The global context is changing with political parties having a strong religious identification and conservative economic policies are guiding events in countries like India, the US and to an extent, Britain. On the other hand, liberal regimes are flourishing in France and, for some time now, in Canada.
The New York Times Magazine recently carried an issue on the Constitution of the United States of America. In India, the Congress was remembering the Freedom Movement in the resurrection of the National Herald and their triumvirate of Gandhi, Nehru and the indomitable Sardar Vallabhbhai Patel. The NYT issue on the American constitution made the interesting point that James Madison had pushed through a constitution document, which was not really a reflection of the dominant political mores of the period and that the framers of the constitution and the government “were so conscious of their break with the past that they knew they had to sneak it past the bodies that had authorised their meeting, the states that had sent them as delegate to Philadelphia. The delegates were authorised only to propose reforms to the Articles. But it was clear from the outset that most of them wanted to scrap the Articles together.”
Much of the same was true about our country. It is also true that in addition to the triumvirate, B.R. Ambedkar was also clearly drafting a constitution, which was ahead of the standards of a majority of his countrymen, yet was accepted in the excitement of the early years of Independence.
There is no question that, at present, there is considerable tension including tendencies to violence. But behind the antagonistic sloganeering, there is in actual practice, considerable give and take so that the system continues to function. And yet, when leaders make the point in a very explicit manner — like when the US president says in a sharp tone he will change the structure — there is palpable tension. This is also true of India.
The interesting aspect of all this in our country is that in the rarefied world of idealistic politics the focus is taken away from more mundane aspects like policies for economic growth. It is obvious the newspapers are not going to carry the story of the deceleration in industrial growth and sobering analysis of recent CSO data by people as differently located as me and my friend, Rahul Bajaj. Prime Minister Modi’s discussions with President Trump and Prime Minister Netanyahu take away the urgency of debating falling private and public investments, low manufacturing growth, low EMI declared in early July and the rest of it.
There is also no time to discuss the GST. The GST, being a value added tax, is a step in the right direction and in the long run will help the economy. This happens only if there is a real value added tax with a single rate or maybe one for essentials like food and medicines, and another for the rest as in other countries. The original GST was structured this way. But if you have five rates, a large part of the messiness of the past is brought back. Interested groups will then lobby for transfer from one rate to the other and the elegant simplicity of the GST is lost.
Five rates bring back the sales tax since it is likely that five rates would include a large part of the taxed economy even now. It also happened probably for a more unedifying reason which is the tax officials do not believe in the real argument for the GST — that the lower rate would give them more revenue. Statements by officials at the highest level that if prices don’t behave then the government will not tolerate the market and will use the stick to jail traders took away all the elegance of the GST.
Markets work with supply elasticity, not the danda. It’s still not too late to promise that things will be simplified as soon as possible and we will get a real GST.