Political posturing won’t compensate GST shortfall, policy rejig will

The 41st meeting of the Goods and Services Tax (GST) Council proved inconclusive because the political class is yet to come to terms with the fact that the economic crisis, exacerbated by the Chinese virus pandemic, is humungous. Routine statements, normal policy responses, and political posturing will not take anybody too far; the need of the hour is a paradigm shift, for which nobody seems to be ready.

Finance Minister Nirmala Sitharaman called the pandemic as an “Act of God” that will contract the economy in 2020-21. By the way, it is the first official acceptance of decline this fiscal. The two options offered to fill the estimated compensation shortfall Rs 2.35 lakh crore pertain to borrowing; one of them engages the Reserve Bank of India to facilitate the borrowing.

The Centre as well as states are clueless about the situation. They have been unable to comprehend its enormity; this seems to be the reason they are still bickering in the old-fashioned, pre-Covid manner. Many statements were on expected, political lines. For instance, Kerala Finance Minister Thomas Isaac underlined the distinction between genuine GST compensation and compensation because of Covid. He reportedly said: “They are enforcing a cut in compensation and bringing in an unconstitutional distinction… There were serious differences of opinion, I challenged the distinctions. I am willing to consider borrowing by states but full compensation must be paid.”

On the other hand, Bharatiya Janata Party leader and Bihar Deputy Chief Minister Sushil Kumar Modi warmly greeted the two options: “Both the proposals are welcome… states will not be burdened as interest and principal will be paid from the cess fund. States wanted that borrowing by the Centre would be better, but now even if states have to borrow, there will be no burden on the exchequer. They don’t have to do repayment or interest payment and hence, state exchequer won’t get burdened.”

Our leaders should realize that the issues related to economy can no longer be politicized, or at least politicized beyond a point. They also need to do some serious introspection before making any statement and/or taking a decision. All political parties at all levels indulged in most dangerous populism over the years—reckless spending, farm loan waivers, anti-business policies and attitudes, tax terrorism, excessively empowered government agencies, and long goes the list of woes.

Dialogue-baazi and finger-pointing may help politicians win polls but won’t boost the country’s economy. They need to shed the most deleterious and toxic elements of economic policy, and come up with something concrete, meaningful, and efficacious. They have to expedite reforms, empower wealth creators, and disempower bureaucrats and regulators. For the sake of the nation..