An oft-quoted analogy about India is that policy making in the country is like the hour hand of a clock that you rarely see moving. Each piece of structural adjustment faces its own dynamic of resistance, pacing out its passage through departments, ministries and social and political stakeholders. In a democracy, reform and policy making is essentially a political process. Political debates in Parliament, and outside, is a manifestation of this democratic phenomenon. Wider consultations as in the case of tax reforms and other important legislations assist in expanding the area of the possible. There is no gainsaying the fact that gradualism is more sensible than a big-bang approach.
That said, however, there is also an important learning from all these: A bipartisan and collaborative approach is imperative to yield the desired benefits. The proposed Goods and Services Tax (GST) is a case in point of how lack of political collaborative thinking held up an important reforms initiative.The GST is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states. It is a single national uniform tax levied across the country on all goods and services. The GST’s implementation faced political hurdles as it could rob state governments of discretionary fiscal power. States also fear that they will suffer heavy revenue losses after GST is implemented. The GST has seen several false starts since former finance minister P Chidambaram first announced plans in his 2006-07 budget speech to shift to a new indirect tax regime.
Given this backdrop, it was a pleasant surprise to witness the camaraderie from both sides of the aisle in the Rajya Sabha on Wednesday. The sight stood out in stark contrast of recent months that have been dominated by political spats and repeated disruptions in Parliament. The passage of the Constitution Amendment Bill in Rajya Sabha is a demonstration that parliamentarians were willing to walk the talk on reforms of national importance. That said, there is a still a long way to go before India can replace a messy patchwork of indirect taxes with a tidy, unified and country-wide system. Recent history has shown how political positions can swing between extremes at the slightest pretext. The Congress, which for years has been championing the need for replacing the layers of local and regional taxes that have caused red-tape, confusion and corruption with a single levy, showed its intent to be on the right side of reforms. It is imperative for the government, the opposition parties and the state governments to meet mid-way to iron out the remaining areas of disagreement, including on the crucial one on the specific GST rate.