What GST means for BJP

A lot has been written about the transformational impact the roll-out of the goods and services tax (GST) will have on the Indian economy. In spite of its many current imperfections, the GST will yield many benefits simply because a broad architecture of a tax system is now in place to remove the cascading effects of indirect taxes, collapse a multitude of taxes and cesses into one tax and eliminate the inspector raj as well as physical controls on inter-state movement of goods. Hopefully, the newly created GST Council will soon weed out the imperfections in the current GST like the multiplicity of tax rates, a plethora of exemptions and procedural complexities, thanks largely due to a tax bureaucracy that refuses to be tamed either in states or at the Centre.

But treating the roll-out of the GST only as an economic policy reform would be a grossly incomplete assessment of what the Narendra Modi government has achieved. Equally important is the political message that the ruling party leaders have managed to convey through the way they hammered out a political consensus on the GST and launched it after reprioritising its political equations both within the Bharatiya Janata Party (BJP) and outside. The GST’s significance for the BJP’s politics is as important as its implications for the Indian economy. In this context, three important political messages cannot be ignored. 

One, the launch of the GST is being consciously used by the ruling party leaders to advertise its politics of cooperative federalism. They are reminding the nation that cooperative federalism is an article of faith for them and the new indirect tax system is proof of their commitment to that idea. This is important because even before coming to power, BJP leaders including Mr Modi had talked about cooperative federalism as an idea that they would pursue once elected to form the government at the Centre. 

But on many occasions in the past three years, the BJP government has failed to use the principle of cooperative federalism to drive policy reforms. Little action has so far been seen on the ground even though the NITI Aayog was expected to get states on board in pushing policy reforms across the country in a cooperative spirit. Remember that after the embarrassing setback caused by its failure to amend the land acquisition law, the Modi government had indicated its desire to bring about similar reforms in the states. The idea was to push states, particularly those under the BJP rule, to introduce land leasing to overcome the restrictive provisions of the land acquisition law. Similarly, labour law rigidities were sought to be relaxed by encouraging states to amend their respective laws within their respective jurisdictions. But there was little follow-up action to persuade the states to move on reforms in either land leasing or labour laws. Equally tardy has been the progress in implementation of reforms by states in agricultural produce marketing and real estate development, even though central laws in these areas have been suitably amended. 

In this context, the roll-out of the GST is arguably the first big reform where the Centre has taken on board all states, irrespective of their governments’ political affiliation. Indeed, cooperative federalism has been on display in the manner in which the states have been assured of protection against any revenue loss. Similarly, the states’ voice has been heard while ensuring that the Centre has no veto power in decision making by the GST Council. That spirit is further endorsed by the fact that all decisions at the 18 meetings of the GST Council so far have been taken by consensus without seeking recourse to voting. 

Not surprisingly, there was a large presence of state-level leaders representing different political parties at the Central Hall in Parliament, the venue of the GST roll-out function last week. The Congress and a few other political parties boycotted the function, but that could not dent the larger image the ruling party has carefully nurtured to present the GST as a symbol of cooperative federalism.  Whatever little doubt anyone may have had on this count was quickly dispelled by Finance Minister Arun Jaitley, who in his speech acknowledged the contribution of all political parties and many governments at the Centre and in states in making the GST dream a reality.

The second big message is that there is now a political attempt to project the GST launch as part of the government’s fight against black money. It is true that the GST would bring under the tax net a large number of transactions that would have otherwise escaped scrutiny. And the government did make an electoral promise of cracking down on black money. But to sell the new indirect tax system not just as a tax reform but more as an attack against black money shows the BJP leadership’s political savvy. The irony of course is that the GST would turn out to be a more potent weapon against black money generation than demonetisation that at best could have tackled only the hoarded black money in stock. 

Finally, the launch of the GST has coincided with the BJP’s attempt at repositioning its axis with its key political constituency. The government led by a party with close links with traders and shopkeepers has taken a step that would hurt these sections the most. And the BJP leaders are not shy of admitting that the GST would discipline those members of the trade who are errant. This seems to suggest that the BJP has reset its ties with the trading classes and the launch of the GST confirms that transition. How otherwise can one justify the manner in which BJP leaders have projected the GST as an instrument that would put an end to dubious account keeping by traders and shopkeepers?