TIOL - COB( WEB) - 479
DECEMBER 17, 2015

By Shailendra Kumar, Editor

TO lure foreign investors, the Modi Government has evidently been doing everything possible from its policy repertoire. One such measure was taken when the Union Cabinet yesterday evening approved the revised Model Text for the Indian Bilateral Investment Treaty (BIT). The revised model treaty is going to be used for re-negotiating the existing BITs and negotiation of future BITs, Free Trade Agreements, Comprehensive Economic Cooperation Agreements (CECAs) and Comprehensive Economic Partnership Agreements (CEPAs). While striking a balance between the investor's rights and the Government obligations, the model text is expected to enhance the comfort level of foreign investors and assure them of a level playing field and non-discrimination in all matters. It also provides for an independent forum for dispute settlement by arbitration. It also clearly excludes matters such as procurement, subsidies and taxation from the ambit of such treaties. Such a clarity was required to ward off legal notices coming from foreign investors like Vodafone, Shell and Cairn Plc in taxation matters.

Let's now move to the biggest taxation reform initiative which has truly proved to be too elusive for several governments in the past 10 years. Although a good number of potential foreign investors have been closely watching the floor management skills of the Modi Government in relation to the GST Bill which is equally important for the 'Make in India' Mission but the Parliamentary democracy seems to be going through a self-defeating phase of history. And such an event has aptly been described by the Union Finance Minister, Mr Arun Jaitley, as something which everybody in the country, including all the political parties, wishes good for but yet it does not happen!! Strange but why?

Let's go to a mega event organised in New Delhi yesterday, to explore the possible reasons. It was an interactive session on 'GST in India', jointly hosted by FICCI, CII, ASSOCHAM, PHDCCI and Confederation of All India Traders (CAIT). It was indeed a rare demonstration of collective persuasive power of the India Inc. The event was to collectively pass a Resolution extending support to the proposed indirect tax reform and to make an appeal to all the political parties to support the stuck GST Bill which alone promises higher growth rate for the economy. And the key invitees were the Union Finance Minister and the Chief Economic Advisor to the Government, Mr Arvind Subramanian who recently submitted his Revenue Neutral Rate (RNR) Report.

While addressing the large gathering, Mr Jaitley was not only politically candid but also did not make any effort to hide his pains over the manner in which the key Opposition Party has been holding the parliamentary democracy to a ransom. He recalled the chain of key events that preceded the final approval of the GST Bill by the Lok Sabha and how badly the wishes of the Lower House are being ill-treated by the House of Elders. He rued the tactics of consistent disruptions of the House Proceedings by the Opposition and made the allegation that the intention of the Opposition is not to allow the Bill being put on board. He was at great pain to explain that the Opposition has been setting a dangerous precedent for future opposition parties and even the opposition in the State Assemblies. While sharing the agony of his Government he told the gathering that it has increasingly become difficult to conduct any legislative work in the House and in days to come, it would be more difficult to amend the Constitution for any meaningful purpose.

In this background the Finance Minister was eminently critical of the demand of the Congress Party to put 18% GST rate in the GST Bill itself. While criticising the Congress Party for such a meaningless demand he said that how can any tariff rate be cast in stone when the constitutional amendment has become such a decadal affair. Secondly, he questioned - how can there be a single rate when there are goods for the poor and there are also luxury and sin goods? What would happen if there is flood or drought in 10 States tomorrow and the States would require additional revenue to tide over such situations. Does the Congress Party expect that in such a situation, the States would be going through a drill of amending the Constitution!

On the issue of one per cent additional tax Mr Jaitley said that it was a fairly arguable idea and there can be two views and he was willing to accept the same. But on the issue of dispute redressal mechanism he was of the view that when the States are going to surrender their fiscal sovereignty to the GST Council and even the Centre would be handing over its fiscal freedom to the Council where is the need for the Centre to set up a Dispute Redressal System? And, why should States accept such a unilateral system? When the GST Council is going to fix the tariff rates it is alone empowered to settle dispute or look for a mechanism to redress grievances of the States.

Clearly frustrated by the non-cooperative attitude of the Opposition, Mr Jaitley made reference to two vital future developments - more of executive decisions and greater use of money bills. Although he did not elaborate on them but he clearly indicated that if the country has a right to grow, the future governments will have to depend more on executive decisions for critical policy moves. Secondly, he also obliquely hinted that nothing could be more frustrating for a government which has the majority in the Lower House (a house of elected representatives of the people) but the House of Elders negating the decisions taken by them. Thus, the only solution is to go for more of money bills which do not require the approval of the Upper House even if they disagree. How feasible such an idea could be only time can tell.

Meanwhile, disappointed by the defeatist aspect of the Parliamentary democracy, Mr Jaitley talked about his Government being forced to look for an alternative to the GST system. Although he did not elaborate what could be the options for such an alternative - the Central GST but it appears that he may try for the merger of the Central Excise and Service Tax which does not require the parliamentary approval. Although many experts may not find much virtue in such a move after the Government having travelled so many miles since 2006 but the ground reality remains that if the GST Bill is not passed in the current session of the Parliament it is unlikely to happen in the next one or two years. And, going by the despondent mood of Mr Jaitley it may safely be presumed that the passage of the Bill is not going to happen in this session of the House at least.

Though Mr Jaitley did not conceal his frustration he also did not completely lose his optimism when he said that the GST is an idea whose time has come and if not in this session, it would be passed in the next one when there would be greater support for it in the Rajya Sabha from coming April. Before concluding his speech he made another history by openly asking the industry and trade associations to build more pressure on the Opposition to let the House function and conduct some legislative business which is so vital for the economy. Such an open invitation to the industry for positive lobbying is indeed unprecedented but it is indeed a healthy beginning as the industry and trade do constitute a major stake-holder for such a reform and they cannot remain mute forever. When all of us can see that a historic wrong is being done to deny the Nation what it deserves, the people at large cannot be left outside the critical decision-making in the Government or the Parliament. The essence of a parliamentary democracy perhaps lies in the fact that people or the industries are able to guide their elected representatives to do what they need for growth and prosperity. Such an invitation by Mr Jaitley is truly nothing less than a direct participation by the stake-holders in pushing the good reforms of the Government. Let's hope it works and goes a long way in setting a healthy precedent as most of our political parties believe that they exist for their own leadership and they are to be guided not by the needs of the poeple or the economy but their own party guidelines or partisan political interests. It is eminently good time for the democracy to acquire new features of maturity by involving stake-holders in pushing key legislative works in the Parliament and also Government. Let's hope it works for 'making' India ONE MARKET!