After a washed-out monsoon session, the NDA government is hoping that the GST Bill will be passed in the winter session of Parliament that began on November 26. Jayant Sinha, Minister of State for Finance, tells Business Today's Joe C Mathew and Sumant Banerji that any further delay in GST implementation will be a setback for the economy, adding that the GST will be a win-win for all - consumers, businesses and governments. Here are the edited excerpts.
Q. How optimistic are you on GST?
A. We have passed a constitutional amendment in the Lok Sabha that reflects years of consensus building at different stages of Parliament. What we have on the table is something that has been examined and analysed in India and around the world. Can it be improved? Of course, in the interest of the nation, we would like to improve it. We have been working hard to arrive at a consensus to get it passed with a two-third majority in the Rajya Sabha. In the Lok Sabha, the Congress voted for it, but has now brought up three more conditions. It wants an 18 per cent cap on the GST rate in the constitutional amendment, removal of one per cent supply tax for up to two years and a robust dispute resolution mechanism. We are looking at durable solutions and are in discussion with opposition parties to get the Bill passed.
Q. Between the last session and now, has the level of optimism gone up?
A. It has certainly. When the monsoon session started, the Congress said in public that it wanted the resignation (of some of our ministers) for smooth functioning of Parliament. The demand was not acceptable. So, the session was washed out. Now, no such demands have been placed, and what we have heard from the Congress is that it is supportive of the GST. So, the manner in which it is being discussed now is different from the manner in which it was discussed earlier.
Q. Why are you against this 18 per cent cap?
A. The Constitution lays down the broad principles, and revisions, if any, are done through the various Bills. The 18 per cent cap will be unprecedented. There is no other quantitative limit in the Constitution and so it will be a departure. The constitutional architecture should be kept as it stands. Doing it in the GST Bill will require just a simple majority in Parliament. We are trying to explain to the Congress that it is not reflective of the general governance principles and the constitutional architecture.
Q. Will it be a big setback if GST is not implemented next fiscal?
A. It will be a setback for the entire economy. GST is in the interest of India and its consumers. Prices will go down. The cost of doing business will go down and so profits of companies are likely to go up. A lot of complexity in the supply chain will go and you will have a common market in India. It's a win-win for all. This level of resistance in the Rajya Sabha from the Congress is very counter-productive and damaging to the country's interests.
Q. Private investment is yet to pick up. Why is it so even after so many government measures?
A. We have gone through an economic stabilisation programme - high interest rates, tight monetary policy and major fiscal compression. Under these circumstances, you would expect the investment cycle to be slower. Consumption is picking up only now. The excess capacity in the system is also being used up. Private investment will come once all the capacity is used up. Our business groups are also over-leveraged right now, as they have a significant amount of debt from the last boom. They need to de-leverage. As a result, their ability to make fresh investments is constrained. Once de-leveraging is done, private investment will pick up. Then there are systemic issues in several industrial sectors. For example, in the power sector, until we did the structural reform of distribution companies, investments looked difficult. There was already too much capacity there. Exports are also down because of the global slowdown. Due to these factors it is perfectly understandable that the investment cycle is where it is right now.
Q. How long will it take for private investment to really take off?
A. It has already started taking off. Within six to twelve months, we should see private investment taking off significantly. There are already many sectors of the economy, like renewable energy and automotive, where we are seeing strong private sector investments. There is a whole new logistics chain that is being built in India for which GST will be a massive boost. People believe that the cascading impact of taxes right now is over 30 per cent. So, if we have a reasonable GST rate, prices, complexity and cost of doing business will all come down. There is potential for 0.5-1 per cent boost to the growth rate if GST happens. GST can replace (next fiscal) the boost that we are getting from oil prices this year.
Q. You have gained a lot from oil price decline this year, but have not passed on the benefit to consumers, a reason for the increase in indirect tax collections. Why so?
A. Experts, whether from capital markets or multilateral institutions, feel that what we have done by passing on some price reductions to consumers but increasing excise, both on petrol and diesel, is a very good policy. It has helped us address the fiscal deficit problem, and the money (through higher taxes) has been used to invest in railways, roads and ports, which have a high multiplier effect on the economy. The increase in indirect tax on fuel is also being looked at as a sort of carbon tax.
Q. Is there scope to increase excise duties on oil further from here?
A. I think that depends on where oil prices go from here. The increase in excise duties has also created a cushion where we can cut duties if oil prices go up. Right now, oil and petrol prices are at a point where we have to consider how much we can pass.
Q. But in the next fiscal, oil may not be as big a contributor as it has been so far, as it cannot fall much from here.
A. When oil prices fall, either government taxes or the consumer gets a one-time boost. That adds to growth. But that's a one-time shock. It also has an ongoing impact, because our current account deficit improves as our import bill comes down. Government subsidies also come down as there is no need to subsidise fuel. Therefore, there is an ongoing impact on our fiscal situation also.
Q. In the coming fiscal, how will you manage without this one-time impact on taxes and consumption that is fuelling growth?
A. As far as growth is concerned, we have a number of drivers that are taking hold in the economy. There is a standard cyclical upswing that happens when interest rates come down. Then we have got a big boost from public investment, which has been dramatically increased in railways, as well as roads where it has gone up by a significant amount. The third is foreign direct investment, which has come at a much accelerated pace. This also boosts growth. Then there is the depth and breadth of our structural reforms. Power distribution is one example...financial sector, mining, defence, insurance - in many of our industries, we have put in place very broad and deep structural reforms. Ultimately, our economic framework and roadmap have been very consistent for the last many years.