GST and the new federal polity
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Last week, the 16th Lok Sabha created history: it signed off on the last batch of bills relating to the Goods and Services Tax (GST); effectively the roll-out of this seminal piece of tax reform, which economically unifies the country, is mere steps away. The official date for the roll-out is 1 July.
However, buried in the euphoria over GST are two very important facts which, if taken together, suggest that the ongoing transformation in the country’s federal polity (especially after the implementation of the recommendations of the 14th Finance Commission) is poised to acquire fresh momentum.
In future, the 29 states and three Union territories are going to be much bigger stakeholders in the country’s future than ever before; and this has been made possible by an unprecedented pooling of sovereignty by both the union government and the states. In short, in future the sum of the parts will be greater than the whole, once this transformation is complete.
But the two stand-out reasons from the debate and later the vote:
Firstly, the differences (mostly arising from the pique that the Bharatiya Janata Party (BJP), a GST deal breaker when it was in the opposition, is getting most of the credit) aside, there was broad consensus on this piece of legislation; another matter that some of these parties will react very differently in the Rajya Sabha, where the BJP and its allies in the National Democratic Alliance (NDA) are in a minority.
Secondly, as finance minister Arun Jaitley pointed out during the debate in the Lok Sabha, the country’s polity has taken an unprecedented step by pooling the sovereignty of the centre and the states by creating the GST Council—the institution which will drive its roll-out.
Writing in Mint a day after the vote, Haseeb Drabu, finance minister of Jammu and Kashmir, summed up the development best: “29 March 2017 must be recorded as one of the most significant days in the history of federalism in India. By passing the four bills relating to different aspects of the GST, the Lok Sabha has, perhaps for the first time put limitations on its own powers, in the interest of federalism, and signed off on a pooling of sovereignty in taxation matters with 32 state and Union territory legislatures.”
It is exactly this limitation of Parliament’s powers which had made some of the MPs participating in the debate in the Lok Sabha uncomfortable. Understandable, given that in future the power of indirect taxation will be vested in the GST Council and not directly under the purview of the Parliament as it is at present.
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But there is nothing to feel perturbed about. The Council itself is constructed in such a way that no decision is possible without concurrence of the centre and the states (while it needs a two-thirds vote, it is significant that in 13 meetings so far, all decisions, despite some very vitriolic exchanges, have been taken by consensus). Henceforth, it is a three-legged race—needs utmost coordination—for the centre and states.
Also it is important to note that even the state governments have given up their rights to taxation; exactly why Jaitley and Drabu describe the GST Council as an institution born out of the collective pooling of sovereignty. Eventually it is for the global good of new India.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics. His Twitter handle is @capitalcalculus.
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