GST: Isn’t it time states did the heavy lifting when they have the most to gain?


Nitish Kumar wants a special package for Bihar from the Centre. So does N Chandrababu Naidu, post the separation from Telangana. When hailstorms, floods or droughts ravage states, the latter invariably send inflated requests to the Centre for money.

But goods and services tax (GST)? No, my goodness, no. The states think it is the Centre’s baby, its problem to sort out – when they are the ones holding out. They only want higher revenues for no extra effort on their part. Women’s safety? The media thinks Narendra Modi has to do something about it when law and order is a state subject.

What’s wrong with this scenario?

Plenty. This is old thinking, lazy thinking, the result of inertia. The objective situation has changed. Financial and political power has steadily shifted to the states and, after the 14th Finance Commission’s report, 62 percent of the country’s resources (including tax revenues) are with the states. And yet, everyone thinks the Centre must provide the moolah and do everything for states.

Isn’t it time the states did some of the heavy lifting? Isn’t it time they did something for the country? Isn’t it time the media shifted focus on the duties of states, instead of sitting in Delhi pontificating about the Centre’s failures (of which, there are many, by the way).

Nothing illustrates this singular lack of national thinking at the state level more than the way they have approached the GST issue. The states not only get to eat their cake but they get to have it too. They think they are doing Delhi a favour by agreeing to a rotten GST.

Consider what’s going on here. By keeping petroleum and alcohol out of GST, the states get to keep their highest revenue sources with them. Then, they get the Centre to promise it will compensate them fully for any revenue losses after GST is implemented. The manufacturing states, which fear a revenue shift towards consuming states, have managed to get an additional 1 percent tax on inter-state goods movement. So they get another source of revenue and the protection of no revenue loss from Centre.

Consider how much the states gain from all this. In 2011-15, the states collected nearly Rs 5,70,000 crore from petroleum-related taxes and revenues, including royalties. A lot of this will remain with them.

Thanks to this, the GST rate will have to be higher than required – maybe 20 percent or more. And the bulk of this burden will fall on services – which are currently taxed more by the Centre. In the initial years, services inflation will shoot up due to the push of higher taxes, and slow down growth. This will impact total revenue collections – though one can’t say if the higher taxes will make up for the slowdown in services growth.

But either way, the states stand protected. The Centre will not only top up any shortfall, but states will have their own nest-egg tax sources to bank upon. And assuming in a bad year tax revenues fall in general for everybody – as they did in 2012-14 – the Centre’s finances will go for a complete toss while states feast on the Centre’s promised GST compensation guarantee.

Why should the Centre be backing such a rotten deal for the taxpayers? Isn’t it time the states did their bit when they have only upsides on GST?

But the issue isn’t only about GST. The media continues to feed the myth that it is Delhi where solutions to problems have to be found; that it is Delhi whose actions need watching. This is, of course, a self-serving belief for the English media at least, which can pontificate from the comfort of Delhi’s five-star hotels, scotch glass in hand.

It is easy to critique the Centre for its actions – whether it is action against questionable NGOs or attempts to reform subsidies – when the real law and order issues and political goondagiri happens in states. Just go to Mamata Banerjee’s West Bengal and check how poorly it is ruled. Thugs and goondas call the shots in most villages, if not the cities. Try writing anything critical of J Jayalalithaa in Tamil Nadu; chances are you will face violence from the AIADMK’s storm-troopers. We haven’t heard one critical comment about Naveen Patnaik’s 15-year tenure as CM of Odisha so far, but we have heard plenty about Narendra Modi’s 15-month tenure as prime minister. We talk endlessly about fake encounters in Gujarat (which actually saw very few of them), but Chandrababu Naidu’s policemen killed alleged red sandalwood smugglers in a questionable encounter and we hear very little about how this happened even today.

As for Uttar Pradesh and Bihar, the less said about their governance standards the better. Lalu Prasad ran a jungle raj, and is additionally a convict in a corruption scandal, but we think he is some kind of secular knight in shining armour. We have, of course, heard of the Vyapam scam and suspicious deaths, but isn’t this only because this happens to be a BJP government, a useful stick to beat Modi with even though Delhi had nothing to do with it?

Coming back to reforms, why is it the Centre’s job to ensure farmers are taken care of when agriculture is a state subject? Why is no chief minister being hauled over the coals for how farmers are treated in their states?

The reality is India’s problems and solutions – barring general responsibilities like defence, foreign policy, and fiscal and monetary management – lie with the states. Law and order, policing, education, agriculture, urban growth, labour laws, health services – almost everything that affects our everyday lives – are areas within the powers of the states. The Centre, of course, has the capacity to thwart states, but this is a negative kind of power that does no one any good. At best one can hold the Centre responsible if it stands in the way of state-level reforms.

It is time for Modi to start pointing this out, and for the media to stop looking at Delhi for every kind of solution. It is states that must now carry the can for bad governance – and pay the price politically if they fail.


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