How might it show up in policy choices? It is instructive to see how the INC has gone about its poll pitch. Its leaders are simply proposing band-aids to what they see as wounds inflicted by the BJP’s policies. So you have promises of blanket farm loan waivers, unemployment benefits, doles to different communities, etc. The BJP’s approach, too, has been quite instructive: Its leaders are not going around the rural hinterland seeking blessing for demonetisation. They are not going to cities to get congratulated on the efficiency of the GST. They are instead talking of temples, statues, and a whole array of INC politicians — ranging from Jawaharlal Nehru to Sitaram Kesri — that are long dead. Under the circumstances, if the INC were to win these three states, it would be par for the course for their leaders to ramp up their approach. Demonetisation cannot be rolled back. But what about GST?
Let’s take a detour. In June this year, soon after coming to power in Malaysia, the Pakatan Harapan or PH (Alliance of Hope) government scrapped the country’s two-year-old GST. To be sure, the PH had the political mandate to do so as abolishing the GST was its number one poll promise. It speaks volumes about the discomfort that voters must have felt that they helped the PH unseat the United Malays National Organisation (UMNO), which had won all elections since 1955. The PH’s victory surprised everyone around the world, including the PH. Of course, other factors were also in play but the Malaysians felt particularly hamstrung by the GST. Much like India, Malaysia, too, started thinking about instituting a GST way back in 2005. Their GST received the legislative nod in 2014 and came into force in 2015.
The economic rationale behind a GST is rather strong. For a government, it broadens the tax base, makes things more transparent, and yields higher revenues. International aid organisation such as the World Bank and the IMF back it for obvious reasons. Malaysia, too, hoped that its over-dependence on fuel taxes would reduce with the use of the GST. And yet it failed the political test. In fact, unlike India, Malaysia’s version of the GST was far leaner — a single tax of just 6 per cent. And yet, people found that it raised their cost of living. Moreover, despite higher revenues, government debt continued to soar over 2015, 2016 and 2017. Now Malaysia has introduced a sales and services tax. Indeed, it is too early to judge the impact of this shift but the GST has proven to be a massive political hurdle if not implemented adroitly.
A big part of the problem with the GST is that it is a tax on consumption. As an economic argument, this sounds appealing as it leads to more revenues, less leakage. But as a political argument, especially in countries where consumption levels are pretty low for large sections of the population (regardless of the aggregate number), things become tricky. What makes matters worse is that a GST hurts the small businesses and the informal economy much harder. It happened in Malaysia and the same is happening in India. Since being introduced last year, India’s GST is a veritable mess — it has multiple rates, very high tax slabs at that, revenues generated appear inadequate, and there is little transparency about the way it works.
Indirect taxes such as the GST are in any case regressive. In a country like India, where few people pay direct taxes, more people being brought into the indirect tax net is unlikely to have won the approval of most. Arguably again, it could not have helped that the BJP government wanted to bring in more people in the direct tax net as well. Of course, people may support a government if they feel some benefits accrue to them. But that wasn’t true in Malaysia’s case and looks unlikely in India’s case as well.
So the question is: If the INC were to win on December 11, how long would it take for it to become bold enough and make the scrapping of the GST (or at least, a massive overhaul) an election issue for 2019? Frankly, it is hard to see many regional parties (some of whom might be potential coalition partners of the INC in 2019) opposing such a call.