Sunday, July 17, 2011

The BJP must support the GST......mixing politics with economics hardly helps it

The announcement of Sushil Kumar Modi – BJP’s deputy CM in Bihar – as the Chairman of the empowered panel of state finance ministers on GST is clearly an attempt by the UPA to get the BJP’s support on the Bill. As many as eight states are ruled by the BJP and if the GST has to pass muster in Parliament by 2/3rd majority and in half the states, then the BJP’s support is crucial. This is a fact well known to the BJP and the party has exploited this issue as a pressure tactic against the UPA in the recent past. It has to ask itself if this stand of its is not harming the interests of the country....

Essentially, the GST (Goods and Service Tax) will replace a plethora of central taxes and state-imposed taxes which have made doing business in India difficult. The GST Act proposes to remove several central and state taxes like Excise duty, Service tax, VAT, Octroi, Central Sales tax, State sales tax, entry tax, stamp duty, turnover tax, tax on consumption of electricity, tax on transportation etc etc etc and replace them all with one single GST. The GST will be levied at the consumption point rather than at both, the production as well as consumption points (depending on what the tax is). The other advantage of the GST is that it will reduce paper work and cost of collection of taxes. In the process, it will also reduce corruption as the tax department’s interface with industrialists will now be at just one point.

There are two “officially stated” problems largely in implementing the GST act. One is that this will take away the powers of the states to levy taxes and give those away to the Center. States worry that this will affect their autonomy. Their ability to use fiscal incentives to attract investments to their states will significantly reduce. Second, there are likely to be some states which benefit from GST because they are strong consumption centers.....while some others are likely to lose because they are stronger in production than in consumption. Obviously, the ones who could lose are opposed to the GST. The center plans to offset these imbalances at least in the short run through an assured transfer of funds from its kitty and hopes that things will iron themselves out in the long run. The “unofficial” opposition to the GST comes from the loss of state politicians to indulge in some money making on the activity that is key to our electoral process and the root cause of much of the political corruption that we see all around.

As everything else does, the GST also has become a political issue. The Act is an amendment to the Constitution and as mentioned earlier, requires a 2/3rds majority in Parliament as well as the support of half the states. The UPA knows that without the BJP’s support, the GST simply cannot be passed. The BJP instinctively supports tax reforms and has been supporting the GST in the past. It would perhaps try to get the Bill passed itself if it was in power at the center. But it has now decided to oppose the Bill. Why? Only the party can answer that question, but there are accusations that the party is giving it back to the Congress for turning the heat on Narendra Modi in the Sohrabuddin murder case.

The BJP is only harming its interests by mixing politics with economics. The general impression that people have (its “positioning”) is that the BJP is a pro-business, pro-market-reforms party. To that extent, there is no difference between the BJP and the Congress. That’s why India Inc is not so bothered who rules over India – Congress or the BJP – as both are pro-business parties. The BJP’s biggest and most efficiently run state – Gujarat – is a shining example of its preference for market reforms. When it was in power in the Center, the BJP had no hesitation in launching its own disinvestment program keeping a senior party politician (Arun Shourie) in charge of this department. Changing its colors now for political reasons doesn’t help the party’s case amongst its supporters who expect the party to be consistent in its approach.

The BJP shouldn’t worry about being the Congress’s B team on economic policies. It has an important role to play in the country as the chief opposition party. It’s clear that there is no other party that can play that role not only now but even in the years to come. The Left has been badly battered and even if it does come back to power, it is hardly the kind of the force that the BJP is. The rest of the parties are mostly regional parties who support either the Congress or the BJP. The BJP must thus get comfort from the realization that India is moving slowly but surely towards a two or three party system of democracy.

What should the BJP do to position itself as a different party from the Congress, if the two parties are aligned on economic policies? It has to position itself differently on political policies to find its own stable feet in the politics of the country. In the past, it positioned itself as the Champion of the Hindus – and got its first success on the back of this platform. But India is a complex and heterogeneous country and beyond a certain point, Indians are not particularly interested in the dangerous cocktail of religion and politics. The BJP has since been in decline. It now needs another issue with which it can position itself afresh. The big yawning opening that Anna’s movement against corruption has created today is the opportunity that the BJP should try to capture. Now the BJP today is anything but the clean party that it should be to take advantage of this opportunity. In an Economic Times – Synovate study (published in the paper on April 17th this year), out of the 13 “most corrupt” states, BJP figured in five, Congress in four and the rest were single-state parties. Another way to look at this is that the Congress was named in four out of its 12 ruled states (33%), the BJP in five out of its 7 (71%), and the rest were ruled in the single state that they ruled in (100%). Building a positioning against corruption needs a lot of work....but if the BJP can successfully do that, it will derive long term benefits from it. For starters, the BJP needs to clean up its act in Karnataka. If it can do that, the mood in the country is such that it will benefit immensely from it. If not against corruption, the BJP can surely position itself as a hardline party against terrorism. Given the kind of neighborhood we are in, and the recent incidents, the party is sure to emerge as a distinct party.

But opposing economic policies that it usually is expected to support won’t do any good to the party. In the past, the party was embarassed by the stand it took on the Indo-US nuclear deal. Again, everyone knows that the BJP is by and large, a pro-US party and in its own days in power, had first mooted the concept of this nuclear deal. For purely political reasons, it opposed the deal in Parliament. Maybe, it lost the 2009 elections becaues of the side it took on this particular deal....In the same way, opposing the GST will only do it harm rather than any good.

The real truth is that the BJP may continue to block the GST. The party lacks good advisors. Those who understand the concept of positioning a brand (a party in this case) in the minds of people. If it did, it would not have conceded ground to Anna’s team in the fight against corruption. Today, the BJP is seen as just another cantankerous opposition party – one that keeps the ruling party on guard, but fails to capitalize on its misadventures.

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