But even if Prime Minister Narendra Modi succeeds in getting the GST Bill cleared in the session, the challenges in steering critical reforms in labour, land acquisition, agriculture and taxation would still remain
The setting has never been so good for Prime Minister Narendra Modi-led NDA government in Parliament, and also in running the government.
An impressive victory of the Bharatiya Janata Party (BJP) in the Assam assembly elections, growing strength in the Rajya Sabha, along with the building of a support base in the opposition ranks, looks all set to ensure the passage of the long-pending goods and services tax (GST) Bill in the Upper House. Last week’s Cabinet rejig is a strong message that PM Modi is in full command of the government.
Obviously, the expectations from the Monsoon Session, beginning July 18 and slated to end on August 12, are quite high in terms of setting the stage for the remaining period of the NDA government; finance minister Arun Jaitley has already expressed optimism about getting the GST Bill passed in the session and PM Modi has said that no party will oppose GST because that will be suicidal.
With the Cabinet changes giving clear indication that PM Modi doesn’t want any unnecessary controversy to take over the government’s work—which is clear from shifting of Smriti Irani from the human resource development ministry to textiles and non-inclusion of Subramanian Swamy—the focus in the Monsoon Session will be on building up on the good work done in the Winter Session and the Budget Session.
While eight Bills were passed in the Winter Session, in the Budget Session, as many as 17 Bills were passed, and the list included the Aadhaar Bill, the Insolvency and Bankruptcy Code and the Real Estate Bill.
During the Monsoon Session, besides the GST Bill, the government has to ensure the passage of three Bills in the
Rajya Sabha to replace three Ordinances—The Indian Medical Council (Amendment) Ordinance and The Dentists (Amendment) Ordinance, essential for a National Eligibility cum Entrance Test (NEET) for undergraduate and postgraduate medical courses as per a Supreme Court order, and the third one dealing with property owned by Pakistani nationals in India.
The Lok Sabha currently has 11 Bills pending in the House, including The Factories (Amendment) Bill and The Electricity (Amendment) Bill, and with a majority in the Lower House, passing these Bills will not be difficult.
But getting the Bills cleared in the Rajya Sabha—56 legislations are pending here—still needs good floor management due to the NDA’s lack of majority here and garnering support from non-Congress opposition parties like the SP, BSP, TMC, NCP and BJD, even finding a common ground with the Congress, like in the case of the Real Estate Bill, will be critical.
The focus of attention, clearly, would be on the GST Bill. Going by the signals coming from the government, all efforts will be made to ensure that it passes the Rajya Sabha hurdle in the first week of the Session itself.
Barring the Congress and AIADMK, which is also likely to join in when it comes to voting in the Upper House, the government is hoping to get the support of all other parties for this.
Going by the government optimism, there should not be any difficulty in passing the Bill in the Monsoon Session, which will facilitate the implementation of GST from April 1 next year.
The real problem here, though—even if the Congress drops its demand of putting a GST rate of below 18% in the statute itself, which, of course, is illogical as it has not been done anywhere—would be that of ensuring, through an administrative framework, that the rate is reasonable and workable.
It would have been better if the draft model GST law put out by the finance ministry would have opened a window for discussion on what could be an acceptable rate in the integrated indirect tax structure.
The committee headed by Chief Economic Adviser Arvind Subramanian has recommended a revenue-neutral rate of 15-15.5%, a standard rate of 17-18%, which will cover most goods and all services, while suggesting a three-tier structure that will have a lower rate of 12% for essential goods and a higher rate of 40% for luxury items like cars. It has also recommended the inclusion of petroleum, real estate and electricity in the GST framework.
While the rate structure suggested by this panel looks more acceptable than the NIPFP model, in which they are higher, a thorough stakeholders’ consultation is a must to avoid confusion and opposition to the GST at a
The government needs to do this quickly now, after the passage of the Constitutional Amendment Bill that is a necessity for kicking off the GST implementation process.
It should also desist from taking the GST success in Parliament as a major breakthrough, because it is the handling of the reforms in critical areas like land, labour, agriculture and also the income-tax domain, going ahead, that will ultimately decide whether the BJP-led government succeeds in delivering on its promises or not.
In case of the Land Bill changes, the government has already burnt its fingers and, in all probability, it will restrict its efforts towards mitigating the damage done by the UPA’s 2013 Act to helping the states in amending their laws to ease norms for acquisition of land.
Similarly, in case of labour laws, Rajasthan has succeeded in amending its statutes with the Centre’s help and states like Madhya Pradesh and Haryana are also following this route. At some point of time though, the Centre will have to find ways to push the Industrial Relations Code, which combines Industrial Disputes Act, 1947, Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Small Factories Bill, aimed at improving the ease of doing business scenario.
In agriculture, the crop insurance scheme and soil health cards are no doubt good moves, but tough reforms pertaining to the creation of a national agriculture market and restructuring of the Food Corporation of India, besides a rehaul of the subsidy regime and a shift to the cash transfer model so that the benefits are limited to only the needy, are still pending.
Taxation is another area where the government’s resolve will be tested, especially in moving to a tax regime with bare minimum exemptions and lower tax incidence. This process has been initiated in corporate tax, but it has to be taken to its logical conclusion in the next three years, when the rate is reduced to 25% and tax benefits are phased out.
A similar exercise needs to be initiated in the personal income-tax domain, which the abandoned Direct Taxes Code targeted, along with the removal of 2012 retrospective tax amendments.
The irony here is that these are tough reforms which will boost growth prospects that the BJP has promised, but there is no guarantee of getting political benefit in the all-important Uttar Pradesh assembly polls next year or the 2019 Lok Sabha elections.
Prime Minister Modi has to make a choice here—much tougher than the selection of ministers in his Cabinet.