GST – A model of cooperative federalism and ‘Team India’ spirit

At a time when the world economic landscape was looking gloomy and the voices of protectionism were becoming loud, India presented a model of cooperative federalism for reforming its tax regime and enabling the ease of doing business in the country. GST is one of the biggest economic integration reforms that Independent India has ever seen. Forming a common consensus across all 29 states and 7 union territories for a bold and revolutionary step like GST is the success of PM Modi’s Team India Approach.

From the beginning, PM Modi has led the government with the ‘Team India’ spirit. In his first Independence Day Speech PM Modi has said, “If we have to take India forward, it can happen only by taking the states forward.” He emphasized the fact that “India’s federal structure is more important today than in the last 60 years.” For building a culture of cooperative federalism, he shared his vision of establishing NITI Aayog where a joint team of the Centre and the States will cooperate with each other to move forward.

On January 1, 2015, PM Narendra Modi replaced Planning Commission of India with the NITI Aayog (National Institution for Transforming India), to enhance cooperative federalism by fostering the involvement of States in the policy-making process. Last month, in the fourth meeting of the Governing Council of NITI Aayog, PM has said,“Governing Council has approached complex issues of governance as Team India, in the spirit of cooperative and competitive federalism and the smooth rollout of GST is a prime example of this.“

Rather than seeing the issues of States as non-relevant voices, Centre government listened to their concerns carefully, analyzed and addressed their issues and persuaded them to participate constructively in the implementation of the GST. The structure of GST council, India’s first federal decision-making body was designed by keeping the delicate federal balance of the country in mind and interestingly the GST council held some 27 meetings so far where every decision has been taken by unanimity! PM Modi, who before becoming the Prime Minister of India had run the Gujarat state for twelve and a half years, comprehends the difficulties of states effectively and much better than others. He uses his own experiences to analyze the state’s issues, which results in the success of such nation-wide transformative initiatives.

He facilitated a structure where Finance Ministers of different states do brainstorming with the Finance Minister of the country and work together to implement an effective Tax reform in the country. This is a perfect model of Federal Governance! This difference in Centre’s approach to deal with States from the previous governments has made Modi government successful in the GST implementation. To win the trust of the States, which were reluctant to even discuss GST, the Modi government has not only cleared the CST compensation of UPA time but also offered them a 14% hike in revenue for the first five years of GST implementation for any loss in their revenue. This decision brought the confidence and trust in the States. For the first time, with GST council, India is experimenting with a cooperative federalism based decision-making authority, and we can see that so far the government is successful in maintaining the balance and trust which results in building the common consensus for such reformist steps.

Before GST, the Indian tax structure has always been a matter of concern among the foreign investors and the business community. It was characterized as the most complicated, multi-layered and unpredictable tax system. Due to the complexity involved in the tax structure, the flow of goods and services was not smooth in the country. Everyone doing business was eagerly waiting for this disruptive move to happen! According to Deloitte India’s recent CFO Survey, 77% of more than 250 Indian CFOs surveyed believe that the GST has had a positive impact on the overall business. While two-thirds of the respondents were positive about economic prospects in the near term, 94% were optimistic about the next 2-3 years. On 1st July 2018, on the first anniversary of GST rollout, several industry leaders have shared their positive remarks about the smooth switchover to GST and they hailed PM Modi for this transformative policy decision.

Pre GST, in India, those who deal with the trade of Goods and Services had to bear the burden of over 17 indirect taxes and multiple cesses, they were forced to file multiple returns which involved interfacing with the multiple government authorities and for every movement of goods from one state to other they were obliged to pay tax separately in every state which involves unnecessary delay in multiple checkpoints too. Through technology, GST has eliminated all the intermediary processes and people which formed Inspector Raj culture in the country. Now everything is online and transparent. The government should be credited for this smooth transition for one of the country’s largest tax reforms. After initial teething trouble, the way things have been settled up within a year of GST rollout is really impressive.

A number of other countries have GST in place which includes France, Canada, Vietnam, Australia, Singapore, U.K., Monaco, Spain, Italy, Nigeria, Brazil, and South Korea. But comparing their GST implementation with that of India is not rational, as India has customized GST structure according to its own needs. There are some analyses which are measuring the effect of GST on current economic parameters but the real impact of GST on India’s EODB ranking, GDP growth, manufacturing sector and trade expansion will start becoming visible from 2019.

From 1st April 2018, the E-way bill system for inter-state movement of goods has been rolled out in the country. And by mid-June, after two months and 21 days of its rollout, e-way bill generation hit the 10 crore mark. E-way bill has improved the system and reduced the time and cost elements of transport & logistics substantially. The GST has eliminated the tax on tax or double taxation too which cascades from the manufacturing level to the consumption level. To give relief to small businesses, the government has exempted the small businesses with a turnover of less than Rs. 20 lakhs from GST and those with a turnover of up to 1 crore can compound their GST with a payment of 1% tax on the turnover and can file a return quarterly.

Last year in his GST rollout speech, PM Modi has compared the framing process and launch of the GST with that of the Indian constitution. He said, “The Indian Constitution came into existence after a number of discussions, brainstorming debates, agreements/disagreements, which lasted for two years, eleven months and seventeen days. In a similar way, GST was conceptualized through continuous deliberations between existing and former ministers and some of the good brains of the country.” GST is a shining example of cooperative federalism! It is expected that the ‘Team India’ culture which PM Modi has initiated will become a part of India’s democratic tradition for the coming years!

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