Modi will go down in history for hammering consensus on difficult tax reform

Modi will go down in history for hammering consensus on difficult tax reform

From his vehement opposition as Gujarat chief minister to a personal involvement in hammering out consensus on GST soon after BJP's historic win in the 2014 general elections, Prime Minister Narendra Modi will be remembered for executing India's most significant tax reform that had languished for almost two decades.

The GST was first conceptualised by then prime minister Atal Bihari Vajpayee in 2000. West Bengal Finance Minister Asim Das Gupta was borrowed as one of the finest economic brains to head a committee. The mandate was to put in place back-end technology and logistics.

The work went on albeit at a slow pace. Four years later in 2004, India went into elections and UPA government came to power with Manmohan Singh as Prime Minister and P Chidambaram as Finance Minister. Chidambaram, who had already made his mark in the ministry of commerce for making India's Exim Policy, was tasked to prepare the draft of GST. In his Budget speech of 2006, he set a 2010 deadline for GST roll out.

In 2008, an empowered committee of state finance ministers was constituted which laid down the roadmap for GST. After the 2008 general elections, though the UPA came to power again, the finance minister was changed. This time Pranab Mukherjee laid down the basic structure of GST in the budget. This was prepared by Dasgupta. In a way Chidambaram's draft was revisited by him. It was around this time, that the GST faced maximum opposition from the BJP.

Efforts by Centre to negotiate with BJP ruled states was futile. The UPA had to defer the 2010 deadline and set a fresh target of 2011. The 115th Constitutional Amendment was introduced in Lok Sabha to bring GST. GST was formally introduced but referred to the Standing Committee of Finance led by BJP's Yashwant Sinha.

The target date for GST roll out was once again postponed by a year. Asim Dasgupta after a decade long tenure resigned from the empowered committee of state finance ministers following his defeat in the West Bengal Assembly elections.

Now the negotiations at the state level was in the hands of Kerala Finance Minister K M Mani. Regular meetings were held with state finance ministers. States never budged from their stance that petroleum and petroleum products, alcohol and entry tax should be out of the ambit of GST in order to maintain their fiscal autonomy.

But the UPA government was not very forthcoming on making so many compromises as the spirit of GST was one nation, one tax. They instead offered compensation to states for revenue losses. Rs 9,000 crore was announced as compensation in the Budget for 2013-14. In August the Yashwant Sinha-led Committee submitted its report suggesting some improvement in GST. Modi, the then Chief Minister of Gujarat, opposed it saying the state will incur a loss of Rs 14,000 crore if the GST comes through.

India went into hustings once again and the new BJP-led NDA government was installed at the Centre with Modi as prime minister in May 2014. In December of that year 122nd Constitutional Amendment was introduced in Lok Sabha to bring GST. Finance Minister Arun Jaitley set the deadline of 2016 for roll out. By this time, hectic negotiations with states started and the prime minister himself held several strategic meetings to get states on board.

In May 2015, Lok Sabha passed GST. In August of the same year, Rajya Sabha paased the constitutional amendment bill. In September the GST Council was set up. Cabinet cleared all GST bills. Negotiations with states continued but the government now was in a mood to make compromises. Petroleum, alcohol and real estate were left out of GST as per states demands. States started coming on board one by one.

As we speak, all states except Jammu and Kashmir have passed their GST laws and GST is ready to be rolled out at midnight tonight.

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