WHY THE GST FRAMEWORK IS IN TROUBLE
Three years after the implementation of GST, many state governments (run by non-bharatiya Janata Party forces) are alleging that the Centre has reneged on this promise. Their objections seem valid. The Union has not paid the constitutionally mandated ₹1.5 lakh crore of GST compensation to states for the months of April-july in the current fiscal year. The reason is that cess collections have not been enough to make payments. It also expects that the total shortfall in GST compensation to the states will be ₹2.35 lakh crore in the current fiscal year. Of this, the Centre claims, ₹97,000 crore is on account of
GST implementation and the rest is due to the external shock of the pandemic.
The states have been told that they can exercise two kinds of borrowing options to meet this shortfall — either borrow the entire ₹2.35 lakh crore, or borrow ₹97,000 crore. The Centre has said it will work with the Reserve Bank of India (RBI) to facilitate this process. The repayments will be made by extending the period of cess on luxury and sin goods. As some states are claiming, there is basically one option on the table. The states have to borrow to raise the money, which, the Centre owes them. The GST Council will meet again next week to resolve the matter. Irrespective of the nature of the final resolution, state governments are bound to feel let down. The GST experience will also make them chary about agreeing to change the status quo for market-friendly reforms in the future. A growing distrust between the Centre and the states does not bode well for our democracy.
To be sure, the current economic situation, which caused this crisis, is indeed extraordinary. The Indian economy will witness a contraction, of at least 5% this year. Revenue collections will miss projections made in February, before the pandemic spread. However, GST’S problems go back to the pre-covid-19 period. While most people agree that a unified tax was desirable (this continues to be the case), its revenue-generating abilities were grossly overestimated initially, especially because slabs have gone through constant revision. Just one example should make this clear. The budget estimate for Centre’s GST collections was ₹7.43 lakh crore in 2018-19, the first full budget after GST’S implementation. This number is just ₹6.9 lakh crore in 2020-21 — so, a tax head is expected to shrink even when GDP has grown. Even the reduced targets have not been realised. The Centre’s played by Danish Hussain, is loving, understanding and supportive, even when the community, including his late wife’s family, turn their backs on him. His business suffers and shrivels but his support for his 10-year-old daughter never falters.
There are times when this story has echoes of Billy Elliot, an enchanting story of a Yorkshire coalminer’s son who defies the pit community’s traditions and learns ballet. Both films can be viewed as commentaries on the prejudices of their times. To an Indian audience, the British film may feel distant but Baba Azmi’s Mee Raqsam will not. It tellingly illustrates and illuminates the deepening Hindu-muslim fissures that seem to be tearing our country apart.
Yet, I would say the strength of Mee Raqsam is not what it says of our attitudes and our society — though it speaks about that very eloquently —
GST collections in 2018-19 and 2019-20 were only 78% and 90% of budgeted targets.
Even finance minister Nirmala Sitharaman, while speaking at the HT Leadership Summit in December 2019 acknowledged this point. “I am not saying that people did it (reduced rates) thoughtlessly, but in the enthusiasm to reduce taxes, that framework which was originally agreed at stage one of GST was distorted,” Sitharaman said, explaining that lowering the tax rate impacted the input tax credit and transferred more taxes to the buyer. A Reserve Bank of India report on state finances corroborates Sitharaman’s point. Against the revenue-neutral rate of 15.3% which was recommended by the Arvind Subramanian Committee, the weighted average GST rate has been falling continuously and was just 11.6% in July and Sepbut what it reveals of the love between a father and his daughter. This precious relationship is treated without false sentimentality and, mercifully, without the Hollywood habit of overegging the story.
It’s the little things in life that can mean so much and that’s why it’s the little moments of affection — the look on a face, the touch of a hand, the smile on a little girl’s lips — that can move you to tears. Love is a big story and it has no ending but the paradox is it’s best told with just a few words and the occasional expression. That’s where this movie becomes a masterpiece.
I suspect the makers and promoters of this film — and the list has Shabana Azmi’s name at the very top — intended for the movie’s political message to be the one the audience takes home. No doubt it’s an important one. It needs to be heard and repeated. Indeed, even that might not be enough. But when you see the movie, it’s the beauty and magic of the love between a father and his daughter that you are bound to remember. Politics recedes, as it always should. Love triumphs as, hopefully, it always will.
If you take my advice and see this movie, I don’t think you’ll regret doing so. self-efficacy. This theory lends an understanding of preventive health behaviour being displayed during the ongoing pandemic.
In a recent study, Jovancevic and Milicevic (2020) confirm a high optimistic orientation among Serbians who defied social distancing guidelines and received guests, despite fully comprehending the negative health consequences associated with this behaviour. Is our daredevil so optimistically oriented that he is unable to comprehend his vulnerability to Covid-19? Is the daredevil’s optimistic orientation one of the reasons that may be enabling his reckless behaviour of not wearing a mask and not maintaining social distance? If this is true, then a possible solution lies in an alternative creative approach to the current public service announcements and communication material developed by health agencies, central and state governments to support Covid-19 prevention and recommendations. Simply put, the advertisement’s copy, creative design, message appeal, and executional framework can centre around how not to be a daredevil. tember 2019.
A similar set of processes is underway again. Even as Sitharaman suggested, on August 25, the extension of cess on luxury and sin goods beyond the initial period of five years, she hinted towards reducing GST rates for two-wheelers. While tax breaks to boost the economy by spurring demand are always welcome, they cannot be decided without consideration of their fiscal implications.
GST has faced other issues too. Its teething troubles — many believe that it was implemented without adequate preparation — generated large headwinds for economic activity. The precovid-19 deceleration in the Indian economy — GDP growth fell from 8.3% in 2016-17 to 7% in 2017-18, 6.1% in 2018-19 and 4.2% in 2019-20 — followed the back-to-back economic disruption from demonetisation and GST.
India’s GST experience raises a bigger point, and perhaps highlights a future lesson, about policy reforms. All reforms, no matter how desirable they are in principle, need to be thought through carefully before being rolled out. It is always tempting for regimes to fast track them, without weighing all pros and cons. This process becomes easier when a regime has tremendous political capital — like the BJP has had from 2014 onwards. However, when the crunch comes, like it has come for GST compensation today, or when there is more-than-expected collateral damage from reforms, both the government and citizens are left to face the consequences.
The forthcoming GST Council meeting should do all it can to preserve the sanctity of India’s fiscal federalism in letter and spirit. This process cannot be complete without an honest introspection of the GST’S formulation and evolution.
IT ILLUSTRATES NOT JUST THE GROWING HINDU-MUSLIM FISSURES, BUT THE LOVE BETWEEN A FATHER AND
HIS DAUGHTER. POLITICS RECEDES, AS IT SHOULD.
LOVE WINS, AS IT MUST