Are GST, Demonetisation And The UP Elections Linked After All?

Posted by Biswadeep Tamang in Politics
January 20, 2017

A massive tax reform, the GST (Goods and Services Tax) bill was passed in August 2016 by both of the houses of the Parliament. This was another big reform after the 1991 economic ‘liberalisation’. India really needed one for her growth – both to run the economy with greater efficiency and to have the pace to compete with China.

GST is one ‘indirect tax’ reform system for the whole country and is expected to roll out from 1st July 2017 before its deadline, September 2017. It can create a unified common market and will reduce the ‘cascading effect’ of tax on the production and distribution prices of goods and services. There are a number of indirect taxes levied on a person who is making the sale, for example, Service Tax, Custom duty, Excise duty, VAT(Value Added Tax), Entertainment tax, Luxury tax, etc. These taxes are levied either by the Center or State governments. GST can remove the different layers of exclusive powers of the governments to levy taxes. The current multi-staged tax-structure is riddled with ‘indirect taxes‘, which the GST aims to subsume with a ‘single comprehensive tax’ thereby bringing it all under a single umbrella.

The dual monitoring by the Center and the State governments can reduce tax evasion, the movement of products across states will get smoother and can increase ease of doing business due to the uniform tax across the country. The proper implementation of GST can increase exports and can also enhance collection of tax revenues for the government.

The Modi government made huge efforts to pass the GST bill even when they were short of numbers in the Rajya Sabha, with the result that it was ultimately passed with an overwhelming majority. Therefore, the BJP (Bharatiya Janta Party) government deserves accolades for the introduction of GST and the subsequent effects it can potentially bring about. However, this big reform had one thing in missing, and that was a PR factor. While discussing about the government reforms with my friends, I found even the graduates were not much aware of GST. Couple of days back, again, a graduate guy asked me whether GST involves a direct or an indirect tax?. Therefore, GST can be considered to be a less convincing reform as far as PR is concerned.

Meanwhile, the politics on the ground, till mid 2016, was drifting in various directions because of Dadri, Muzaffarnagar, Una, Rohit Vemula and so on. These controversies had really changed the opinion of the people right from the grass-root level. The ‘surgical strike‘ was a great political move by the government – but still that was not ‘persuasive’ enough. The pledge by the BJP government on bringing back the black money from foreign countries, during the 2014 Lok Sabha campaign could not be answered by the introduction of GST. In general, people don’t like reading and understanding comprehensive tax laws and its implications. GST, though, is a paradigm shift in the area of tax reform, but has had less impact to form a public opinion and win as many votes as the government would have wanted.

Demonetisation boomed and also changed the course of political events. Now if you ask anyone on the streets what notebandi (ban on notes) is, the answer will be straight – “Kale dhan k khilaf (against black money)”. This short answer is popular – everyone knows it – while GST is not known, even to many educated people. The public response after demonetisation was significantly conducive to the BJP’s aims, as they claim – and in fact many would agree – that it is a “bold step”. On the other hand, the Opposition criticised demonetisation to be a passive or a euphemistic way of declaring “financial emergency“.

As regards the upcoming elections in Uttar Pradesh (UP) – before September 2016, the opinion was not hugely in favour of BJP; rather it was almost split with the BSP (Bahujan Samaj Party) and the SP (Samajwadi Party). The SP (Samajwadi Party), which is currently at the helm of the UP government, has also recently been playing very strategically. All their family feuds and tussles for the ‘election ticket distribution’ had certainly put them in a poor light. However, Akhilesh Kumar Yadav has emerged a more astute leader than even his father – and probably because the ‘play’ was perfectly executed. His six lane Lucknow-Agra highway, metro trains and other developmental agenda has provided him a strong platform to campaign for the State Assembly polls. He has already ‘reached’ Agra with his highway project and certainly, he too must be ‘aiming’ for Delhi. BSP’s Mayawati has lost her charm after the Dalit issue has somewhat waned in UP. The fact is, people have realised that ‘voting’ according to, and for, ‘caste’ or ‘religion’ is not going to make their lives easier.

An evaluation of the moves made by all the parties contesting in the UP Assembly election reveals that demonetisation has dwarfed every other move. The negative effects of demonetisation as far as the UP polls are concerned, are insignificant – even if people get nothing out of it. People will be okay with it. As the slogan mentions, it was meant to fight black money irrespective of the fact that it does or doesn’t, in the short run. According to the government, it will take a year in determining the pros of demonetisation. Now the question remains whether the pros will outweigh the cons, or the other way round. Forget the authorities – do we have the ability to differentiate between the probable and possible growth in the economy for the year because of ‘underrated’ GST and the one due to ‘overrated’ demonetisation? GST can really bring growth to the economy with proper implementation – on the other hand, introducing a higher denomination note will only increase money laundering.

Demonetisation was a huge exercise that made everyone (the poor and the rich) pay, with the government creating the perception that it was for the greater good. People at the top of the food chain always have a choice to escape from the crisis. It is the poor who never have that privilege. In the process of paying the price for the long term gains from the note-ban, ultimately, it was the poor who had to bear the bigger share of misfortunes and troubles. The analogy can be drawn from indirect taxation – if the government increases indirect taxes, then will the sellers bear it? No – he will recover that from the end consumers by making them pay more for the products. The fight for black money through demonetisation has achieved very little – therefore, the smart shifting of the narrative to ‘cashless India’ was obvious. In an economy like India, where 96% of the population depends on cash, 86% of it gets banned. In such a case, which prudent person will defend the practicality of going cashless in a night wholeheartedly?

Temporarily, the note-ban has sabotaged the Indian economy. The Finance Minister has said that India requires a double-figure growth to actually accommodate and provide for its large population. Growth, that too, in double figures would probably be tangible, if the party in power comes up with ‘less adventurous’ policies for the new political arenas opening up – provided the ‘family feuds’ and the ‘minority votes‘ don’t empower Akhilesh Yadav.