Deep post-election change unlikely

In its election manifesto, the Congress party says it will reward export-oriented industries through tax rebates and incentives. It also promises to review and replace the current Goods and Services Tax (GST) laws with a ‘GST 2.0’ regime that will truly reflect the intent and purpose of a non-cascading, value-added, indirect tax. Another pledge is to enact and enforce a comprehensive ‘Law on Doing Business in India’ that will incorporate the best business practices and rules.

Few can quarrel with its statement that export creates jobs and no country has achieved high economic growth without high growth of export. However, there is also nothing new in its intent to zero-rate the export of goods and services; this is already reality. There might be takers for its intent to announce a ‘Make for the World’ policy, under which foreign and Indian companies will be invited to invest in ‘Exclusive Export-only Zones’, manufacture and export their entire production, pay no indirect taxes and only pay a low rate of corporate tax. Again, Special Economic Zones were set up with precisely the same objective. Its aim to promote export of India’s traditional products like handloom products and handicrafts is also a routine statement, telling us nothing about how it is any different from current policy.  

It is easy to promise removal of restrictions on export and import of agricultural products but difficult to do so, considering the need to ensure availability of such items in the domestic markets and ensuring price stability. The idea to deviate from WTO (World Trade Organization) rules only with sufficient justification and for a limited period, and to review the Foreign Trade Policy within three months, does make sense.  The thought of promoting cross-border trade in the northeast is also welcome.

The manifesto says the promised GST 2.0 regime will be based on a single, moderate, standard rate of tax on all goods and services. However, this means no relief for consumers, since it also says the rate will be revenue-neutral to current indirect tax revenues.  It also talks of a special rate of duty on demerit goods, which already exists by way of compensation cess. It says essential goods of mass consumption (such as foodgrain, lifesaving drugs, vaccines, etc) and essential services will be exempted from GST 2.0 or zero-rated but that is already the case.

The promise to bring real estate (all segments), petroleum products, tobacco and liquor within the ambit of GST 2.0 in a manner and time period not exceeding two years can materialise only if the GST Council agrees to it. The proposal to abolish the e-way bill and instead detect evasion through risk management mechanisms and strengthening the intelligence machinery will be widely welcomed. So will the ideas to allocate a share of GST revenue to panchayats and municipalities, do away with the reverse charge mechanism for purchases from unregistered dealers, not to let threshold exemption for small businesses be affected by inter-state supply of goods or services, on quarterly returns, re-design of websites to make these user friendly, etc. Although much will depend on how the GST Council responds to the suggestions.  

Overall, the Congress manifesto does not suggest major disruptions but only changes that will address any distortion. In any case, the manifesto of the ruling party matters more.  


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