Terming the roll-out of the Goods and Services Tax (GST) and the direct benefit transfer as game changing reforms, the finance ministry on Friday stressed it is necessary to involve states in economic policy making and bridge the trust deficit that often hold back reforms. Noting that the new government has a relatively “unencumbered political mandate” for decisive economic change, which is reflected in the actions that have been undertaken, the finance ministry’s chief economic adviser Arvind Subramanian announced the government plans a slew of reforms including passage of the Insurance Laws (Amendment) Bill in the current session, implementation of the GST and direct benefits transfer. “The GST provides a buoyant revenue source with a wider tax base..it will make India a more common market, almost like an internal trade liberalisation, which will provide productivity gains,” he said. Meanwhile, the Mid-Year Economic Analysis 2014-15 that was tabled in Parliament and authored by Subramanian also pitched for reforms under Indian federalism. “Reforms need to occur at both the Centre and by the states. But given.the political mandate of the new government.the question of the Centre facilitating, even accelerating reforms by the states acquire new salience,” it stressed, adding that the Centre must facilitate reforms through “reassuring, incentivising, enabling and competing”. “In some cases, reforms are held back because of a trust deficit between the Centre and the states,” it said, pointing to GST where “states need reassurances to be credible given that there is a backlog of compensation for losses.” The Centre can do so either by expeditiously clearing the entire backlog of compensation or by providing a generous compensation in the future with clear statutory backing to provide a cushion to states from potential revenue losses, it stressed.
