Can a GST-mukt Bharat become a campaign promise in 2019 elections?

On the 11th of this month, we will get to know the Assembly election results in five states. But there are three of them — Rajasthan, Madhya Pradesh and Chhattisgarh — that are the key states. That’s because of several reasons. First, all three are with the Bharatiya Janata Party (BJP), which also rules at the Centre. Moreover, both MP and Chhattisgarh have been BJP fortresses for a few years now. These are also the states that form an integral part of the Hindi-belt, as they neighbour Uttar Pradesh and Bihar in particular, where the BJP made an unbelievably clean sweep in the 2014 general election. Lastly, these are also the states that will witness a direct shoot-out between the two main political parties in the country — the BJP and the Indian National Congress (INC). It goes without saying that if the BJP retains all three states, as indeed it is confident of doing, it would be (and correctly so) seen as a vindication of the BJP’s policy reforms. 

However, if the INC replaces the BJP in all three or even two of these states then, in terms of national policies in the short to medium term, all bets are off. That’s because from the outside it appears that some of the most celebrated policies of the BJP have inconvenienced the voters. Be it demonetisation or the introduction of a goods and services tax (GST), it has been plain to everyone that people have not liked the disruption. Yet, and this is crucial, the BJP has won repeatedly since then. However, as evidenced since the Gujarat Assembly results, its margin of victory has been slipping. It is not too hard to imagine that December 11 may be a tipping point. And if that happens, the BJP and the INC can be expected to become more aggressive about the policy bouquet they wish to present to the populace in 2019 because there is no room for error in that election. 

There is no point quibbling over whether state elections can impact national mandates, and if so, then by how much — frankly none of this is an exact science. The fact of the matter is that the BJP has been dancing on the boxing floor almost unchallenged since the Opposition fell through the ropes in 2014. But its policy choices since then have created considerable discontent, thus allowing the INC et al another round in the ring. If the INC wins these three states on December 11, it will dawn on voters across the country that there is a national alternative. Merely that belief could spark a remarkable change and, if that happens, we will not have to wait for too long to see its initial symptoms after the results day. 

How might it show up in policy choices? It is instructive to see how the INC has gone about its poll pitch. Its leaders are simply proposing band-aids to what they see as wounds inflicted by the BJP’s policies. So you have promises of blanket farm loan waivers, unemployment benefits, doles to different communities, etc. The BJP’s approach, too, has been quite instructive: Its leaders are not going around the rural hinterland seeking blessing for demonetisation. They are not going to cities to get congratulated on the efficiency of the GST. They are instead talking of temples, statues, and a whole array of INC politicians — ranging from Jawaharlal Nehru to Sitaram Kesri — that are long dead. Under the circumstances, if the INC were to win these three states, it would be par for the course for their leaders to ramp up their approach. Demonetisation cannot be rolled back. But what about GST? 

Let’s take a detour. In June this year, soon after coming to power in Malaysia, the Pakatan Harapan or PH (Alliance of Hope) government scrapped the country’s two-year-old GST. To be sure, the PH had the political mandate to do so as abolishing the GST was its number one poll promise. It speaks volumes about the discomfort that voters must have felt that they helped the PH unseat the United Malays National Organisation (UMNO), which had won all elections since 1955. The PH’s victory surprised everyone around the world, including the PH. Of course, other factors were also in play but the Malaysians felt particularly hamstrung by the GST. Much like India, Malaysia, too, started thinking about instituting a GST way back in 2005. Their GST received the legislative nod in 2014 and came into force in 2015. 

The economic rationale behind a GST is rather strong. For a government, it broadens the tax base, makes things more transparent, and yields higher revenues. International aid organisation such as the World Bank and the IMF back it for obvious reasons. Malaysia, too, hoped that its over-dependence on fuel taxes would reduce with the use of the GST. And yet it failed the political test. In fact, unlike India, Malaysia’s version of the GST was far leaner — a single tax of just 6 per cent. And yet, people found that it raised their cost of living. Moreover, despite higher revenues, government debt continued to soar over 2015, 2016 and 2017. Now Malaysia has introduced a sales and services tax. Indeed, it is too early to judge the impact of this shift but the GST has proven to be a massive political hurdle if not implemented adroitly. 

A big part of the problem with the GST is that it is a tax on consumption. As an economic argument, this sounds appealing as it leads to more revenues, less leakage. But as a political argument, especially in countries where consumption levels are pretty low for large sections of the population (regardless of the aggregate number), things become tricky. What makes matters worse is that a GST hurts the small businesses and the informal economy much harder. It happened in Malaysia and the same is happening in India. Since being introduced last year, India’s GST is a veritable mess — it has multiple rates, very high tax slabs at that, revenues generated appear inadequate, and there is little transparency about the way it works. 

Indirect taxes such as the GST are in any case regressive. In a country like India, where few people pay direct taxes, more people being brought into the indirect tax net is unlikely to have won the approval of most. Arguably again, it could not have helped that the BJP government wanted to bring in more people in the direct tax net as well. Of course, people may support a government if they feel some benefits accrue to them. But that wasn’t true in Malaysia’s case and looks unlikely in India’s case as well. 

So the question is: If the INC were to win on December 11, how long would it take for it to become bold enough and make the scrapping of the GST (or at least, a massive overhaul) an election issue for 2019? Frankly, it is hard to see many regional parties (some of whom might be potential coalition partners of the INC in 2019) opposing such a call.