghulam Nabi Azad, besides showing the draft resolution on the Ambedkar debate to the Congress and also accepted the three suggestions made by them. During the current Winter Session, he has been chanting the consensus mantra. The PM went ahead and invited Congress president Sonia Gandhi and former PM Manmohan Singh for tea to resolve the GST. It was the first time Modi has reached out to the Congress since he took over. CPI(M) general secretary Sitaram Yechury, calling it match-fixing, and said, “We have no objections with their meeting, but they should have included everyone”.

The government was enthused by the fact that Sonia Gandhi appeared open to suggestions during the meeting while Manmohan Singh has been all for the GST. She reportedly demanded tobacco and alcohol taxes are part of the GST as Congress-ruled states such as Kerala and Karnataka might stand to lose if these products were excluded from their taxation list. The Congress has brought down its key amendments to three from eight, which Rahul Gandhi calls non-negotiable. They are – (1) capping the rate of GST at less than 20 percent, (2) scrapping a proposed state levy and (3) creating an independent mechanism to resolve disputes on revenue sharing between states - although these demands had not been part of the UPA-sponsored original bill. It may be difficult for the government to accept the additional 1 per cent tax as this was specially introduced to compensate manufacturing states like Gujarat, Maharashtra and Tamil Nadu. While the government may not agree to all of them they could find a way to resolve the issue.

While politics may have its own reasons, it is the economy which is getting affected. Reserve Bank of India Governor Raghuram Rajan has recently observed that the passage of the GST is crucial for the economy. What the political parties should understand is that delaying the legislation any further will hurt the economy in the long run. It is estimated that the GST could boost the economy by 2.5 percent of the GDP. Also, it will be a good thing as all the different taxes like the service tax, sales tax, value added tax and entertainment tax, will be subsumed under a unified tax regime.

The proposed GST is to be levied concurrently by both the Centre and States. Many states are apprehensive that it will lead to a loss of revenue. They want petroleum, alcohol, and tobacco out of the GST as they make up a large part of state revenue. The nine Congress chief ministers have also opposed the GST Bill in its present form. BJP chief ministers from Madhya Pradesh, Chhattisgarh and Karnataka are concerned that GST could erode their revenue base. But other consuming states like West Bengal, Odisha and Uttar Pradesh have been votaries of the GST. The Left parties have given their dissent note to the Parliament committee, which examined the GST Bill. The AIADMK, in its note, demanded keeping petroleum products and tobacco outside the GST regime. Most states also are concerned about the levy of 1 percent additional tax on inter-state movement of goods. The functioning of the GST Council is another concern.

Union Finance Minister Arun Jaitley is hopeful of a positive outcome and has been working hard to reach out to various political parties. They should go above politics to get the Bill through.  If the GST Bill does not get passed in the Winter Session, the government will miss the April rollout date. For those outside India, to whom Modi has sold the Great India story, if he fails to build a consensus on key reform bills and winter session turns a repeat of the Monsoon Session, he will face tougher days ahead.