The government must learn a lesson from the monsoon session and adopt a more practical approach in handling issues in Parliament and outside, if it is serious about pushing reforms to achieve a sustained 8-10% GDP growth
Though the monsoon session of Parliament will officially end on August 13, its fate is almost sealed—it has derailed the good work done by the NDA government in the budget session and has exposed the holes in its political management. Barring the feeble hope of getting the GST Bill passed in the remaining days of the session—that also appears quite uncertain with the Congress getting the support of other parties in stalling both the Rajya Sabha and Lok Sabha over expulsion of its 25 MPs from the lower house for five days—not much is expected from the session now.
Thanks to the deadlock over the Opposition demand for resignations of Rajasthan chief minister Vasundhara Raje and external affairs minister Sushma Swaraj in Lalitgate, and Madhya Pradesh chief minister Shivraj Singh Chouhan in the Vyapam scam, the productivity of the Lok Sabha, till July 30 (the three-week session started on July 21), was just 10%, and that of the Rajya Sabha was even lower, just 7%, according to PRS Research Monsoon Session Track. The situation has not improved much since then, with repeated obstructions in both the houses.
Compare this with the budget session—the Lok Sabha recorded one of the best productivity levels in the last few years (122%) and the Rajya Sabha too had a similar performance, with 102%—and it is clear that the NDA failed to do its homework properly. In fact, it was clear from the moment it had to refer the Land Acquisition Bill to the joint committee of Parliament and the GST Bill to the Rajya Sabha select committee towards the end of the budget session as a compromise for getting these Bills passed in the monsoon session, that going in the current session will not be easy for the government.
So, the least that was expected from the BJP political managers was to placate non-NDA parties such as TMC, BJD, NCP and AIADMK to support its reform Bills, including the Land Acquisition and the Goods and Services Tax (GST) ones. The failure in the case of the Land Acquisition Bill clearly indicates that Prime Minister Narendra Modi’s one-upmanship has not been of much help, and the backtracking on the dilution of the consent and social impact assessment (SIA) clauses of the UPA’s 2013 Act by the BJP members in the joint parliamentary panel came too late in the day.
Indeed, the government salvaged the situation to a certain extent by agreeing for a full five-year compensation for the states for revenue loss due to GST; the BJP stand of not relenting on the resignations demand of the Congress and other opposition parties has ensured that the stalemate continues in Parliament. Clearly, a flexible approach from the very beginning, in handling of these two Bills and also on removing the BJP leaders, would have ensured better results but the NDA chose not to do this. After all, the floor management in Parliament is the responsibility of the government of the day, primarily.
The Congress party is doing exactly what the BJP did when it was in opposition and the prime minister will have to find a way to deal with this by getting the support of non-NDA parties in the coming months if he is serious about pursuing reforms—this will require sustained efforts to corner the Congress party. That may or may not happen, but for the time being, the NDA government has lost the momentum it had gained prior to this session.
Looking ahead, the government must push the states, beginning with BJP-ruled ones such as Rajasthan and Madhya Pradesh to change their land acquisition norms, by relaxing the consent and the SIA clauses on the lines of the Bill that it brought to support land acquisition for large infrastructure projects like transport corridors that run through several states. The same should be the approach in case of labour laws. Once other states find themselves in a disadvantageous position in terms of attracting investors due to their adversarial land and labour laws as compared to those having more conducive norms, they will be forced to amend these.
As far as GST is concerned, there is no harm if it is delayed by another year and comes into effect from April 1, 2017. The government can utilise this time to put in place the required infrastructure and a more acceptable GST framework. While this could allow a more productive functioning of Parliament in the coming sessions, the government would do well by focusing on improving its administrative performance.
There have been encouraging developments in the implementation of flagship schemes such as Make-In-India, Jan-Dhan Yojana and Digital India, but handling of tax issues still remains a big problem.
A final decision on the imposition of the minimum alternate tax (MAT) on foreign portfolio investors (FPIs) is still pending, despite the AP Shah panel submitting its report a fortnight back. The government was expected to submit its view on the issue—based on the Shah panel recommendations—on August 5, at the hearing of the Castleton case in the Supreme Court, but it has asked for more time now; the next hearing is slated for September 29. The delay in taking a decision is typical of the NDA government—the retrospective tax amendment remains in the statute; Vodafone and Cairn cases are still awaiting resolution, and the high-pitched transfer-pricing additions are yet to taper off.
The truth is that the income-tax department always appears to get its way irrespective of who is heading the government, and the current NDA regime has been no different though PM Modi had promised to end tax terror. It is this high-handed attitude of the department which has ensured that direct tax arrears in FY15 mounted to Rs 6.75 lakh crore, more than the tax collection target for the year. A department which has not been able to collect tax demanded in big cases—Hassan Ali group (Rs 1,65,665 crore), BC Dalal group (Rs 14,169 crore), Ketan Parekh (Rs 3,627.83 crore) and Harshad Mehta group (Rs 23,189 crore)—has been allowed to raise huge demands again despite its poor record of winning cases.
The government would do well to seriously look at the suggestion of the Standing Committee on Finance in its report submitted to Parliament last week: “The issue of ever-increasing tax arrears raises serious questions over the quality of assessment itself, which results in tax demands failing judicial scrutiny … the department (income tax) should focus their energies not just on collecting pending dues but also to enhance the objectivity of their assessment, which would in the final count bring down unnecessary litigation.” The decision to hand over the legacy tax issues to the Shah committee will help in this exercise and the prime minister must ask finance minister Arun Jaitley to not only implement its suggestions on the MAT on FPIs issue quickly but also assign it the responsibility of finding a workable solution to deal with retrospective amendment cases.