EDITORIALS
Adding to the GST Conundrum
Can India’s goods and services tax progress beyond being an election plank?
S
ince its inception in July 2017, India’s goods and services
tax (GST) has encountered over 400 orders and notifica-
tions, largely on grounds of complexities of execution.
With the 2019 general elections on the horizon, both the
Bharatiya Janata Party (BJP) and the Congress in opposition
are pledging further modifications. While the BJP government
has already rationalised the GST rates to 18% or below for
23 items out of the enlisted 40 broad categories, media reports
divulge the Congress’s promise of yet another version of a sim-
pler tax structure with (item-wise) wider coverage and a single
rate, GST 2.0, in its 2019 electoral manifesto. But, what remains
unclear is whether and how these modifications (executed or
promised) will resolve the alleged complications fundamental
to the GST. Various questions relating to critical issues, like
India’s fiscal federalism, compliance and, above all, the future
of unorganised sector businesses or small capital, are still
pertinent or unresolved.
There is nothing novel in tax reforms being used as floor-
boards for contesting elections. Malaysia’s case in recent times
has shown that governments do not hesitate to rollback taxes
to douse populist displeasure even when such taxes (read GST)
constitute about a fifth of their revenue earnings. One would
shudder to think of the costs of “rolling-back” the GST for India.
One saving grace of the narcissism of the contending political
parties (of being either the “daring” executor or the “innova-
tive” conceptualiser of GST) is that it deters such retraction.
But, parallelly, it entails a threat for the federal structure of
the state polity.
Gourav Vallabh, the Congress spokesperson on economic
affairs, recently commented that constitutional amendments
will not be necessary for GST (2.0) as “the GST Council is
empowered enough to carry out the amendments needed.”
This resonates with a familiar tone of disregard for the
statutory provisions of fiscal autonomy of the states, charac-
teristic of the National Democratic Alliance (NDA). In this
context, one should not forget that the economic realities and
problems across various states are quite diverse. Thus, while
Punjab may find it beneficial to bring electricity, real estate,
and petroleum within GST’s domain and evolve a common
composition scheme for goods and services, it may not be the
case elsewhere.
The Congress’s victory in the three assembly elections in the
Hindi heartland in 2018 have tilted the power configuration of
the GST Council, somewhat against the BJP/NDA. But, a com-
plete overhauling of the GST structure based on this is an over-
optimistic promise. Even if the Congress comes to power in
2019, it will still require at least three-fourths majority voting
to pass any change at the GST Council, wherein the states will
continue playing a crucial role. However, with the state
governments’ acceptance of the GST in general, and that too
against assurances of compensation from the centre for any
8 JANUARY 5, 2019
loss of revenue, “federalism,” as a deciding factor, has already
started waning.
More importantly, this compromise suggests an alternative
reality: the uncertainty amongst the politicians and policy-
makers (read the NDA) themselves regarding the outcomes of
the GST. And, the political expedience of denting robust evi-
dences for coaxing the vote bank to bear the brunt of such
ambiguity: first, making them pay through the nose in the
name of increasing collections during the election-interim
years (for example, households having to pay up to `32 more
per liquefied petroleum gas (LPG) cylinder from July 2017 due
to the twin impact of GST and subsidy reduction), then lower-
ing prices in the name of tax “rationalisation” in the wake of
an election (reducing LPG prices by `120.50 for unsubsidised
consumers, and `5.90 for subsidised consumers since January
2019), and finally, making poll promises of further “rationali-
sation” after having made the economy succumb to the burden
of compliance for a year and a half. Implementing the GST is
indeed an arduous task in a country like India with such a het-
erogeneous economy and polity. Hence, a process of trial and
error is normal. Given this, the NDA’s nerve and effort, should
both be commended. But, what about the political intentions
driving such experimentations?
Where various governments over the past four decades or
so have procrastinated implementing GST-type reforms to not
go against the grain of the Indian democracy, the NDA’s (hasty)
adoption and propaganda of the GST as a “silver bullet” for
(indirect) tax reforms befuddles economic common sense. In
fact, many of the projected benefits—for instance, increased
collection from the GST, decreased rate of inflation, and
increased economic growth—are mutually exclusive by eco-
nomic logic. More alarming, however, is the BJP’s surreptitious
intention of political and economic hegemony behind the
NDA’s non-committal persistence for such a “one-size-fits-all”
strategy. For example, its lackadaisical assumption of the
small firms being small-scale replicas of large firms in terms of
their activity structure, has brought the unorganised sector
under a disproportionate burden of prohibitive administrative
costs, while enabling the organised sector to expand at its
expense, by furthering income and employment insecurities.
The validation of a party’s political will rests on its resolve
to end uncertainties, and not in creating new puzzles through
rhetoric. With the GST being potentially irreversible, political
parties (read the NDA-led ruling coalition) might find it
expedient to rhetorise it for creating political clientele, not-
withstanding the ephemerality of such successes. Whereas,
for leveraging the peoples’ agency in the long run, policy-
makers will need more definitive or holistic approaches inclu-
sive of resolving structural anomalies, identifying appropriate
points of taxation or exemptions, simplifying tax rates, etc,
but all in parity with the edifice of the country’s democracy.
vol lIV no 1 EPW Economic & Political Weekly