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Jaitley brought together states with vastly different views on GST to ensure country’s economic integration

Arun Jaitley often let the states argue their position at length, heard every possible viewpoint patiently and resolved the issue by calling for some give and take, but never allowing matters to reach a flashpoint without compromising on the basic principles.

Written by Sushil Kumar Modi | Updated: August 29, 2019 7:40:01 am
Arun Jaitley Arun ji ensured that the compensation was given to the states on the basis of the recommendation of the Empowered Committee of State Finance Ministers (EC). (Illustration: C R Sasikumar)

He was arguably the greatest consensus builder of modern India. What Sardar Patel did for the country’s polity, Arun Jaitley did for the Indian economy. He brought about economic integration in a federation as diverse and as vast as India, something which no modern federation has achieved. But for him, GST would have remained a pious intention — something everyone agreed to but had a different version of. Even though Arun ji made immense contributions in every field that he handled, in this article I would confine myself to the implementation and evolution of GST. This process is something I was closely associated with and I had the opportunity to observe and interact with him the most.

The biggest stumbling block was the issue of CST compensation, which the previous government had announced and made an allocation in the Union Budget but never gave to the states. Arun ji ensured that the compensation was given to the states on the basis of the recommendation of the Empowered Committee of State Finance Ministers (EC). This fostered an environment of trust between the Centre and the states; the latter could now feel positive about being compensated for GST losses.

The Constitution Amendment Bill (CAB) had been hanging fire since 2010 — there were differences between the Centre and the states on crucial issues such as a constitutional guarantee for compensation, subsumation of entry tax and inclusion of petrol and diesel. Arun ji met a group of state finance ministers in December 2014 to resolve the differences. The rough edges were further smoothed when he joined the EC in its deliberations and the result was the 122nd CAB, which virtually everyone agreed to in principle as well as in broad details. It was a testimony to Arun ji’s negotiating skills that the CAB was debated and passed unanimously by Parliament and ratified by the state legislatures.

Initially, the GST Council had to grapple with the contentious issues of dual control — which a dual GST implied — and the rate path under the new tax regime. The Council’s first five or six meetings were devoted exclusively to arriving at a consensus on these thorny issues. It was only Arun ji’s credibility in a body split down the middle (between the Centre and the states), his skills of persuasion, wisdom, commitment to a united vision, democratic way of functioning and his ability to take everyone along that ultimately helped in forging a consensus.

The vexed issue of compensation got resolved when he suggested protecting the revenues of the states at a compounded annual growth rate of 14 per cent over the base year revenue levels; this masterstroke got even the states, which were till then demanding compensation of several kinds to agree to the compensation mechanism. In the meetings of the Council, Arun ji sat for long hours, patiently heard everyone out and evolved a common ground.

He virtually never discussed in the Council issues that had not been previously deliberated by the committee of officers from across the country. He also put into place an arrangement whereby every meeting of the Council was preceded by a meeting of the officers of the state and the Centre. This meeting of the Officers’ Committee proved to be a key strategy in consensus-building: The technical details were thrashed out in such meetings and the Council could then have the benefit of discussing issues over which a broad consensus had already evolved. The Council would then refine this through protracted discussions.

He formed group comprising about a dozen senior ministers from across the political spectrum, and representing varied view points on the matter, for discussing and resolving the issues that eluded consensus. The issue would get discussed threadbare in the group and almost invariably get resolved in the next meeting of the Council.

Another strategy that he often adopted on particularly contentious issues was to refer the matter for detailed analysis by and consideration of one of the many specialised committee of officers that were constituted for aiding and advising the Council in the exercise of its functions. The issues concerning the real estate sector were particularly vexing and the committees sat over them more than two times and were also directed to hold joint meetings. As Chairman of the Council, Arun ji urged non-member states to join in these deliberations so that the issue could be resolved. The tax rate on lottery was another issue which seemed headed for voting. But Arun ji saved the day by calling for a dual rate structure which found favour with all the concerned states. At times, he would defer discussions on a contentious issue, allow people to mull over it and approach the discussion in the next meeting from a different angle.

The tax rates in case of government works and the tax structure of the restaurant sector had been hotly debated in the Council with feelings running high among the different sides. But the master strategist that he was, Arun ji managed to convince everyone in the next meeting by proposing a middle way and concentrating on the agreed points. The issue of taxing powers in territorial waters was another contentious issue, wherein not much was at stake yet feelings ran high. Arun ji explained the constitutional provisions and yet accommodated the viewpoint of the states by charting a middle path. It eventually became Section 9 of the IGST Act.

The taxation of branded food products was also hotly debated in the Council and when the issue seemed to run into legal hurdles, Arun ji actually suggested a formulation for the draft notification. He often let the states argue their position at length, heard every possible viewpoint patiently and resolved the issue by calling for some give and take, but never allowing matters to reach a flashpoint without compromising on the basic principles. Even the most trenchant advocates of a viewpoint were goaded into coming around to a common view. The issue of TDS and TCS were resolved by deferring them till such time as everyone was ready for these taxes while the universal applicability of the national e-way bill system was resolved by permitting flexibility to the states in case of intra-state movements.

Being associated with and having observed the proceedings, I can unhesitatingly state that it was Arun Jaitley who translated the prime minister’s vision of GST into reality. This was particularly trying in the initial period when the alliance holding office at the Centre did not have as much representation in the Council as it now has. It is testimony to the immense respect he commanded across the political spectrum that a body comprising the Centre, 29 states and seven union territories did not ever have to resort to voting. He was a politician, an officer and a thorough gentleman. But above all, he was the ultimate consensus builder, ever prepared to walk the last mile and take that extra step to take everyone along.

This article first appeared in the print edition on August 29, 2019 under the title ‘The consensus builder’. The writer is deputy chief minister, Bihar.

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