GST: the victory of politics

GST: the victory of politics

Political bickering and grandstanding seem to be winning the day.

India needs a single goods and services tax (GST) to integrate a fragmented national market and spur economic growth.

The trade-off between immediate political gains and long-term economic gains can be put in stark terms: The net present value of introducing GST could exceed half a trillion dollars, Finance Commission head Vijay Kelkar estimated in an October speech.

But a discussion paper by the empowered committee of state finance ministers released on Tuesday suggests the overdue GST roll-out will fall short of the ideal.

The discussion paper is strangely silent on the most pressing issues of discussion. Key sectors such as real estate and electricity are missing in the document. Petroleum will be excluded from GST while natural gas, oddly, is still up in the air. No specific rates have been set, and a bunch of short-term and state-specific political compromises haven’t been resolved.

The signs are ominous.