Two Saturdays ago, a meeting of the goods and services tax (GST) Council pruned the list of commodities presently taxed in the highest bracket of 28% (technically, there is a higher slab which includes “sin goods", which invites a cess). This decision was, however, accompanied by controversy after it was discovered that the agenda circulated ahead of the meeting failed to list this proposal; clearly, the Union government which overseas the GST secretariat had committed an avoidable error of omission.
In the legitimate outrage that followed, some state finance ministers (FMs) took to social media, complaining against the breach of process; in the new federal polity etched by GST, the Union and state governments are equal partners. Kerala finance minister Thomas Isaac put out a series of tweets, including this: “It is most unfortunate that GST Council without circulating in the agenda notes should decide to reduce the tax on 18 consumer durables like TV, fridge etc from 28 percent to 18 percent disregarding consequences to revenue and equity. Undemocratic and Non egalitarian."
The FM is right in flagging the decision to omit mention of such an important proposal in the agenda. But, in my view, he overstated his case by dubbing consumer durables like televisions and fridges as a luxury. Presumably, it stems from the communist credentials of Isaac—something he endearingly wears on his sleeve.
But comrade Isaac should realise that the consumer lexicon has had a radical makeover since the 1970s when such items were identified as items of conspicuous consumption. The iterated liberalization pursued from the roll-out of the Sixth Five Year Plan in 1980 gradually transformed the economy and most importantly, stoked the growth of the middle class.
The material trading up of India—captured so well in census 2011 and in a series published in Mint—only further reinforced the growth of the middle class to staggering proportions. Their size is estimated anywhere between 200-400 million—which, at the upper bound, is the size of the population of the US.
According to the Broadcast India 2018 Survey conducted by Broadcast Audience Research Council (Barc) India and released last week, 197 million of the 298 million homes in India today own a TV. If two out of three Indians own a television, then clearly it is not a luxury good.
Similarly, the cellphone, again a conspicuous good in the 1990s, is today ubiquitous; there are probably about a 1 billion connections operational in India. The improvement in technology and market competition have ensured that even a so-called smartphone is fiscally accessible to most people.
The Kerala FM should recall the confabulations with his former colleague (and personal friend), Haseeb Drabu, the finance minister of Jammu and Kashmir, during a meeting of the GST Council in November last year. “We should evolve modern tax categories that reflect contemporary consumption trends," he had said.
Unfortunately, revenue considerations dominated the day and the upper tax bracket ended up including items like TVs, fridges, etc. Since revenue concerns from the shift to GST have not really borne out, the Council has gathered courage to tinker with the composition of the goods in the 28% GST category.
It is actually something the GST Council should have done much earlier, having gathered the conviction that a well-modelled GST which reflected contemporary consumer reality made more sense than an outdated structure inherited from a pre-1980 era.
In the final analysis, it is clear that there has to be a reset of the larger economic narrative occupying the national mind space. It is no longer a debate between the haves and the have-nots. The Barc data on TV is a surrogate metric for the official capture of reduction in poverty levels in India.
Instead, the public policy problem today, in an aspirational India, is one of rising inequality. This requires a calibrated redistribution managed through a combination of empowerment and entitlement.
On the other hand, getting overwhelmed by a seductive rhetoric of rich versus poor narrative can lead to missing the wood for the trees. Something India can ill-afford.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics. His Twitter handle is @capitalcalculus.