That demonetisation of R500 and R1,000 notes, announced by prime minister Narendra Modi on November 8, has been a move that needed more planning and better execution is a fact even the staunchest of his supporters would accept. But, it is also true that public opinion is overwhelmingly with PM Modi—and not many people are cribbing about the inconveniences caused by the decision, due to the absence of adequate cash in the system. This is probably why the ruling dispensation is holding its fort against the united Opposition onslaught in Parliament amidst continued disruptions in the winter session that is to end today, even at the cost of the Goods and Services Tax (GST) getting derailed completely.

The underlying message on the ground is that, accept it or not, the demonetisation gamble of PM Modi has paid off for the time being. But it should not surprise anyone; this has been his style all through, whenever he wants to achieve an objective—and to his advantage, or call it his luck, his gambles (hidden in big promises) have worked so far. Even if you leave the rest, his ‘achhe din’ slogan catapulted him and the Bharatiya Janata Party (BJP) to power when it was an open secret that the Indian economy will take considerable time to recover and attain a high-growth path. The recourse to the much-hyped surgical strike in PoK and demonetisation have been necessitated by the uneasiness on account of realisation that the government has failed to live up to the people’s expectations, after the completion of two years in office in May this year.

It is, therefore, immaterial to dwell upon whether demonetisation is a good or a bad decision—a more fruitful discourse for everyone, including the Opposition parties, would be to look at what best, next. The winter session of Parliament is almost washed out, and with this, any possibility, even the remotest one, of the GST getting implemented from April 1 next year is almost gone given the government has allowed the gains made in the last few sessions of Parliament, in passing critical Bills like the Real Estate, Aadhaar, Bankruptcy and also the GST constitutional amendment Bill, to disappear due to demonetisation.

There is still some hope left, though, of the GST becoming a reality before September 16—the date before which the GST laws need to be passed and come into force as per the constitutional amendment Bill. As a failure to do that would mean a loss of face for PM Modi, it is high time he finds a way out to placate leaders like the West Bengal chief minister Mamata Banerjee, who has taken a U-turn on GST now—after having helped pass the constitutional amendment Bill—thanks to demonetisation. The central government always has the wherewithal and convincing power to make any Opposition party or state government fall in line, if the prime minister is ready to do the delicate balancing of interests required for this purpose. But, that is a ‘give and take’ game and the BJP will have to climb down a little bit on demonetisation for this. It is a trade-off that may pay rich dividends in the long run, and not doing this might lead to larger losses because of the possibility of the Opposition unity getting extended in Parliament on other issues, including the passage of reform Bills.

The Opposition parties also need to understand two points. One, if they push the government too much on demonetisation and black money gains, it will only result in roving enquiries and desperate actions by the income tax department and other investigating agencies. And two, they would also appear to be against the government’s steps to expand the domain of the cashless economy. Even blocking the GST could be projected by the government as a pro-black money stance because the integrated indirect tax structure is expected to bring in transparency that will curb accumulation of the unaccounted income. The bitter reality to be taken into account is that opposing demonetisation beyond a point may inflict major political damage that could manifest itself in the coming major assembly elections, like Uttar Pradesh’s.

On the part of the central government, while it is a necessity to break the Opposition unity on demonetisation, the situation has thrown up a good opportunity to go for much-needed reforms in the personal income tax domain rather than just tinkering here and there. It also makes sense from the point of view that people will see it as a measure to help them get over demonetisation pains, besides curtailing the creation of black money in the future—finance minister Arun Jaitley has done well by already talking about reasonable tax rates. He can do this in the next budget to be presented on February 1. There is a need to increase the number of taxpayers—and their contribution to the total tax collection—falling in the R10-20 lakh annual income bracket; this can be done by addressing the problem of the top tax rate of 30% kicking in too early, at the R10 lakh income level. This is where the 2009 Direct Taxes Code prescriptions may provide a good working platform. The DTC proposed that annual income between R1.6 lakh to R10 lakh, in case of individuals, be taxed at 10%; between R10 lakh and R25 lakh, at 20%; and over R25 lakh, at 30%, along with the removal of tax deductions on life insurance, provident fund investments and home loans. In the current context, the government may keep a composite R5 lakh basic exemption and do away with the gamut of deductions under different heads and tweak the tax-slabs accordingly and lower the tax incidence across slabs to attract more and more people to pay taxes. At present, income up to R2.5 lakh is tax-exempt, and between R2.5 lakh and R5 lakh is taxed at 10%, and the 20% rate is applicable for income between R5 lakh and R10 lakh. Along with a push to the proposed reduction of corporate tax from 30% to 25%, Jaitley may take a bold step by announcing the over-hauling of the personal income tax structure in the budget, too. This may deal a much bigger blow to black money creation than any other move in the past.

Considering that the current NDA government is only half way through its tenure, a breakthrough on GST and income-tax reform could be its biggest gains—and will conclusively prove that the demonetisation gamble of PM Modi was on the right track. The ultimate result, though, could be out only in the 2019 Lok Sabha polls.

santosh.tiwari@expressindia.com