Yes, the GST delay is hurting growth, but Modi has as much to answer

Finance minister Arun Jaitley has charged the opposition, especially the Congress, with deliberately hurting economic growth by blocking the GST bill for “purely political reasons”. Jaitley has further asserted that the Goods and Services Tax (GST) is getting blocked largely because of the obduracy of Sonia Gandhi and Rahul Gandhi. What is implied is other senior Congress leaders want the GST legislation to be passed.

Ironically, every charge Jaitley has made is tantamount to holding a mirror to himself and to his supreme leader Narendra Modi.

A little flashback
There has always existed a broad political consensus over the GST legislation. It got stuck in recent years because of the sheer obstinacy of Modi who, as Chief Minister of Gujarat, blocked the Centre’s efforts in this direction for political ends. It is an open secret that the BJP disrupted several sessions of Parliament in 2011 because cases of terror involving extremist Hindutva elements were coming to the fore. For the Sangh Parivar, the greater national interest then was to somehow force the Centre to dilute the probe into Hindutva terror cases. GST wouldn’t have figured anywhere near that paramount interest of the Parivar.

Jaitley has argued that precious economic growth is being sacrificed because of the delay in the implementation of GST. It is true that a robust, single GST replacing the myriad cascading state-level taxes that currently exist, will reduce the overall tax rate, create a common market and reduce inflation. There is an estimate that the implementation of a proper GST could boost GDP by up to 2 percentage points a year.Today, the large number of varying and cascading taxes result in a total indirect tax incidence of close to 30% for both the Centre and states taken together. A single GST at 18-20% could reduce indirect tax levels by a full 10 percentage points. That would undoubtedly serve as a big boost for GDP growth.

If this is true, then the BJP must first explain why it allowed the nation to sacrifice 2 percentage points of additional GDP over the last 4 to 5 years. If the BJP had cooperated with the Manmohan Singh government, the GST would have been operational by 2012. Now it is scheduled to kick off only by April 2016, if everything goes right in Parliament.

Jaitley says this is the biggest tax reform since India got independence. Indeed, if this was so critical to national interest, why did the then Gujarat CM, Narendra Modi sacrifice this measure on the altar of narrow Parivar politics? The BJP had a lot to answer for even as their leaders present themselves today as great upholders of India’s economic interest.