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Why it would be deeply unpatriotic and selfish to oppose GST

At a time when Europe is threatening to break up and the US seems deeply divided, the GST reform bill would deepen and strengthen the unity of our country.

Written by Rohan Parikh | Mumbai |
Updated: August 3, 2016 8:42:27 am
GST, what is GST, GST benefits. GST bill, GST bill in parliament, GST bill in rajya sabha, goods and services tax, arun jaitley, narendra modi, BJP, Modi government, Congress, india news Prime Minister Narendra Modi, flanked by his ministers, arrives at Parliament. (File)

The economic case for GST is an obvious one. Most experts estimate a 1-2% increase in GDP growth (which would bring India significantly closer to the goal of eliminating poverty within a generation). However, beyond the numbers, there are larger national interests that make this legislation historic. At a time when Europe is threatening to break up and the US seems deeply divided, this law would deepen and strengthen the unity of our country. Onno Ruhl, the World Bank’s country director, put it best when he said: “India has an opportunity to conclude a free-trade agreement with itself.”

To better understand, the closest parallel would be the European Union. Here the member countries (very roughly equivalent to the states of India) allow the free movement of people, services, goods, and capital between them. While India too, in theory, has these freedoms, in reality it has the equivalent of 29 different BREXITs with each state running its own tax regime and operating its own border checks. Actually, it is far worse than that, as many cities also operate border checks and have their own ‘octroi’ regimes. The inability of goods to move freely, defeats the purpose of our union, and means that money and investment also does not flow freely across the country.

There is psychological damage that this does to our nation. With each state viewing goods from the other as “foreign”, and entrepreneurs viewing each state as a different “regime”, it makes one part of India feel alien and remote from the other. It is completely unacceptable that it takes a person two hours to catch a plane from Mumbai to Delhi, but it takes a truck seven days to get across all the border checks enroute! It is shocking that it is sometimes easier to send a shipment from Mumbai to Colombo than from Mumbai to Kolkata!

Apart from the psychological damage to national unity, it leads to inequality and friction between different parts of the country. With GST, companies will find it easier to place factories at a location that is most advantageous in terms of costs and logistics. Regions, that are developed, will attract more investment and jobs due to their low labour costs and underdeveloped regions with plentiful natural resources will see more manufacturing investment coming their way. Thus, India can finally start making far more efficient use of its vast pool of labour, resources and capital which is currently locked away in different pockets. Rather than in a few concentrated areas which attract large number of migrants, the fruits of development will spread faster and jobs would be created across the country, reducing the huge disparity in development and income between the various states of India.

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Also read | GST, explained

For businessmen across the country, dozens of different taxes, octrois, cesses, luxury taxes, etc will disappear and be replaced by a single tax, governed by a single set of rules, written in a single language, and answerable to a single body. Businessmen will be freed from a variety of dishonest inspectors. Several opportunities for harassment or blackmail will disappear. Business will be able to be conducted without the fear that new and arbitrary taxes will be raised by the local or state governments (ask anyone in Mumbai how the hated and self-defeating entertainment tax killed the entertainment industry overnight). For small to medium-sized business, the difficulty of operating in various states will greatly reduce, allowing them to compete better against the large firms. This will make entrepreneurs more willing to take risks and to consider investing outside the states they are comfortable with. This unleashing of Indian entrepreneurial energies across a united nation will benefit all consumers in the long run.

Finally, at a time when people are wary of too much concentration of power, GST achieves uniformity without giving up the power of States. The revenue earned from GST is shared between the Center and the States. So that, while centralizing and standardizing something that should be central (rules for taxation and doing business), it still maintains the federal nature of our country and permits the States to continue to spend money to address local priorities.

GST would buck global trends and push our country towards a “better and deeper union”. It would be deeply unpatriotic and selfish to oppose so critical a legislation.

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Views expressed by the author are personal. Rohan Parikh, a businessman working in education and real estate, is an alumni of the Wharton School of Business and INSEAD. Outside of business his interests are in public policy and social enterprise. Follow him on Twitter @rohanaparikh

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