Be pragmatic and forget GST for now

Like the low pressure system that loomed over Chennai for a whole week refusing to go away, the Goods and Services Tax Bill continues to dog the Centre and is raining on its parade. And just as things were beginning to look up, the storm over the National Herald case set in, effectively dealing a blow to the Bill’s prospects in the current session.

With the Congress top brass seeing the summons from a Delhi trial court to Sonia Gandhi and Rahul Gandhi as “political vendetta” from none less than the Prime Minister, the prospects for any business being transacted in the monsoon session appears bleak indeed. That this court order has nothing to do with the executive wing of the Centre has been conveniently buried in the outburst of indignation from the party. The fact that this case was filed back in 2013 by Subramanian Swamy when he had not yet joined the BJP has also been ignored in the attempt by the Congress to paint this as vendetta by the ruling party.

Yet, this is a battle to be fought in court and not in Parliament or in the media. But then, politics being what it is and politicians being what they are, it does seem like we’re in for stormy Parliament sessions at least into the near future.

Faced with this, what should the Centre’s strategy be? Simple. It should work around the constraint; assume that its legislative agenda will not go through at least in the next few months until it (hopefully) inches closer to a comfortable position in the Rajya Sabha, and focus on what can be done outside of Parliament.

The Centre probably committed a blunder by going for broke over the GST Bill, trying to push it through at all costs before the deadline of April 1, 2016. The strategy is a repeat of what happened with the Land Bill before realisation dawned that it was a battle that could not be won. What is so sacrosanct about this deadline for putting GST in place?

The country and the economy have lived without a single, unified tax system for over seven decades and they can live another one, two or even three years without it. The losses from not having a GST in place from April 1, 2016, will be notional and not actual. It is not as if the current system is broken and is in dire need of replacement. Yes, a single, unified tax system will be modern and reformist, add to GDP and all that, but remember it will only be an improvement over what already exists. In other words, the GST is not something that is going to fill a desperate hole in the economy. It will be good when it comes but what of the political reality?

By hitching all its horses to the GST wagon, the Centre has probably set itself up for another failure given the adverse political headwinds it is facing. A dose of pragmatism might be in order here. There are still large disagreements over the basic structure of the GST not just between parties but also between economists. There are genuine apprehensions that even a median rate of 18 per cent might prove inflationary and make goods and services expensive. And then, there is no valid reason why petroleum products should be kept out of the GST’s purview. The issue of 1 per cent additional tax is still hanging fire and it is doubtful if manufacturing States will agree to the compromise formula of central assistance for five years. There is also the issue of having a robust IT backbone in place before GST is unleashed on the economy.

The questions are many and they need to be debated inside and outside Parliament. It will serve nobody’s purpose to have a half-baked GST in place, assuming that the Centre is somehow able to push it through without the support of the Congress party. The one major reason why the Centre is going hell for leather to get the Bill through is to prove its reformist credentials to the world. Modi has staked his personal credibility by announcing in various fora outside the country that the GST will be in place by April 1, 2016. This seems to be a strategic error in retrospect.

There are other ways for the Centre to show that it is reformist-minded. For example, it can focus on getting disinvestment off the block and start the strategic process to sell off non-performing, sick PSUs with substantial assets. If falling commodity prices are a stumbling block in valuations, it can focus on PSUs that are not in the commodity business. The last NDA government proved that it is possible to privatise PSUs that cannot be meaningfully steered forward. The strategic sales of VSNL, Balco, Hindustan Zinc and IPCL are good examples.

The job of rationalising subsidies is still half-finished. The difficult ones of food and fertiliser subsidies need to be handled now that fuel subsidies have been taken care of. The UDAY programme for reforming State electricity boards needs to be followed up with States and taken to its logical conclusion.

There are many other reforms that can be carried out without legislation. It may be a good idea for the Centre to focus on them and leave GST to its fate for now. Let the government and its PR managers scream their lungs out that not passing the GST is hurting the economy, if it will help them score political brownie points. The smart strategy, though, would be to take this setback as a blessing, go back to consultations on the Bill with economists and fine-tune it, while simultaneously focusing on reforms that can be done outside of Parliament.