One fact - just one - will explain the enormity of what the passing of the Goods and Services Tax (GST) means. It heralds the beginning of a seamless market of, and for some 1.27 billion Indians, a market larger than the United States (US) and the European Union (EU) combined. It is the much-needed economic corollary of the world’s largest democratic elections where over 800 million people vote to elect a new government. If we as a people can rise above our pettiness and make this work, India, currently averaged out as a low middle income country, could set itself firmly on the path of becoming an economic behemoth. Let us not let ourselves down.
I have covered enough trade and other negotiations at national and international levels to know that once the sherpas have done their work, the real heavy lifting has to be done by politicians. Beyond a point, all negotiations are political. In India’s federal structure the states can be seen as a comity of countries that must be brought to the table by some astute footwork and handholding. The Narendra Modi government deserves high praise for converting talk into final text and shepherding it through parliament.
The issue is not who wins and who loses – policy work is always work in progress, the next text expected to be better than the previous one. India is trying to unshackle itself from the morasses of stifling internal trading rules - and that is ample reason for all of us to celebrate. As a permanent student of political economy, I believe Indians will look back at last Wednesday as a seminal moment in their political and economic history. The GST is not a marketing slogan or a PR exercise – it is about root and branch changes which, when in full flight, will make India one of the world’s most vibrant economies beginning with for Indians. It will take some time but the vision of that ambition now has wings.
We are years away from one-nation-one-tax and other critical steps, but the die has been cast. The GST is a single indirect tax for the whole nation which will make India a seamless and unified market. It is a single tax on the supply of goods and services right from the manufacturer to the consumer. Experts will delve into the details which will be known over the next few months and years, but this much is certain – economic unity strengthens political unity. Employed and productive people are also a peaceful one. There’s more than numbers to the GST.
I live between India and Europe and have witnessed the benefits of successive rounds of free movements of goods and services and resultant integration between the Continent’s 27 nations. When cross border trade becomes easy and all are able to benefit, there is a decrease of tensions. There is a realisation that all stand to lose if one does. This is an over-simplification, but it is the crux of the matter. We in India have to have to swim together or we will sink. If we remain focussed on the straight and narrow, India will become a rationalised, systematised and responsible single market – a far cry from the current jungle of local, state and national taxes and trade barriers.
However, loud words of caution must accompany our enthusiasm. Our current system fragments what should be a smooth method or economic transactions between our states with the small and medium enterprises (SMEs) holding the short end of the stick. As a firm believer in SMEs as the backbone of any economy however large (over 80 percent in Germany, for example), the ease of doing business that will accrue to these companies via GST is potentially massive. The big guys can take care of themselves. Time to focus on India’s Aam economic engines and multipliers.
From the information that is now becoming available I see that big-ticket items like manufacturing, infrastructure, some pharmaceuticals, logistics, cement, a slew of consumer durables and utilities have been primed. These are the builders of an economy of India’s size - job creators the country so badly needs. Services, while critical, are often examples of jobless growth. India’s IT revolution was largely a jobless growth in a country of India’s scale and size.
Many questions remain and many more will be raised as we go along. We will have to hold together to find the best answers for the most number of people because we are a democracy. We will have to educate ourselves on what has been given to us. The government should send out people to India’s towns and villages to explain the GST because it is there – and not in Delhi – where the juggernaut can start rolling.
In my view, one of the reasons why parliamentarians were not talking too much during the GST debate in parliament was because not many took the trouble to study the subject at hand, hence clueless. That is worrisome because they will seek interests and agendas when push comes to shove. There are no safeguards against stupidity and intentional ignorance. Wherever we are and whatever we are doing now we have to watch out for ignorance masquerading itself as policy. I will be watching our lawmakers.
Note: The views expressed here are the personal opinions of the author.