GST enters the last mile, all eyes on Srinagar

Live mint By Anil Padmanabhan Mon, May 15 2017. 02 48 AM IST

The GST Council, comprising state finance ministers and headed by Arun Jaitley, will meet later this week in Srinagar to fit GST rates into four tax slabs

Finance minister Arun Jaitley. Photo: Abhijit Bhatlekar/Mint

Later this week, the goods and services tax (GST) Council made up of finance ministers of states and Union territories and headed by finance minister Arun Jaitley will convene in Srinagar. The 14th meeting of the GST Council is important in ways that go beyond the listed agenda: the complex task of fitting various goods and services into four tax slabs.

It will, at least on the 18-19 May, provide an opportunity to feature Srinagar and of course the state of Kashmir in a refreshingly new light in the national media. Instead of the daily news reports on terrorist encounters/killings/assaults sponsored from across the border, Srinagar will serve as ground zero for crucial deliberations on GST, the most singular piece of indirect tax reform attempted in modern India—and that too in its last mile.

Indeed, it is a very opportune moment to begin rewriting the narrative on Kashmir and the emerging compact of federalism, where the Union government is just the first among equals. The import of this moment cannot be ignored.

For the first time, Kashmir will be integrating into a national policy dialogue. And in the case of GST, it will, among other things, eliminate tariff barriers between states, preclude the cascading effects present in the existing form of indirect taxes and economically unify India—a very powerful idea in itself: One Nation, Uniform Tax.

Both the states and Union government have sacrificed their taxation powers and instead undertaken an incredible pooling of their sovereignty—Kashmir has volunteered so wholeheartedly to be part of this despite the fact that given its special status under the Constitution of India it is not bound to implement the GST.

This is a perfect example of the emerging new federal compact, where states are now beginning to own policy decisions instead of treating it like a step child of the Union government. As a result, unlike in the last 70 years, the states will be equal stakeholders; right now it is restricted to the economy, but can be extended to other domains too.

The first step in this direction was provided by the Fourteenth Finance Commission which sharply increased the share of states in net tax receipts of the Union government from 32% to 42%; did away with grants, gave greater leeway to fiscally responsible states to borrow and most importantly allowed states to define their social development programmes so as to tailor them to the peculiarities of each state.

Prime Minister Narendra Modi signalled as much in his letter to the chief ministers immediately after the Union government accepted the Commission’s proposals when he said, “This is all towards the fulfilment of my promise of co-operative federalism. As you have already seen, we have decided to involve states in discussing and planning national priorities.”

This emerging federal institutional framework has been further reinforced by the formation of the GST Council. It has been designed in such a way that the Union government has only one-third say in decisions, while the states account for the rest. Further, all decisions have to be carried by a three-fourth majority.

To put it simply, going forward, the Centre and states are enjoined in a three-legged race—one which they can win only if they coordinate their actions. And in this, it is extremely creditable that in 13 deliberations of the Council so far, despite grave provocations and differences among its members, decisions have been eventually carried by consensus.

It is in this backdrop that Srinagar will play host to the finance ministers of 32 states and Union territories. Yes, the final outcome of this key crucial GST Council is very important as the scheduled roll-out of the GST depends on it. But equally so is the opportunity it provides to chart a new narrative on the participation of India’s northern-most state, going through one its most troubled moments, in a new national dialogue—a Srinagar declaration as it were.

Undoubtedly, a moment to seize.

Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.

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