Arun Jaitley meets state ministers to rescue stalled GST reform

By Manoj Kumar and Rajesh Kumar Singh

NEW DELHI (Reuters) - Finance Minister Arun Jaitley met his state counterparts on Tuesday to forge a political consensus on a much-awaited sales tax reform that is held up in parliament, but made little progress in breaking the impasse.

The proposed tax reform, the biggest since India's independence from Britain in 1947, seeks to replace a slew of taxes and levies in 29 states, transforming the nation of near 1.3 billion people into a customs union.

Analysts say the goods services tax (GST) could boost India's economic growth by up to 2 percentage points.

While there is a broad political support for the measure, differences persist on the details, in particular pitching the tax at the right level to offset possible revenue losses.

Indian states are also not ready to share taxation powers with the government on transactions up to a certain level.

Tuesday's meeting failed to iron out those differences.

"I am sure that this will be resolved," said West Bengal finance minister Amit Mitra, who has been tasked with building a consensus among states.

"It has to be resolved in order for (the) GST to happen."

For the tax reform to become a reality, Jaitley needs not only the backing of states but also of two-thirds members in the opposition-dominated Rajya Sabha to pass a constitutional enabling amendment.

The current monsoon session of parliament was widely viewed as the best chance for the government to pass the constitution amendment bill before campaigning hots up for state elections next year.

But almost a week and a half into the four-week long monsoon session, the future of the tax reform remains in doubt, thanks to a persistent standoff in parliament between the main opposition Congress party and the treasury benches.

Jaitley's meeting with state ministers was aimed at putting pressure on Congress, which, with its 60 members in the 245-member upper house, holds the key to the bill's fate.

Congress, the original author of the reform, has refused to back what it calls a "flawed" bill.

The party has also been angered by a government investigation launched last week against one of its former state chief ministers over a case in which party leader Sonia Gandhi and her son and heir apparent, Rahul, already face trial. The deny wrongdoing.

(Reporting by Manoj Kumar; Editing by Alison Williams)