Vol. XLI No. 43 October 22, 2017

A Rebuttal to Arun Jaitley’s Statement on GST

J S Majumdar

ON October 10, during his weeklong trip to the USA to attend the annual meetings of the International Monetary Fund (IMF) and the World Bank, Finance Minister Arun Jaitley accused the opposition parties in India, mainly the Left, of being ill-informed and opportunist and adopting double standard on the Goods and Services Tax (GST). This requires a firm rebuttal.

While addressing the so-called ‘The Way Forward’ organised by the Confederation of Indian Industries (CII) with the US Chambers of Commerce, Jaitley said, “Many attempts have been made by political groups to derail the GST, but I am glad that their own state governments are not listening to them because they know 80 per cent of the money is going to come to them so they don’t have to appease an ill-informed central leader of the party and let the revenues of their own state suffer.”

Addressing another gathering, the so-called ‘New York audience’, organised by the US-India Business Council in partnership with CII, he said, “All the steps including financial inclusion, demonetisation, the Goods and Services Tax to the direct tax incentive, each one of these falls into place where brick by brick you lay down the structure in order to integrate an informal economy into a much larger formal economy.” It is a candid admission by the finance minister that all the steps taken by the Modi government, since assuming office over three years ago, in the economic front, mainly demonetisation, GST and direct tax incentive to the corporates, are aimed at transition from informal to formal economy.

Here is the basic opposition of the Left -- the elimination of the vast informal sectors of industries, trade and services to be replaced by organised sectors with the use of force through demonetisation, GST and direct tax incentive to corporates. It is nothing but the international finance capital-driven neoliberal economic model being superimposed on an under-developed economy. The CPI(M) has an alternative policy for India’s economic development through strengthening the informal sector for huge job creation and increasing wider mass consumption and for self-reliance. The CPI(M)’s opposition to the GST is based on that understanding. The CPI(M) is well-informed about the huge loss of jobs and livelihood of millions of workers, traders, self-employed, small entrepreneurs due to the implementation of the GST. Some of those are reflected in the countrywide agitation of different sections of the people affected by it. Jaitley is also well-informed about these, yet accuses the opposition, mainly the CPI(M), of being “ill-informed” about the adverse impact of the GST.

These are also a cover-up exercise and attempts to deflect from the realities. The realities are that all estimates of growth, consumer inflation and current account balance had dipped mainly due to demonetisation and GST, along with some other factors. India's GDP growth slumped to a three-year low at 5.7 per cent in June quarter this year, triggering downgrading estimates for future.

The IMF in its latest ‘World Economic Outlook’ said that India’s growth slowed, “reflecting the lingering impact” of demonetization “as well as uncertainty related” to the GST, and pegged the growth estimate at 6.7 per cent, down from 7.2 per cent estimated earlier, in financial year 2017-18 and at 7.4 per cent, down from 7.7 per cent, in 2018-19. The World Bank estimated the economy to slow down to 7 per cent, down from 7.2 per cent estimated earlier. The Reserve Bank of India expects growth to slip to 6.7 per cent, down from 7.3 per cent it had estimated earlier.

Simultaneously, the IMF estimates consumer inflation at 3.8 per cent in 2017-18 and to rise to 4.9 per cent in 2018-19. The RBI targeted 4 per cent consumer inflation with two percentage points on either side. The IMF also estimated current account balance to worsen from (-) 0.7% in FY17 to (-) 1.4% in FY18 and (-) 1.5% in FY19.

Jaitley also spoke about the GST Council being the “first genuine federal institution”. The GST Council is only a tax administrative structure. No doubt, it fits into the definition of Prime Minister Narendra Modi’s “cooperative federalism” replacing the democratic, plural and secular federalism as enshrined in the Constitution. ‘States’ are only administrative units under the RSS unitary concept of Indian state, like ‘provinces’ were under the British Raj in India. The GST Council decides, imposes and administers indirect taxes over the people of India overriding Parliament and state legislatures. Is this the democracy in practice? Is this the federalism that framers of the Constitution envisaged?

Jaitley misled the audience in the USA, and by proxy the domestic audience through corporate media, that “80 per cent of the money is going to come to them (states)” from the GST. The share of GST money will go fifty-fifty to the Centre and the states; except for that the Centre gets total IGST bringing down the total GST money to all states and union territories together to less than 50 per cent. No one can blame the finance minister being poor in mathematics. Yet, he said, “80 per cent of the money is going to them.” Here, by “them” he was referring to some particular states having high level of consumption of goods and services. Since the GST is consumption-based, some states are benefitting and some states are losing out of total less than 50 per cent states’ share of money. This will also be varying with the varying level of consumption. No one can calculate GST share to a particular state on a given date. Yet, Jaitley made a hypothetical assumption to blame the opposition-led states, including the Left, of being opportunist and running for money bereft of their political understanding; and accused opposition parties of adopting double-standard one for the Centre and the other for the states ruled by them in respect of GST.