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Here politics is bigger than economics
Thu, 5 Aug Pre-Open

If only those responsible for governing India were more economically sensitive. The latest update from the Ministry of Finance presents a huge setback to India's economic prospects. That a bill slated to add atleast 3% points to India's annual GDP growth has been rejected. The Indian politicians have far more serious concerns than the economy's well being.

The bill in question was for introducing the 'Goods and Services Tax' (GST) in India. A much talked about and much-needed reform for the Indian economy. Some of the benefits of GST introduction would have been:

  • Creating a single, unified Indian market to make the economy stronger.
  • Abolition of numerous other taxes such as octroi, central sales tax, state-level sales tax, stamp duty, turnover tax etc.
  • The resultant rate of tax would be 14-16% under GST as against around 20% currently. This would benefit individuals as prices would come down. Lower prices would lead to more consumption, thereby helping companies grow their turnover and profitability.
  • India would join the league of 140 countries already having implemented GST.

But unfortunately, loss of political autonomy is not acceptable to Indian policymakers. If that comes at the cost of the economy's retarded growth, so be it. Apart from high indirect taxes, what also hurts India is the rather distorted nature of taxes. We certainly do not expect the Government to reduce taxes substantially. There are simply too many vested interests involved for it to take such a step. But we would certainly love it if the Government took steps to correct the current distorted tax regime. Unfortunately even an earnest step in this direction seems to be going futile.

The uniform tax measure (GST) threatened to eliminate the scope of individual discretions of state and central finance ministers in imposing taxes. This would have served the larger goal of keeping a check on prices. And solve the biggest economic problem India is currently facing. However, such solutions that curb their political rights are not acceptable to Indian policymakers.

The Government certainly needs more money. A ballooning fiscal deficit cannot be addressed only by hiking taxes. For this would mean burdening the already heavily taxed classes. But the GST would have ensured more equitable distribution of tax payment. As also more efficient usage of the funds thus collected. What's more, it could also mean greater wealth creation for shareholders as firms rake up more profit growth than usual. But unfortunately, we live in a country where politics is bigger than economics!

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