When Prime Minister Narendra Modi, who was addressing the nation in Gujarat’s Gandhinagar on Monday, switched from Hindi to Gujarati half way during the course of his speech to speak on GST (goods and services tax), his audience suddenly narrowed down to the local Gujarati trading community.
Facing the traders battered by his government’s twin back-to-back disruptions, demonetisation followed by GST, Modi seemed to disown the GST implementation pain saying the tax reform was a ‘collective decision’. “It is not BJP alone, all political parties, including the Congress party, and all states are partners in this (GST) decision. The Centre is only a 30th part in the entire GST Council,” the prime minister said.
First, let’s understand the context of Modi bringing up the GST issue in Gujarat.
It is the hardships faced by the industry, particularly small traders, during the initial months of the roll out of the grand indirect tax reform. Industry, across sectors, has suffered due to the uncertainty in rules with respect to pricing of goods and services, filing returns and the impact on demand across certain verticals, where prices went up in the aftermath of the GST roll out, even though the new tax regime was supposed to have a neutral impact on prices.
The government, however, quickly swung into action a few days before by lowering the tax rates across certain items and simplifying the filing process for small shop owners.
Besides the discontent among the trading community with respect to GST, after the demonetisation shocker, the impact was felt in the overall growth numbers too, prompting even the Reserve Bank of India to take note of the GST impact on GDP. In the last monetary policy, the RBI said, “The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates.”
But the critical fact is none of these challenges the importance of GST. Also, it is fundamentally wrong to compare GST effects on small traders to that caused by demonetisation. GST is a progressive reform step that India needed to embrace at some point, sooner than later. More than a decade was lost in the political tug-of-war after the idea was first discussed in Parliament.
In a vast country like India, which is more like a Union of small countries with varying culture and geography, bringing in an uniform indirect tax structure wouldn’t have been a cakewalk at any point, let alone find a perfect time. Even the problems in the GST roll out phase are not unexpected, only a trial-and-error-method will fine tune the entire process which might happen in a year or so. The Modi government deserves credit for pushing for political consensus to a point of success and ushering in the new tax regime — the only big bang reform so far by this government.
After all, it is his government that made the biggest tax reform possible and shouldered the massive task of building a uniform tax regime that would aid the country in the long-term. By accepting his flaws, Modi would have rather sent a strong message to the nation that he is not only determined to take the reform process ahead but also the challenges which come with it.
Had the Congress been at the Centre, even they wouldn’t have done anything dramatically different on the GST roll out process and probably would be in the same position. By passing the blame to others, Modi lost an opportunity and became just a party among many pushing the GST bandwagon. In fact, he was in a way even ensured that Congress gets an equal political credit in future when GST falls in place after the initial pain phase.
Secondly, even though Modi was in Gandhinagar to campaign for Assembly election, by choosing to speak in Gujarati on the crucial issue of GST, Modi left out a large audience of entrepreneurs outside the state who, too, would have been anxious to hear from the prime minister.
Remember, GST woes aren’t confined to Gujarat’s trading community, but the whole of India. It is no way a local issue intended only for the local audience. In doing so, Modi lost an opportunity to reach out to the small traders across the country which was a bit surprising, particularly at a time when the whole nation is feeling the heat of GST transition.
What was obvious in Modi’s speech was nervousness building up within the BJP about its poll prospects especially in the present economic situation. During the speech, Modi reminded the crowd about how he and his party overcame difficult situations in the past too and why that show will repeat. Throughout the speech, Modi appeared defensive, particularly on GST, against the principal political opponent unlike his typical political attacks.
That is nothing short of an acknowledgement within the BJP ranks that all is not well for the party at the current juncture.