Free Press Journal

Takes grit to push radical reforms


The Moody’s upgrade of India has, quite predictably, drawn sharply partisan responses. This is not surprising in view of the mini election season. The results, when they are finally announced on December 18, may not suggest a close fight. However, in the midst of an election campaign, all elections appear to be very bitterly contested, as they undoubtedly are, despite what the final outcome reveals.

The Congress, now experiencing a social media resurgence of sorts, has, for example, seen the modifications of GST as the Narendra Modi’s panicky response to its aggressive onslaught. Congress supporters genuinely believe that the cumulative effects of demonetisation and GST has alienated vast sections of the population who were earlier committed BJP voters. There is a belief that the modifications in the GST regime have come too late and this alienation, coupled with caste discontent in Gujarat could result in a spectacular electoral upset in the home state of the Prime Minister and BJP President.

On its part, the BJP has not been sitting idle. The first anniversary of demonetisation was used by the party to mount an aggressive campaign that tried to paint the opponents of the November 8, 2016, announcement as patrons of corruption. Finance Minister Arun Jaitley circulated an article that richly documented the colossal financial gains from demonetisation.

It is important to note that the BJP commemorated the first anniversary of demonetisation as “Anti-Black Money Day” — an indication of the extent to which the Modi government has put the ethical transformation of India at the centre of its political strategy. As the architect of this creative disruption, Modi appears to have calculated that the wider regeneration of India has to be both economic and moral.

At one level, the GST which had been on the drawing board of different governments, was focused on the need to create a seamless, pan-Indian market. That is what excited the imagination of the global community and Indian corporates looking for improvements in the ease of doing business. However, there was an important ethical dimension that was in-built into the new scheme whose significance was not initially realised. In simple terms, the system of interlocking payments and credit made it difficult, if not impossible, for businesses to create a zero-tax zone for themselves.

The implication of this interlinked GST was quite awesome. For long, a section of India’s trading community had created an innovative business model whereby the competitive edge of their enterprise was provided by zero tax. With GST, these units found it impossible to do business without either paying the new tax or attracting the attention of the tax authorities.

It is entirely possible that Surat, an important centre of the textiles and diamond trade, had a tradition of sharp business practices that was kept well below the radar and which needed the GST to bring to the surface. Whatever the reality, GST witnessed a grand alliance of zero-tax businesses of all sizes. Rather than openly advocate tax avoidance, the anti-GST agitators picked on two issues that warranted attention.

First, they complained, quite legitimately in my view, at the heavy burden of compliance norms that would divert attention from running a business to filling endless forms. This a problem the designers of the GST should have anticipated.
Secondly, GST was a grand experiment in pooled sovereignty involving the Centre and the states. For the states in particular, the new tax was a leap into the unknown and was preceded by concerns over shrinking revenues — one reason why they were loath to give up their claims on the taxes on petroleum and alcohol. A consequence of this wariness was the inclination to create multiple tax slabs and put too many items into a higher bracket.

India has some important election or another each year. It was perhaps fortuitous for those hard hits by GST that their mounting anger coincided with the Gujarat Assembly election, a time always conducive to responsive governance. By homing in on the grievances of the proverbial small guy burdened by an uncaring state, the real instigators of the anti-GST stir in Gujarat kept the gaze away from the real issue: the sustained non-compliance with tax regimes, both past and present.

However, what is important to note is that the government was responsive. Actually, the ability to modify and tweak programmes mid-stream when necessary has been a feature of this government, as noticed by the frequent alteration of rules to respond to unique situations during the demonetisation exercise.

GST being a joint Centre-state tax, it is impossible for the Modi government to make changes unilaterally. However, the pressure from below was sufficiently strong to compel the Centre to use all its political clout to persuade the GST Council into making a series of important modifications. Where the Centre has so far been un-budging is, on the larger issue of compliance, the basic minimum requirement of an ethical economic system.

In the course of the past year or so, the Modi government has forced through a series of radical reforms that other governments lacked the will to push through. First there was the Aadhaar legislation that is a plug against welfare leakages and a potential anti-tax evasion instrument. Then there was demonetisation that helped provide an address for unaccounted wealth and swelled government revenues. And finally, there is the GST that, perhaps unwittingly, has helped establish the principle of lower tax rates and higher compliance.
Few governments can boast such a record in so short a time. This explains why the global community feels India is worth looking at afresh.

The author is a senior journalist and Member of Parliament, being a Presidential Nominee to the Rajya Sabha.