We want capping of GST rate in law: Anand Sharma

Interview with Deputy Leader of Opposition, Rajya Sabha

With more than half the states ratifying the Constitution amendment Bill on goods and services tax (GST), Anand Sharma, deputy leader of the Opposition in the Rajya Sabha, tells Dilasha Seth and Indivjal Dhasmana that meeting the April 1, 2017, target for GST roll-out would depend on the government’s efforts to build a consensus. Edited excerpts:

More than half the states have already passed the Constitution amendment Bill on GST. Do you think the GST could now be rolled out on April 1, 2017, as targeted by the government?

Since the Bill has been passed and ratified by the required number of states, it is for the government to take it forward. It needs to ensure there is strong and broad consensus on the nature of CGST (central GST) and IGST (integrated GST) Bills. The central government also needs to work with the states on an acceptable GST rate. The rate has to be capped since it is going to subsume all present duties and taxes of the Centre and states. The government should keep it at a globally acceptable threshold.

Which is what?

Anything below 20 per cent. Above 20 per cent would be meaningless. And, don’t forget that they (government) have not been able to persuade some states to allow taxing of petroleum goods. These are there in the Bill but zero rated. Alcohol has been completely kept out; electricity is out. If you calculate, it would be close to 22-25 per cent of the tax base. So, you are working on a small revenue base and you have to bring down duties. Now, how do you lower it without having widened the tax base. That is where a consensus between the Centre and states and the GST council is a must.

Wasn’t your earlier demand to cap the GST rate at 18 per cent?

We did not snatch this number from thin air. It was the government which said 18 per cent, and we said cap it. They also said they have not taken certain things into consideration including cess imposed subsequently. Fine. But, now they have to find an acceptable rate between the Centre and states.

But states are not comfortable with lower rate. They want, for instance, a rate above 20 per cent.

Then how will you create a common market? In any case, indirect taxation is regressive. Direct taxes have a larger share in the tax kitty of most of the developed economies. Our efforts should be to bring down the indirect taxation and improve the revenue collections through direct taxation.

Do you see any rift between your party and the government if the latter decides to bring the CGST and IGST Bills as money Bills?

That would be unfair on the part of the government and an act in bad faith because this is the important constitutional change. Let us not forget states are principal stakeholders. How can you keep them — the Council of States or the Rajya Sabha — out of any discussion? The Rajya Sabha is the first house under the Constitution. Let us not forget that we are a union of states, but also a federal polity. This must not be forgotten. Secondly, there are so many things which are going to be addressed in the Bill. It will have many things which would justify the Bill to be the financial Bill. If you are saying there is appropriation of money from the Consolidated Fund of India, where is the appropriation? It is rather money collected from the people, money is then deposited in either state Consolidated Fund or in the Central one. It is revenue which is collected, shared and redistributed.

Currently direct tax rates are mentioned in the finance Bill, but indirect tax rates could be altered outside the Bill as well. Why do you want the rate of GST, which is an indirect tax, to be mentioned in the finance Bill?

It has to be ring-fenced in the law. The current mechanism is a separate issue. You don’t have GST. Don’t forget that GST will subsume service tax, central excise duty, additional customs duty, state sales tax, VAT, octroi and other duties. It’s not that simple. It has to be legally ring-fenced. It has to be in law. It can’t be left to the executive arbitrariness.

What do you mean by ring-fencing the GST rate? Does it mean capping it?

Yes, in the law.

Your party had certain reservations about dispute resolution mechanism mentioned in the Constitution amendment Bill. Do you still have those reservations?

We agreed to the formulation, which was put in the Bill.

But, you wanted an independent mechanism for dispute resolution....

It was earlier the position. It was a negotiating position. The government had earlier not put it in the Constitution amendment Bill. Now, it has been put in the Bill. Now, there is no issue.

There are reports that the government is considering advancing the winter session of Parliament and coming out with an early Budget. How do you look at these reports?

I don’t know if they want to present six Budgets in their time. They have already presented three Budgets. This will be the fourth. Year 2018 will be the fifth and then another. Do they want to give six Budgets for a five-year term? The last one is always vote on account. Let us hear from the government what they want.

Has the government approached your party on this?

No.

GDP growth is moderated to 7.1 per cent in the first quarter of the current financial year from 7.9 per cent in the fourth quarter of the previous financial year. How do you look at it?

Going by old methodology, it will be five per cent. GDP growth is flat between what we left and what it is now. We left at 6.9 per cent as per the new methodology and now it is 7.1 per cent. Your investment growth has contracted in real terms. Saving rate declined. Debt to GDP ratio has escalated. In the first year of this government it has gone up from 47 per cent to 56 per cent. Now, it is higher. Capacity utilisation is one-third of existing industrial capacities. So, no new capacities are being created, existing ones are not being utilised. This means mounting job losses. No new jobs are being created. Exports have been down for 20 months. I am not accepting June as the month where you have recovered. If it was in positive of 1.3 per cent in June, it was on a base of a fall of 20 per cent in June of the previous year. We had left merchandise exports at $323 billion when we demitted office. We have doubled in four years, even as the first year was bad because of crisis. They said they have attracted highest ever foreign direct investment (FDI). That is factually incorrect. What is the truth? On July 20, a statement was given in Parliament by the commerce and industry minister that during April 2014-March 2015 you have got $30.93 billion of FDI, you can say $31 billion, April 2015-March 2016, you have got $40 billion. In two years, you have got $70.93 billion, so you can say $71 billion. In Q1, April to June, 2016, you have got $10.55 billion. Now, in our time, you have got $20.83 billion in 2006-07, $34.84 billion in 2007-08, $41.87 billion in 2008-09, $37.75 billion in 2009-10, $34.85 billion in 2010-11, and $46.56 billion in 2011-12 — which was the highest ever. Then, $36 billion in 2012-13 and $36 billion in 2013-14. They are telling lies. 

As a former commerce and industry minister, how do you see continued contraction of merchandise exports. What has gone wrong?

Their policies do not inspire confidence. They took away some of the incentives at the wrong time. At the pace at which we were growing, our exports should have reached $430 billion. You fell to $261 billion. 

But, there are global factors that led to contraction of exports?

No, there is global expansion and not contraction. When there was global contraction of 12 per cent in 2009-10 we grew. This is a fact. If you say China has fallen. China still has $590 billion trade surplus. Their fall is only two per cent. Emerging economies trade is growing by five per cent even today. 

How do you see the government stand on FDI in multi-brand retail and pharma?

You allow back door, illegal e-commerce FDI which is hurting small traders much more, where as they (BJP) were opposed to mandatory 50 per cent investment to create back-end infrastructure which was our FDI policy. Is there any condition now to create infrastructure — cold chain, cold storage, and processing industries. Where is the vision? When it comes to pharma, it is appalling. India is a country where pharmaceutical industries are growing, but at the same time there are challenges because for instance, our vaccine manufacturing capacities have been weakened over a period of time. That is why we allowed 100 per cent. But we said for greenfield pharma, there will be automatic route, but for brownfield there would be approval route. Another thing which we had done was on a takeover of critical verticals such as oncology and injectables. Take the case of Mylan acquisition, which was struck down by the US anti-trust body but was allowed here and that is why we opposed it. That is where we tweaked the policy. Yes, I would say we took the conscious decision and the correct decision. Even where we would allow an acquisition of brownfield, we removed the non-compete clause of any such acquisition so that your own domestic capacities were not weakened or destroyed.