A Dummy's Guide to GST

GST breakthrough a watershed moment in India's Economic History

Photo courtesy +ABP NEWS 

Article first published in +ABP NEWS  Read here


The introduction of Goods and Services Tax, or GST, is arguably the most ambitious tax reform attempted by India since Independence. It aims at transforming the country into a common market, dissolving artificial economic barriers that create differential tax regimes for similar products and services across States.

It is a destination-based tax system that levies tax at the consumer end rather than at source and various stages of value-addition – which adds  layers of taxation ultimately inflating the cumulative tax impact.

Recognising the importance of Indirect Taxation in a country like India, where the Direct Taxation base is small, GST casts the net at the point of consumption or delivery of service while rationalising the total levy, merging multiple taxes such as Excise Duty, VAT, Service Tax, etc into one composite rate.

GST is designed to give a boost to manufacturing, not only by reducing the incidence of tax (from a current compounded level of 25-26% to 18%) but also increasing the physical and bureaucratic ease of inter-State movement.

At the same time there are concerns about States that are high on manufacturing losing out to States that are essentially consumption centres. This is addressed by guaranteeing States compensation for revenue loss for up to five years.

GST will also radically change the way distribution and transportation of goods happen that should benefit both consumers and manufacturers, ultimately also expanding markets and reach.

Costs of maintaining warehouses in each State and non value-adding transhipment will practically disappear, adding to the profitability of manufacturers while making it worthwhile for organised logistics companies to invest in more efficient vehicles and systems of transportation.

However, in the process of harmonisation, taxes on services may marginally increase from current levels, which would pinch the middle-classes more palpably, as eating out, travel and mobile bills become more expensive.


Similarly, some sectors – like textiles and branded jewellery that enjoy a lower tax rate today will get more expensive. Therefore, whether it will be perceived as “Acche Din” by the common man is doubtful as they are more prone to notice the taxes on service bills (example restaurants) while taxes get easily hidden in the MRP (cost of goods).

However, what the Government is banking upon is the overall boost to the economy. If indeed the expected 1-2% spurt in GDP does materialise, all will be forgiven.

While GST would be a major political victory for the Narendra Modi Government and take away its image about not being able to push through economic reforms, its implementation is not going to be a painless process.

Therefore, putting in place a grievance redress mechanism will be as important as careful chaperoning of the process of implementation. Any setback will be a bigger embarrassment than not being able to pass the Bill.

GST will be one achievement that would vindicate Narendra Modi’s unshakeable trust in Arun Jaitley whose singular contribution it would be for getting the main Opposition to the negotiating table.

But, it will also need all of Jaitley’s legal acumen to overcome the technical minefields that are strewn in the path of the GST’s roll-out.

Interestingly, States have insisted on exemption of alcohol for “human consumption” for understandable reasons. So there is no relief for the wicked.

Despite the negative surround-sound Modi is on track

Why BJP needs to form government in Uttarakhand and Jammu-Kashmir

Article first published in +ABPLIVE  click here to read


Even some avowed Narendra Modi supporters were surprised by BJP’s apparent desperation to form governments in Arunachal, Uttarakhand and, now, Jammu & Kashmir. While in Arunachal and Uttarakhand they seemed to be in an unseemly rush to topple incumbent regimes, in J&K they eschewed pride to put up with months of obdurate posturing by Mehbooba Mufti hoping to reach an understanding. The reason is not far to seek. After decimation in Delhi and Bihar and dim prospects of in West Bengal (Assam is still an open book) – Modi-Shah combine need to pocket as many Rajya Sabha seats as possible to get out of the parliamentary stalemate.

Travelling through Uttar Pradesh last week – though it is early days yet to make any predictions no matter what sundry ‘Mood of the Nation’ polls might have to say – it is absolutely clear that neither Samajwadi Party or Bahujan Samaj Party are going to be a push over in 2017 unlike in 2014 Lok Sabha Polls. While Mayawati and BSP are understandably banking on the anti-incumbency factor, in recent months Akhilesh Yadav has been working hard at not only retaining SP’s core-constituents but also winning back the disenchanted voters by some ‘visible’ efforts at governance and development. Prashant Kishor and Priyanka Gandhi may not work magic with Rahul Gandhi – but in an alliance Congress can fetch some incremental seats, as it had arguably done for MGB in Bihar. But, by present reckoning, Lucknow pundits don’t give BJP more than 80 seats in the Assembly – unless miracles happen between now and 2017.

The interesting phenomenon in all this is - while BJP’s stock is floundering and RSS continues to be ambivalent towards the government – Modi’s own rating remains high. Sure, people don’t rule out the possibility of a compromise choice of PM emerging (for example, Nitish Kumar) if a third “secular” front has the numbers in 2019 – but there is still no single challenger to Narendra Modi at the national level. For all the hype built around Rahul Gandhi V 2.0 – he will be at best a supporting cast if Congress is not the largest party in a coalition. And, much as Arvind Kejriwal may try to position himself as the already anointed ‘PM-in-Waiting” – no seasoned politician – like Lalu, Nitish, Pawar, Mulayam  and even Mamata - will trust him in the PM’s chair.

The silver lining in all this is – BJP is showing a new resolve not to allow the economic agenda to be stalled by Congress’ perverse obstructionism. Modi and Amit Shah know – rhetoric won’t carry them beyond 2016. The cash registers – both for business and the public have to start ringing sooner than later – if Modi is serious about winning a second term in 2019.

Many believe Budget Session 2016 will be the turning point for Modi Sarkar. For the first time it is showing signs of getting the act together in Parliament with a strategy in place. Arun Jaitley presented a non-spectacular budget but with both economics and heart at the right place – which even the opposition found difficult to critique (barring the EPF proposal that in hindsight appears was a red-herring deliberately planted to divert attention from more substantive provisions). Apart from getting the Aadhar Bill passed - arguably by procedural gamesmanship – and with other important legislations like the Real Estate Bill slipped under the radar – BJP’s floor managers are beginning to look almost savvy .

Placing the Mining and Minerals Development and Regulations Act Amendment in Lok Sabha the government has shown the will to bite the bullet on policy bugs that are tripping the economy. The acid test will, of course, be GST – but there too Arun Jaitley is exuding greater confidence than he was even a few weeks ago.

It is clear Modi is proceeding as per a plan. That the scripted “angry-acts” of Rahul Gandhi and the surround sound of ‘tolerance’ and FOS has not rattled the Prime Minister was obvious from his speech at the BJP Conclave – where he asked the members not to get distracted by “opposition propaganda” and carry the message of development (Vikas) to the masses.

Now with greater alignment between the RBI Governor and the Finance Ministry and BJP’s increased strength in Rajya Sabha reforms can go through the economy should finally get rolling, as predicted by many. The Budget signaled a significant course correction towards “Bharat”. As increased spends on MNREGA with focused and leak-proof digital disbursement through Aadhar backed Direct Cash Transfer Schemes start reaching the target population and Social Security Innovations like Jan-Dhan and Fasal Bima Yojnas begin to bear fruit – the “Acche Din” slogan may not sound like “Jumla” anymore and put fresh wind into BJP’s sail.

Is the Modi-Shah juggernaut losing steam?

Let’s start closer to (my) home –Kolkata.

Since Amit Shah’s Burdwan Rally on January  20^th there is visible slow down in BJP’s aggression in West Bengal.  The announcement of big names crossing over from Trinamool and Congress to BJP has  been put on indefinite hold.  Even accepting – the government in Delhi has no control over the affairs of the CBI – the investigation seems to have cooled off a little with the release of one MP and the “non-arrest” of  Mukul Roy. It is quite likely that Madan Mitra, the other minister in custody, will also be soon out on bail – taking the heat off Mamata Banerjee.  The BJP has also been studiously cautious in associating with Roy or responding to his overtures.

Although the TMC MP’s have been belligerent in Parliament, BJP’s response to their shenanigans  have been somewhat muted with at least one instance of Modi trying to reach out to the Trinamool MPs during his reply to the debate on the President’s Address in Rajya Sabha.  The Mamata – Modi meeting that followed – despite the stiff body-language  caught on camera – was also significant. It’s possible that –  strategy has been recalibrated keeping in mind the challenges of the Budget Session – with several key legislations on the anvil.  But, it also can’t be ruled out that the moderation is also an outcome of a more realistic assessment of BJP’s immediate prospects in West Bengal after the recent Lok-Sabha and Assembly By-polls  (further corroborated by Opinion Polls for the forthcoming Kolkata Municipality Elections – where BJP is finding it difficult to even mobilise candidates). Now one hears PM  Modi may be visiting Kolkata soon to follow through on his meeting with Mamata Banerjee in Delhi.

In next door Bihar – one observes a similar slackening of tempo. First, the Manjhi experiment went horribly wrong. Although the Nitish – Lalu flirtation has fallen just short of consummation – it has brought both of them back to the centre-stage commanding greater share of voice and TRP.  At the same time – BJP leaders like Sushil Modi seem to have gone into hibernation. Other than an occasional sound-byte from  Shahnawaz Hussain  (Ravi Shankar Prasad usually speaks on  other issues – in any case his mass base in the state is questionable), Rajiv Rudy or Giriraj Singh – rest of BJP stalwarts from Bihar are deafeningly silent and happy to listen to Sharad Yadav holding forth on the relative physical attributes of women on  either side of the Vindhyas.

While it is undeniable that the Delhi rout was a major jolt for  Modi-Shah leadership – mercifully AAP’s own internecine war has shifted the focus from it and hopefully the initial embarrassment in Jammu and Kashmir has been – at least for the time being  – contained.  The news from old BJP ruled states like Chattisgarh and Madhya Pradesh are not much to write home about – with both Raman Singh and Shivraj Singh Chouhan under the shadow of scams (PDS and Recruitment) in their respective states.  The newly formed ministries in Jharkhand and Maharshtra are still settling down with their own set of challenges.  With Naveen Patnaik still going strong  Odisha remains largely out of bound for BJP at the moment.

It is conceivable that Modi-Shah have tactically decided to save the powder for another day while fighting more important battles in Parliament.  But, the overwhelming impression is their juggernaut has been stalled on its track.  While Modi can definitely chose his battles in a 5 year race – to win the war he would need to get the economy moving quickly.

PS: Since the article was published - the Government managed to get the crucial Coal and Mining Reforms Bills passed in the Rajya Sabha with the support of most major political parties - except Congress, the Left (CPIM + CPI) with the JDU and RJD staging a walk-out. However, the fate of the Land Acquisition Bill still hangs in balance.

Article first published in Swarajya Magazine (click here for original link)

Non-aggression is a "Non-Option" for Modi Government in Parliament

There is a great deal of sadistic joy being derived by politicians, media pundits and social media “liberalati” on the apparent “setback” suffered by the government – after an united opposition forced an amendment to the motion of thanks for the President’s Address. Media reaction ranged from “embarrassment” to “government left red-faced”. The Trinamool Congress rejoiced at their pyrrhic victory – by an unprecedented act of convergence with arch-rival CPI(M) - their Parliamentary party leader, Derek O’Brien, calling it “the Rajya Sabha’s equivalent of a vote of No Confidence”. Many a commentator has already written the epitaph of the Land Acquisition, Insurance and other bills in the parliamentary pipeline saying Modi’s arrogance is going to cost BJP dearly.

It is unlikely that the PM Modi hadn’t bargained for any reaction– after what was by any standards a provocative speech. If he left the House immediately on completion of his speech – without waiting for any questions or rejoinders – it must have been a pre-mediated move and not guided solely by considerations of parliamentary protocol. While the absence of BJP MPs from the house was singularly unpardonable – they being around would not have made much difference as the NDA is hopelessly short of numbers in the Rajya Sabha.

It is debatable if better “floor management” could have saved the day. Some feel the BSP, SP and BJD may have been persuaded not to go against the government at least on this occasion - but expecting the Congress and CPI(M) to have yielded after the vitriol that was poured over them in both houses (in the Rajya Sabha and the Lok Sabha ) was wishful thinking.

Narendra Modi’s combative mood was evident from his swipes as “Zamana badal gaya hain, sunna padega ji” – not to mention, his going for the jugular on MNREGA in the Lok Sabha - which was undoubtedly targeted squarely at Sonia Gandhi sitting across the aisle. And, oh boy – did the message hit home? One had to only watch Madam’s expression on TV to know. Therefore, if he chose to be aggressive it must have been advisedly so. This might hold some clue on what could the government’s strategy in the days ahead is going to be as it braces up to negotiate some vital pieces of legislation on which rests not just BJP’s economic reforms agenda – but also, as the Prime Minister so lucidly explained , many of the welfare and developmental initiatives linked to them.

In an earlier article even this author had argued that Modi should – perhaps – have adopted a more “inclusive” or reconciliatory approach in governance carrying the opposition with him to the extent possible. That he has chosen not to do so - can’t be due to his ego and authoritarian temperament alone. Whether one likes him or not, there is no underestimating Modi’s political acumen – as he himself chided the opposition in Parliament. If he thought – offering the olive branch to the Opposition was the solution, he would have done so long back. It’d be simplistic to suggest he has been blinded by power not to see the obvious.

Erudite political analysts have criticised the “modern day Alexander” streak in Modi – with Amit Shah being his proverbial “Ashwamedh” – suggesting this is creating deep insecurity not only among BJP’s opponents but also its allies. It is also being argued – after Jharkhand, Kashmir and, now, most recently the Delhi rout – this strategy has run its course and can only yield diminishing returns, if not become outright counter-productive, going forward. Therefore – if Modi has decided to play on the front-foot it must only be after careful consideration. Even before the elections – Modi had figured out he had to go it alone all the way. None of the left of centre parties would risk jeopardising their traditional vote-bank (dilute their labels of “secular” or “friends of the poor and farmers’’ – as opposed to industrialists) for the fear of total extinction. Little has changed even after the elections. Those – who had to switch sides, have done so lock, stock and barrel (though one is yet to see any real exodus yet). For others it’s too early to give up their core “positioning”, which they are only trying to consolidate it by strange mating rituals driven by strong Darwinian instincts of self-preservation, as it were. And, to expect the Congress to play a “bi-partisan” role – under their current self-centred leadership – would be dreaming of Ram Rajya indeed.

Another learning for Modi government has been - alliances have been formed through hard-negotiations by subtle show of strength and occasional brinkmanship. They have to be held in place also by exercising the “upper-hand” at all times. Slightest signs of faltering or weakness – and partners like the Shiv Sena immediately start flexing muscles demanding a fresh pound of flesh. Allies will play ball only as long as BJP is in the driver’s seat. For that Modi-Shah’s expansionist forays have to continue relentlessly.

Though the merits of a strategy can only be judged in hindsight – and therein lie the test of a leader – for the moment “non – confrontational” parliamentary politics is not an option for Modi government. If civilised discourses and genteel persuasion were the solution – then Arun Jaitley’s cerebral speeches and dinner diplomacy would have won the day. But, here we are dealing with mauled tigers – which won’t be tamed just by applying poultice on their wounds. Sure, backroom negotiations will happen. But, they will have to be with real carrots and sticks on the table – and not soft cajoling and coaxing - over litti-chokha (in any case Bengali “fish-fry” is a no-no for vegetarian Modi).

But, in the final analysis, Modi is the prime minister today by virtue of an overwhelming popular mandate. Ultimately he will have to carry the message back to the people. In this, he is fighting a lonely battle. It is ironical that Modi’s biggest gift – communication - is also proving to be his Achilles Heel. Modi’s only cheerleaders are his band of hand-picked loyal ministers - mostly the young lot. By choice, he has marginalised the old guard. The RSS and its nominees in Parliament have little stake in Modi’s reformist agenda. There will always be that uneasy tension with the old regional satraps – like Raman Singh and Shivraj Chouhan. Seniors like Rajnath, Sushma and Gadkari – who share a mutual wariness with Modi - would play it safe and won’t stick their necks out for Modi. To that extent, he suffers from the same handicap as the UPA, which was often called a government of “technocrats and bureaucrats”. This leaves only Modi alone to control the narrative – with little help that he can get from Arun Jaitley and Amit Shah. He did it successfully – during his run up to the Lok Sabha - managing his entire campaign out of a war-room in Gandhinagar with a crack team (and, probably, an international Communication Consultant – as many allege). But, he can’t remain the lone crusader when he is the PM, as the position itself puts major constraints on him like we saw during the Delhi elections.

At present Modi has the entire Opposition, NGOs, media left-lib intellectuals and some sections of businessmen rallying to derail him. So far, Modi has managed to successfully neutralise (even if for the time being) the international lobby. He could isolate another vital link in the chain by co-opting the media - who – feeling left out as jilted lovers – would be too willing to queue up and offer their hand – if only Modi whispers “Barkis is willing”. It may not honeymoon on a bed of roses thereafter – but life can certainly be a bit less stressful.

Article first published in @DailyO_ (click here to read)

Making haste slowly - 200 days of Modi Sarkar

I was unapologetic about rooting for Narendra Modi  through his Prime Ministerial campaign – though I don’t consider myself to be either a ‘Bhakt’ , as Modi fans are snidely called, or a "Hindutva" die-hard.  Now even after 7 months of his Premiership I still believe he is the best  we could have had.  However, in the same vein, I am not an unqualified supporter of the BJP. In fact, one of the reason for my admiring Modi is that he has been trying to reinvent and re-engineer the BJP for the 21^st century – while the Congress and other regional parties have been regressing under the pressure of pseudo socialism, dynastic and identity politics.

Looking back,  I am not at all disappointed with what the Modi government has achieved in 200 days.   Modi’s foreign policy initiatives were well calibrated, as he realized establishing his profile globally would be essential for him to be the leader of an aspiring super-power.  Besides, he needed to build personal rapport and strike a chemistry with his international peers – given the negative image over-hand  he was burdened with (unfairly, I believe).  The criticism about his foreign tours, I think – were more out of envy and for outsmarting both his predecessors and the self-appointed foreign policy specialists of the country.

Also I don’t think much more could have been achieved on the internal front. The quiet progress made on governance – improvement in the government’s work culture, empowerment of the bureaucracy and building of business confidence have gone largely unnoticed by the domestic constituency obsessed with big ticket reforms.  Far from being cynical, I see merit in his ‘making haste slowly’ and even appreciate the so called “U-turns” in policy – which only shows his courage to accept mistakes and eschew election rhetoric  to do what is right for the country and the economy.

Contrary to what popular commentators (for whom there is only Left or Right and nothing in-between) and the opposition still recovering from psychological trauma after their total rout would like us to believe – those who voted for Modi – do not necessarily see him as a Messiah with a magic wand. Credit them with the minimum intelligence to differentiate between election rhetoric and what is practical in a real politik. Therefore,  much to their disappointment,  #Modi is still high on the ratings in post-poll satisfaction surveys.  If further proof were needed, look at the by-poll results of Jharkhand and even J&K.  On the global front – he has made his mark - and  world leaders are falling over each other trying  to woo him. Successive studies have placed him at the top or near the top of the pecking order of high performing leaders in the world today.

Difficult decisions have also been taken keeping them below the radar.  Be it rise in railway fare or neutralizing some of the reduction in oil bills through additional excise duty. His critics have in hindsight seen merit in the way the WTO negotiations were handled. After a lot of deft maneuvering through choppy political waters - the government seems close to passing GST and Insurance sector reforms. Private sector participation in Defence equipment Manufacture and PPP in Railways already cleared. 

While leading foreign policy from the front (as any Prime Minister ought to do) – he has been making good use of Sushma Swaraj in opening parallel fronts (eg with Vietnam and SAARC Countries) and even co-opting the President in Diplomacy. Though not exactly in the realm of "external affairs", holding elections in J & K was hugely significant from a strategic perspective.

The lot getting restless are the industrialists and businessmen who expected quick returns and  the large Lutyens’ Delhi community of media folks and self-styled left-lib intellectuals – feeling ignored by the new dispensation. The latter especially should realize – governments aren’t made or unmade at the India International Centre. Even foreign investors and governments are more patient and willing to give the new regime to settle down and get over the carry-forward legacies of the UPA as well as the present political dynamics before pumping  gas on  the accelerator.

But, my disappointment with Modi lies elsewhere.  Before, the elections – he had loftily said : to win elections you need a majority but to run the country you need everyone’s support. This indicated that he would seek a more inclusive and bipartisan approach to governance. Then came his famous – act of touching  the ground before entering parliament for the first time - calling it the temple of democracy. But,  this spirit has been less evident  in the style he has displayed so far.

Let’s start with the Government first. The unseemly rush to replace UPA appointed Governors was avoidable – especially where professionals (retired bureaucrats or intelligence officers)  with proven track-record were holding the posts and had just a few months of their terms left.  This was followed by the LOP (Leader of Opposition) controversy – where certainly Modi could have shown more grace and a spirit of accommodation. Similarly, one might ask if they really needed to rush through the judicial reforms bill ?

One can always argue these are minor dots in the life of a regime, which are easily forgotten. But, it does sully the atmosphere and made the Prime Minister lose some of the initial goodwill with which he could have started his Parliamentary innings. But, perhaps, it was necessary to send out some early signals that this government won’t be a push-over.

Next was the stand-off with Shiv Sena in Maharashtra. Surely the Thackerays had to be shown their place but the snub was too hard and for far too long. Abject humiliation – even of an enemy doesn’t help – even if the old adage of grace in victory is now passé.

Obviously, Modi and Amit Shah are working with a road-map and blue-print – which only the 2 of them know and even the RSS can only guess. Part of the plan must be to take advantage of this neo-Hindutva wave and establish a pan-India presence for BJP. Therefore, the vengeance with which the Modi-Shah duo is going into hitherto uncharted territories like Kerala, Tamil Nadu, West Bengal, North East and even J & K – shows they want to free themselves from the clutches of a handful of regional satraps and opportunistic allies.  

Personally, I don’t worry too much about the antics of the so-called “fringe elements”. It’s only a matter of time before Modi brings them under control, like he did with Togadia in Gujarat, as he settles his equations with the RSS. Therefore, winning these states with low RSS presence would also be key to his establishing an unquestionable supremacy. For me – the bigger irritants and distractions are Modi’s own trusted Ministers like Smriti Irani making news for the wrong reasons such as declaring Christmas as “Good Governance Day”. And, I wish he didn’t have to yield to RSS and party pressure in making some patently inappropriate choice of ministers. But, concerns voiced by the self-appointed guardians of democracy – that “secularism” and India’s plurality is at stake are both exaggerated and alarmist.

I would argue that – even if it were not for these ‘red-herrings’ , a recalcitrant opposition would find other excuses for disrupting governance. But, they can continue to do only for a sort while more till BJP populates the Rajya Sabha with their own members from the newly ‘conquered’ provinces.

Till then the government needs to stay its course and carry on with the development agenda – steadily, even if a bit slowly.