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GST will simplify taxation of states, will give many of them higher revenues: Jaitley

Finance minister Arun Jaitley spoke to HT on a variety of issues ranging from goods and services tax (GST), to Kashmir and the railways finances.

business Updated: Aug 13, 2016 19:05 IST
Finance minister Arun Jaitley during an interview with HT at his office in New Delhi.
Finance minister Arun Jaitley during an interview with HT at his office in New Delhi. (Sanjeev Verma/ HT Photo)

Finance minister Arun Jaitley spoke to HT on a variety of issues ranging from goods and services tax (GST) to Kashmir and the railways finances. Excerpts:

When do the actual negotiations on the rates start?

Once the GST Council is constituted after the 122nd Constitution Amendment Bill is notified, the empowered committee will evolve into the GST Council. In the council, all pending procedural issues and substantive issues like rates will be negotiated. The pace of those negotiations and their success will determine how soon will be the likely date of its implementation.

There is lobbying by some industries to keep them outside GST?

You can exempt some and overtax others. The more you exempt, the more you will overtax others. Obviously there will be pulls and pressures. But more states would be interested in sorting it out because states have a very large interest in it. It will simplify their taxation significantly and give many of them much higher revenues in the long run; so the sooner the better.

What is the kind of revenue loss the Centre will suffer for forgoing a large part of service tax?

The revenue department is working on the estimates. I do not want to be alarmist. But that is why the rate, as far as the Centre is concerned, should be sufficient to take care of the revenue of the Centre. It is precisely for this reason that the need for a fiscally strong Centre has to be emphasised. It is for this reason I have been saying that India is a union of states, not a confederation of states. If you speak only in terms of revenues of the states ignoring the centre (then) that is not how the constitutional structure is.

There is a view that GSTN (the company setting up the tech backbone) is a private entity?

This was done in 2013. One reason why I can, with the wisdom of hindsight, say it has been kept as a private entity because probably those who created it technically as a private entity wanted the salary structures to be flexible so that they get the best talent and are not restricted by the government pay grades. It is a huge operation and therefore you needed the best talent. But in the selection of the private sector partners they have been more than careful. After all, LIC housing, ICICI, HDFC and NSE are important and credible organisations.

What about the Congress demand for bringing the supplementary legislations as money bills?

The character of a bill doesn’t depend on the option of a minister. It depends on the contents of that bill. In the first instance, the draft will be approved by the GST Council where we will also have the Congress finance ministers approving it. So, the characterization will depend on what kind of a bill is approved by them.

So we can’t rule out these coming as financial bills?

This is a purely constitutional issue depending on the character of the bill. There can’t be any pre-conditions-- either by me or by the Opposition. I am not commenting on any possibility. It will depend on the contents of the bill.

The Congress feels GST is too important to be moved as a money bill?

Every year the finance bill (that is brought) is important. And every year it is presented as a money bill. It’s the most important bill which has been presented year after year since 1947. And it has always been a money bill.

After GST, will the annual budget be lighter because it will contain fewer tax proposals?

The direct tax and customs duties will remain. The service tax part and the central excise part will be subsumed in GST. One part of it will become lighter.

But it will be bulkier if you eventually decide to add the railway budget to it?

That’s a pending issue. It is still under discussion.

Indian Railways are believed to be staring at a deficit (cash operating loss) of Rs 20,000 crore. Aren’t you worried?

The Indian Railways is too important an organisation in the government. I don’t think we will ever allow it to default (on payment of salaries and pension). I don’t see the possibility of any default. Please don’t forget if overall trade is down, railways suffer.

With GST nearly done, is labour the next big area for reforms?

There are many changes taking place in that field. In the last few months there have been four significant reform measures: The Monetary Policy Committee (MPC), Aadhar, Bankruptcy Code and the GST. The three significant areas that the Indian economy has to concentrate on are: strengthening public sector banks, reviving private sector investment and implementation of major infrastructure programmes.

Inflation has again shot up above 6%, the RBI upper tolerance level. Where you do see inflation moving in the coming months?

The impact of monsoon will be felt after a reasonable time. The latest figures factors in the higher cost of vegetables and pulses, both of which in the next few months are poised for a reduction. Vegetables are always seasonal. In pulses, the acreage this time seems to be indicating that we may cross the 20 million tonne mark, which means pulses prices should significantly come down.

Exports have again contracted after moving back into positive zone last month after 18 months?

Exports are relatable to two factors: One is the genuine reduction in export volume because the buying countries are buying less as they have lesser money. The second is, even where the quantum remains the same, the values have come down because of low commodity prices. There are signs that the bottoming out is taking place.

Can we expect a big jump in India’s rankings in the World Bank’s Ease of doing business because of the new bankruptcy code and GST?

Bankruptcy Code is a pre-June reform, prior to the cut-off of the World Bank’s review period, though the actual implementation will be afterwards. GST certainly will be afterwards. But then ease of doing business is a work in progress because you have to ease it at the level of municipalities. Even if the Centre and states reform, changes will have to take place at the level of municipalities.

In the all-party meeting on Kashmir, the Prime Minister talked about comparing the quality of life and freedom on the other side of fence in Pakistan-occupied Kashmir. Can you elaborate?

I think the Prime Minister said this in the context of drawing a comparison of quality of life between the two countries. This he also said in the context of residents of Jammu and Kashmir who are settled in other parts of India. It was more in relation to a display of comparison. There are people on the other side who say that the whole election process in PoK was rigged.

I personally believe that a dialogue among all mainstream parties—national and state— (will bring out) a commonality of approach (that) is required. In today’s meeting, many a speaker highlighted this.

Once that commonality is achieved, will you be reaching out to the Hurriyat?

It will depend on the strategy the home ministry adopts. I would not be in a position to respond to this. In the past, Prime Minister Vajpayee’s government has spoken to them.

There is also a view that the youth in the Valley are led by different leaders in different districts in Kashmir. There no one leader that they have.

This looks more an emotive reaction to the killing of a militant in an encounter who they had started eulogizing because of his larger than life image on the social media. I think global events in relation to the Islamic world are inspiring some people.