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April 04, 2017 @ 01:15 PM

Non execution of GST bill might herald end of present government

Published : Saturday, 09 January, 2016 08:35 AM

Non execution of GST bill might herald end of present government

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The resounding victory of the BJP led National Democratic Alliance in the 2014 general elections infused a sense of optimism and raised hopes of the people of the country, especially after the apparent despondency around UPA 2 regime. The flip side of such a landslide triumph is that people look towards the government with unbound expectations, expect miracles and if the government does not meet these expectations quickly, a sense of disillusionment spreads among the people.

A. The government,led by Prime Minister Narendra Modi, has worked with great alacrity to restore India’s credibility in the world by introducing a slew of innovative measures such as ‘Swacch Bharat Abhiyan’, ‘Smart City Project’, ‘Make in India’, ‘Pradhan Mantri Jan DhanYojana’ to name a few. All these measures have been introduced to fast track growth and make India an attractive destination. Crucial to achieving this target is the GST (Goods and Services Tax) Bill. The BJP’s poll manifesto clearly highlighted its resolve to implement the GST Bill as it was believed to be crucial to India’s development. But, the Bill has failed to see the light of the day even after a year since Narendra Modi assumed office. This can have a crippling effect on the government’s plans to build the Indian economy, send a wrong signal to the world about India’s advancement on the much needed reforms and may even be disastrous for the government’s prospects.

B. Why is the GST so important? The GST is India’s most important indirect tax reform, and it proposes a national value added tax to be implemented in India. It will subsume most indirect taxes such as excise duty, service tax and VAT and significantly improve tax revenues over a period of time. A simple tax structure is expected to improve the ease of doing business in India and incentivise foreign investors to invest in the country. Economists estimate up to 2 per cent addition to the country’s GDP when the GST improves tax revenues.

C. The recent winter session of the Parliament which ended on 23 December 2015 was lost to the logjam between the government and the opposition. As a result, the GST Bill remains stuck in the Rajya Sabha where the government does not have the numbers in its favour. This has jeopardised the government’s plan to roll out the GST by 1st April 2016. Ironically, the previous government led by UPA, too, tried to introduce the GST but could not see it through. Clearly, the GST is considered crucial for growth by most political parties and yet, lack of consensus on few sticking points, means that India will have to wait some more.

D. The question, therefore arises, can India afford to wait? The answer, I am sure, is no. The failure to pass the GST soon will stall the next phase of development, hurt the new found image of India as a country taking rapid strides to reform the business climate as well as improving the quality of life of its people and will also be a personal blow to Narendra Modi and his pro-development agenda.

E. I agree that the Modi government will suffer if the GST is not passed. Much like the UPA 2 government, which was plagued by a ‘policy paralyses’ that severely dented its image, the Modi government, which has projected itself as pro-development and an agent of change, runs the risk of losing people’s confidence. This is because the general air of despondency in the Indian economy which followed scams like the 2G scam, Commonwealth scam and the Coal scam might set in again if the people feel that the present government is all talk and no action. This can prove fatal for the government in the next general elections.

F. Failure to pass the GST Bill will also give ammunition to the critics of the government who have cited absence of major reforms, except a few steps like FDI liberalization. At a time when industry leaders over the world are looking at this bill with much anticipation and excitement and there is a sense of positivity around India, it will only benefit the government and the country if this mood can be capitalised by removing bottlenecks and aggressively pursuing reforms. The GST is, thus, central to the government’s prospects.

G. Passage of GST will also help the government win the battle of perceptions (after the failed attempt to pass the Land Bill) and will also restore Modi’s image as a pro-development leader and a reformist. This will enable him to attract more foreign investments to India and support the social welfare schemes which can improve the quality of life of the people of the country.

Thus, for India to harness the positivity that followed BJP’s historic victory, the government needs to find a way of executing the GST Bill, touted by many as the single most important reform in over a decade. Inability to do it will create negative publicity for India across the world, hinder development and eventually harm the interests of the government too.

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