In an interview given to The Economic Times, Prime Minister Narendra Modi has launched the Brahmastra on the Congress party – the last hurdle for him to claim the Goods and Services Tax (GST) trophy.
“So much so, the obstruction of GST is now not a Lok Sabha issue but has become a Gram Sabha issue! The public in states like UP, Bihar and West Bengal will be the biggest beneficiaries. Therefore, I do not think any political party will try to commit suicide by opposing GST,” said Modi.
With the monsoon session of Parliament just a few days away (slated to begin on 18 July), Modi realizes the criticality of building consensus for the crucial Bill. Also, there is widespread disappointment among investors and economy watchers with regard to the Modi government’s ability to pull off large-ticket reforms. The latest such comment has come from Morgan Stanley Investment’s Ruchir Sharma, who saidhe didn’t have any great expectations from the Modi government with respect to big reforms since the government is already past its prime. Modi realises that the passage of GST is crucial for him to silence his critics.
Moreover, with the GST gaining tremendous national interest, Modi realises that the best political strategy is to isolate the ‘political party’ as the lone hurdle standing between the economy and the biggest tax reform of the decade. Except the Congress, most other major parties have given the nod for GST, which is expected to help India create a uniform taxation regime subsuming several different taxes and offering clarity to overseas investors. With the new regime likely to help the country broaden the tax base, the GDP is expected to get an additional boost of 1.5 percent to 2 percent boost in due course.
True, the BJP can’t entirely play the victim on GST. The BJP had hard-fought to block the crucial piece of reform when it was in opposition and one of the BJP leaders who were hell bent against GST was none other than Modi himself in his earlier avatar as Gujarat chief minister. But, at this stage, that can’t be the reason for the Congress to take the revenge. The party, on the contrary, could use a temporary political defeat on the GST war as a tool to rebuild its shattered image.
There are a few reasons why it should support the GST now. For one, so that the country won’t miss the April 2017 deadline and can give time to state governments pass their own GST legislation and put in place the systems necessary for the final roll-out.
Second, to put the economy on the high growth path broadening the tax base since India is in a sweet spot now with rest of the world firmly gripped by a prolonged phase of slowdown. This is India’s chance to get on the big-ticket reforms road and consolidate its position among the emerging markets.
Also, the numbers are improving for the BJP in the Rajya Sabha post the recent polls to the Upper House. If the BJP manages to get all regional parties on board, its chances to crack the GST puzzle is higher now. But, the Congress can still play spoilsport since the GST Bill is a constitutional amendment and the house needs two-thirds of the support of the Upper House.
If one goes by the recent comments of Congress leader Abhishek Manu Singhvi, the Congress isn’t yet in a consensual mode on GST.
“The sequence of the BJP’s conduct smacks of hypocrisy,” senior Congress leader Abhishek Manu Singhvi told The Hindu. “Having vehemently the opposed GST bill for two-and-half years, it (BJP) was embarrassed to find that two of the three Congress demands were endorsed by the government’s own Chief Economic Advisor,” Singhvi said. Singhvi is correct. The Arvind Subramanian panel had suggested in favour of the Congress’ two demands on GST — removing the inter-state levy and creation of a joint dispute resolution mechanism.
But, those two have never been the bone of contention on GST really. The deadlock was on the third condition — capping the GST rate in the Bill. But, most experts have ruled against such a provision since capping the rate will make any future changes difficult, say in the event of an emergency with respect to a specific region. Hence, Singhvi’s argument that all the governments should be “prevented from increasing it beyond a maximum,” by including in the constitution, might not be a workable idea.
Modi knows very well that the Congress party doesn’t have a strong case to block the GST any longer, especially after most states have agreed to the broader contours of the Bill and Modi seems to have gained confidence of regional powers such as TMC and AIADMK.
Now, read Modi’s comments in this backdrop. “The states and especially the consuming states now understand the benefits of GST. Most of the states have clearly understood that GST will benefit the poor through buoyancy of revenue, enabling better services to them. The poorest states will benefit even more.” Especially, the UP-elections due next year, it makes immense political sense for the PM to highlight UP as a big beneficiary of the tax reform. Modi has used the right weapon. The PM would want to push ahead the big-ticket reforms before it is too late and to prove the likes of Ruchir Sharma wrong. Even the cabinet reshuffle should be seen as an enabler to achieve that.
By isolating the Congress, the smart political strategist in Modi has hit the Congress where it hurts most—the issue of the larger national interest. Modi has launched the Brahmastra. It’s high time the Gandhis gave in and see an opportunity in the crisis.