Modi needs to do more to ease GST pangs

“The papers are saying this year Diwali has come early.” That was Prime Minister Narendra Modi fawning on the redrafted regulations of the Goods and Services Tax (GST) at a function in Dwarka in his native Gujarat last Saturday. On Friday Finance Minister Arun Jaitley had presided over a meeting of the GST Council which decided to reduce tax on some 27 items and also made compliance easier for small and medium enterprises (SMEs).Truth to tell, the papers - or at least the main national English dailies published from the capital -did not say any such thing. “Three months on, GST now good for small traders,” said The Economic Times on its front page lead story. The Indian Express had “GST relief for small firms, rates cut for many groups,” while Hindustan Times and The Times of India also weighed in with similar sentiments. Diwali was nowhere in the picture.Diwali is a big celebration in north and western India when people exchange gifts and wishes. The prime minister wanted to seize the moment and make it look like he and his government had done a great job of reducing tax on things like dried cut-mango, khakhra (a snack favourite with Gujaratis), certain sanitary items, manmade yarn, etc. Taxes on these items have been reduced from 12% to 5%. How far a tax cut on dried cut-mango, mainly used in north India for pickling, would bring cheer to Indians on Diwali eve is a matter of conjecture, but Modi is not one to miss out on a chance to gain any quarter from wherever.The GST, and more importantly its implementation, has been severely criticised by most opposition parties and it has been the constant refrain of Jaitley that all decisions have been taken unanimously by the GST Council which comprises representatives of all state governments and federally administered territories, including those of the Congress Party and, therefore, the Bharatiya Janata Party-led federal government should not be singled out for the teething troubles that have cropped up. If that were indeed so, then the cut in rates as well as the easing of compliance rules for small firms and the resultant positive press should also be attributed to the same council.Then again, if you pass certain orders and then withdraw part of those orders because you find people struggling to cope with them, will that constitute a “gift”, Diwali or no Diwali? What the government, or the GST Council for that matter, has done is take a few ‘reactive’ steps to make things easy for Indians, especially small traders and exporters, large or small.Modi and Jaitley must have been well aware of the GST clauses that entailed severe hardships to certain segments of the population. It is possible that they, as well as others in the cabinet involved in formulating the GST, were led to believe that whatever was being done was for the greater common good. Now who could have masterminded such a plot? Only the bureaucrats. Sardar Patel, one of the founding fathers of the republic, had described the Indian Administrative Service as the “steel frame” of India. Patel had only borrowed the expression from Earl Lloyd George who had called the British India Civil Service “the steel frame on which the whole structure of our government and of our administration in India rests”. Well, over the years the steel has rusted but the politicians had failed to notice it. When we talk of corruption we first think of politicians because nine times of ten it is the politician who gets caught with his hands in the till. But corruption in bureaucracy is perhaps more sinister and damaging than what politicians are capable of because nine times out ten they go unnoticed and undetected. ‘The steel frame’ has networked itself to a point it is capable of manipulating all government decisions. The wheels-within-wheels structure of Indian bureaucracy makes it extremely difficult to pinpoint who did what and, therefore, the responsibility of a failed decision easily gets passed on to the politician. Of course, this is not to absolve the political masters who have the final say, but more often than not they are led up the smooth garden path by the bureaucrat. Although the chief slogan of the GST is “one country, one tax”, it is in fact one country, many taxes because there are five or six or even seven different slabs of taxes which make it virtually a humongous task to follow. On top of it there were the monthly compliance returns that had to be filed to three different offices and an annual set of tax returns, making a total of 37 returns in one year. Such a convoluted procedure could only mean one thing: more interference from the taxman which, in the Indian context, means more avenues for corruption. If Modi had wanted less government and more governance, the GST had made sure that the opposite was true.Early Diwali gift or not, the amended regulations are nonetheless welcome. They are most helpful for the SMEs that had been struggling for the past three months with the compliance conundrum. Firms that have less than Rs15mn annual turnover now need to make only quarterly returns. This is a good beginning. It gives hope that in the months to come this frequency could get reduced further. Equally important was the decision to release all tax refunds to exporters before the end of this month. This, however, is easier said than done because the taxman is notorious for extracting his pound of flesh before releasing any money from the exchequer even if that money belongs to the payee. Corruption at these levels is what makes most people fear and hate the tax authorities. Modi has done enough chest-thumping on how he has presided over a cabinet that is bereft of corruption. But lower level corruption continues unabated and it is a herculean task to fight it given the magnitude of the problem. All this is not say the GST was unwarranted or even untimely. No country has introduced the GST without initial hiccups. The vastness of India coupled with its federalist structure meant it must have a dual GST, one for the Centre and one for states. Canada is the only other country that has dual GST. India, in fact, went one step further adding a third dimension to it with the Integrated Goods and Services Tax (IGST) for inter-state services. This had to be done to prevent double-billing and even tax evasion. There are many who feel that back-to-back implementation of demonetisation and the GST was not necessary and that Modi could have waited for the pangs of one to settle before introducing the other. But obviously these are not the only two ‘big-bang’ reforms that Modi is planning. There are more in the pipeline and some of them could even be disrupters of the normal routine as Indians have grown used to. The general consensus is that the 2019 parliamentary elections will only be a brief stop for the Modi machine to chug along and that by the time his second tenure ends in 2024, India would be counted as one of the ‘developed’ countries as against the tag of ‘developing’ that it had been burdened with for the past half a century. Modi has broken the egg. Indians are waiting to eat the omelette.