Isolate, negotiate – Modi learns art of the deal
IT TOOK him more than two years, but Indian Prime Minister Narendra Modi has finally discovered the art of the deal.
Realising that a frontal assault wasn’t securing the votes needed for India’s biggest-ever tax reform, Modi and Finance Minister Arun Jaitley changed tack this spring, government and ruling party sources said.
First, they sought to build a coalition among the nation’s 29 state governments to isolate the Congress party, which despite losing heavily to Modi in 2014 had blocked a new Goods and Services Tax (GST) in the upper house of parliament.
Then, Jaitley held a series of meetings with Congress leaders whose outcome was uncertain right up to the last minute, sources close to the finance minister said.
He yielded to their demands – accepting, verbatim, a clause they proposed for the constitutional amendment needed to make the GST happen, according to a member of the Congress team that included former finance minister P Chidambaram.
An aide to Jaitley said Congress’s growing isolation proved decisive in making a compromise possible.
Last week’s upper-house vote to pass the 122nd amendment to the Indian constitution brings the wheel full circle – the GST was proposed by Chidambaram a decade ago but was stalled by rivalry.
Congress’s growing isolation proved decisive in making a compromise possible.
Introducing a unified sales tax across India’s market of 1.3 billion people will mark a bold act of integration at a time of disintegration elsewhere, as Britain exits the EU and a protectionist Donald Trump runs for the US presidency.
The GST vote also addresses how India, as a federation, can implement a one-size-fits-all sales tax – something the US and EU have been unable to do – by creating a GST Council that brings the centre and the states together. Despite winning India’s biggest mandate in 30 years, Modi has struggled to advance his agenda.
Congress, though reduced to a rump opposition, has resisted. As the largest party in the upper house that represents the states, it had blocked the GST and derailed Modi’s land acquisition bill, which critics branded as being “anti-farmer”.
While that tactic proved effective, it wasn’t winning public support. Congress took hits in state elections and in June lost the upper house votes it needed to be sure of stopping the GST. This was the cue for Jaitley to court the states, with key swing state West Bengal soon declaring its support. In July, he targeted Bihar, while re-engaging with Congress after nine months of silence.
Jaitley’s promise to the states to compensate revenue losses for five years, made at talks on July 26, won them over, West Bengal’s finance minister Amit Mitra said.
Congress moved to cut a deal, while Modi and Jaitley were ready to offer concessions – including scrapping a levy of 1 percent on the movement of goods – that experts said would actually make the GST a better tax. – Reuters