GST, which was touted as a grand compromise between the centre and the states, with then Union finance minister Arun Jaitley terming it “pooled sovereignty" in taxation, replaced 17 central and state taxes, transforming India into a single market. This was India’s most ambitious tax reform and marked the culmination of a journey that began in 2003 with the recommendations of the task force headed by Vijay Kelkar to migrate to a destination-based tax system.
However, initial euphoria has quickly given way to the sobering realization that ‘one nation, one market, one tax’ is still a work in progress. Congress president Rahul Gandhi mocked it as ‘Gabbar Singh Tax’ and alleged that the government rushed to implement it without preparation. A World Bank report termed it one of the most complex taxation systems in the world with the second highest tax rate among 115 countries that have a similar tax system.
GST became a burdensome affair, especially for small businesses and exporters, in terms of filing requirements and matching invoices in the face of the collapse of the online tax portal. It dealt a massive blow to small firms, who were not sure how to navigate through the maze, as it came within eight months of demonetisation. A large part of the economy—fuel, electricity, land and real estate, excluding construction contracts—are still outside the GST basket, making it a less-than-perfect indirect tax system.
However, the GST Council, a truly federal body with a unique voting structure, has forced the centre and the states to work in coherence to rectify the glitches in the process as well as structure of the GST despite competing political goals. The nationwide rollout of the e-way bill on 3 June 2018, despite initial problems, has prevented taxpayers from underreporting transactions and has led to tax buoyancy. GST contributed positively to the rise in the country’s score on paying taxes in the World Bank’s Doing Business report as it replaced multiple taxes with one.
The establishment of the Monetary Policy Committee in 2016-17 and subsequent amendment of the Reserve Bank of India Act, not only diversified monetary policy decision-making, but also set inflation targets for the central bank in clear terms and devised a mechanism to monitor it.
Another decision by the government, to merge the railway budget and the general budget and to advance the presentation of the general budget to 1 February starting with FY 2017-18, paved the way for early completion of the budget cycle. It also enabled ministries and departments to ensure better planning and execution of schemes from the beginning of the fiscal year.
The current Lok Sabha also introduced amendments to the Companies Act 2013, which provides for strict action against defaulting companies and liberalized penalty provisions of non-serious and procedural lapses, and also makes contravention of provisions relating to deposits non-compoundable.
One significant reform by the NDA government is the rollout of a new bankruptcy resolution regime, for which an entire ecosystem was put in place in a very short time, making it a potential model for other countries. The Insolvency and Bankruptcy code (IBC), 2016, reset the equation between borrowers and lenders and made loan repayment a priority for borrowers.
The new ecosystem has encouraged more open reporting of bad debts by banks and led to a new system where sinking companies are either turned around with new investors coming in or liquidated when rescue is not viable. Another key impact of the bankruptcy code is that operational creditors such as material suppliers and business partners are using it as a legitimate pressure tactic to force the other parties to pay up their dues. This is a leap from the earlier system where a sluggish process under the Sick Industrial Companies Act used to take several years to resolve bankruptcies.
Corporate affairs secretary Injeti Srinivas said last November that the direct and indirect impact of the new bankruptcy regime since its inception was about ₹3 trillion. However, intensive litigation has come in the way of resolving corporate sickness within the 270 days allowed under the code. Courts have taken the lenient view that time lost in disputes will not be counted to avoid cases dragging on after the 270-day period.