Democratic Economics

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The decision to reduce the rate of tax on 200 commodities hitherto subjected to 28% GST may be driven by the political consideration of the Gujarat Assembly election, but it is still welcome. Equally commendable was the pressure the Indian National Congress exerted on the Union government during the period of parliamentary debates on the issue — even though the demand to mention a fixed rate in the statute was untenable. The GST Council has got the unenviable task of keeping the traders and consumers alike in good humour. While it could not have been the intention of the establishment to make goods and services unaffordable, given that most sellable items are made of components, not all of which come across as essential to human life and death, the ingredients kept accruing GST, summing up to, sometimes, an unreasonable price of a final product that must not be costly. In the latest instance of concessions, the Narendra Modi government has taken special care of the unorganised sector — handmade furniture, for example, the manufacture of which employs poor workers — as well as small-time traders and routine buyers of retail products.

The idea of a singular tax in place of many was exciting always, and this was no way the Bharatiya Janata Party’s brainchild. Finance Minister Arun Jaitley was told nonetheless that the GST would be a legacy that the Modi dispensation would like to be recalled for. The issue, one thought, would be the revenue share of the States. As the current government enhanced the share about two years before introducing GST in July, the passage of the Bill in Parliament became easy. The issue of complicated accountancy the regime calls for emerged with experience, which questions the foresight of the entire polity and reputed economists, none of whom had issued this warning for all the years this was debated nationwide. It is surprising that it had struck few that a product is mostly an aggregate of several components, each of which may be produced in a different factory owned by a different businessman — and, hence, GST would end up pushing the prices up rather than pulling them down in the case of several sectors of the industry. The breakup, however, has a positive side: several businesses that were so far evading taxes have to pay up now. The tax net has widened. An obvious relief has been the elimination of multiplicity of authority: for octroi, excise, sales tax, etc.

The factor oft-maligned for keeping India lagging behind China, the reason that makes economists say “good economics is bad politics”, the cause of deficit budgets proposed by all finance ministers, the creator of populism — democracy — has won. The government has taken stock of people’s dissatisfaction and tried to correct its course. For once we must thank our destiny for not being ruled by a king or a dictator.

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