Parliament’s Winter Session, which started today (Thursday) and follows a wasted monsoon session, is crucial not just for the NDA government but for Narendra Modi himself to reaffirm his reform intent to the world.
If Modi fails to deliver in this session that would send a horribly wrong signal to the world on India’s prospects to advance on the reform front.
The House will get down to actual business only on Monday with the first two days dedicated to discuss constitution. The Congress-led opposition is likely to do what any opposition in India does best – try creating obstructions to the incumbents to score brownie points by winning key legislations.
The BJP can’t complain if the Congress takes the obstructionist path because the BJP too had done no different in the past when it was in the opposition, even on the critical GST Bill.
This time around, the BJP’s motormouths and some of Modi’s ministerial colleagues have given ample ammunition to Congress-led opposition to do a repeat of Monsoon-session theatrics. For sure, the entire issue on ‘intolerance’ will play out in full force, with the Congress likely to raise issues like murder of free-thinkers and attacks on minorities (read beef killings) and controversial comments by BJP ministers.
The only way the BJP can avoid an intolerance wash-out is if Modi himself takes the lead and makes the government’s stance clear and this is precisely what the Congress has been demanding. If the BJP tries to play down the issue and not address it, a replay of Monsoon session is well on the cards.
There are other issues too, where the opposition will also try to corner the government such as price rise of essential food items, mainly pulses.
The BJP’s Bihar defeat, which ended Modi’s political invincibility, would give more teeth to the Congress-led opposition to face the BJP, compared with the Monsoon-session.
GST – a political and economic challenge
If the GST Bill doesn’t get passed in the Winter Session, the government will miss the 1 April roll-out date.
For the outside world, where Modi has hard-sold the India story, the passage of key reform Bills in the Winter Session is all that matters. Particularly so, since the Land Bill is almost off the table for now with the power to decide on land acquisition now resting with the state governments.
If the Modi government can make GST happen, it will be seen as a big victory of this government by the investor community and the biggest reform India has witnessed in a decade. The GST will subsume several different taxes into one and will significantly improve the tax revenues over a period of time.
Economists estimate up to 2 percent addition to the country’s GDP when GST improves tax revenues.
Its passage can silence Modi’s critics who have cited absence of major reforms, except a few incremental steps and FDI liberalisation. This will also give ample time to the NDA government to work on rest of the reform agenda, such as Land and labour reforms.
The Congress party has been demanding certain changes in the GST Bill, but they do not seem to be in a mood to block the it if the BJP is ready to address their concerns and arrive at a mutually agreeable formula. This is partly because Congress realises that beyond a point, opposing GST will give them the tag of a reform-spoiler, which wouldn’t do well for the party in the run up to a series of state elections and finally, the 2019 general elections.
This is where the opportunity lies for the BJP if it really wants to push the GST Bill and Modi should use it to his advantage. The Congress has mainly sought a few changes in the GST Bill.
First, it wants to cap the GST rate at 18 per cent. Second, it doesn’t want the 1 per cent tax on inter-state sales and the third it wants inclusion of tobacco, alcohol and electricity in GST.
Finally, the party has sought a dispute resolution mechanism to be included in the amendments and not left for the GST council to decide later. All these points are valid and genuine issues, which the government should consider to reach a consensus path. A GST rate, too high, would hurt consumer and services states and a rate too low too wouldn’t be acceptable. A rate of 18 percent would be a safe-middle path.
A final picture on the rate-structure is yet to emerge since a panel, headed by chief economic advisor Arvind Subramanian will submit its report on the revenue-neutral rate only in the first week of December. The point of contention then would be whether to include the cap of 18 percent in the constitutional amendment, as the Congress wants it, or leave to the GST council, but not something which is insoluble.
The demand of the Congress to remove 1 percent inter-state sales tax fully makes sense since additional levy can dilute the very basic character of a uniform tax regime, something former finance minister, P Chidambaram has pointed out. Such an additional levy will take away the character of GST as a destination-based tax.
Speaking at an event in Bangalore, Congress Vice-President Rahul Gandhi, repeated that his party is all for GST provided the Modi government doesn’t show off its majoritarian approach to opposition and discuss issues to resolve the differences on GST.
The BJP should use this commitment to its advantage and pass the onus of getting the Bill through on the Congress, accommodating its own demands (which are genuine). This will also help the BJP to get the Congress-ruled states on the GST board, which is also crucial at next stage of implementation.
If the BJP wins the GST battle, that would help Modi restore his fast losing image as India’s reforms agent and set the stage for next phase of high economic growth. If Modi fails to build a consensus and winter turns a repeat of monsoon, Modi will face even tougher days ahead.
More critically, it will send a bad signal to the global investors about India’s reform course and thus future investment prospects. As global rating agency, Moody’s Investors Service warned on Wednesday, there are clear potential headwinds looming over India from a loss of reform momentum.