‘Reforms aren’t dead, but we don’t have the votes’

A day after presenting a budget praised for its restraint and discipline, finance minister Pranab Mukherjee reached out to the opposition and to some in his own camp to push forward key legislations such as the Goods & Services Tax and relaxation of foreign investment limits.

Addressing concerns of big industry leaders, Mukherjee said 6-7 key reformist legislation are not being introduced in Parliament because the government feels that they won’t get the number of votes required to pass them.

While the Congress party has not abandoned the reforms agenda, it was not within its powers to push these laws through single-handedly.

“In Lok Sabha, I require 270 votes, in Rajya Sabha, I require 125 to get these legislations passed. As leader of the coaltion, we don’t have the numbers,” Mukherjee said, urging the industry to put pressure on other parties and state governments to support the crucial bills.

“It is not that we have back-tracked on reforms,” he added, indicating that many of the Congress’s own allies may not be willing to back the party in pushing through the reforms.

He also highlighted the case of the Goods and Services Tax — a simplified and over-arching legislation targeted at replacing the multitude of commercial taxes imposed by the centre, the state and the local governments with a single levy. Mukherjee pointed out that since the introduction of the GST would require the states to give up much of their taxation powers, a two-thirds majority is required in the Parliament for its passage.

“I can assure the whole nation that I am ready to cover an extra mile to accomodate the views of the various state governments on the [GST] bill, but let them also agree to travel with me, so that collectively, we can achieve the purposes... The ground-work has been done,” he added.

Mukherjee said he was less worried about getting half of the states support the new GST — a radical step expected to ease business pains — but was worried about getting opposition support in the Parliament.

He also address the concerns of sceptics who questioned his projection that the fiscal deficit, the shortfall between government’s expenses and income, can be brought down from 5.1% of the GDP this year to 4.6% during the next one.

Under the current system of multiple taxation by the Centre, States and local bodies, the same shopkeeper or industry has to pay different levies such as Excise and Central Value-Added-Tax (Cenvat) from the centre, the Value Added Tax (VAT) from the State and Octroi and cess from the local municipal body.

The multiple taxation system has widely been blamed for keeping India backward in the manufacturing sector, which contributes just 16% of India’s total GDP compared to 40% for China. Many states and cities force goods passing through their territory on the way to another market to pay local taxes, while the refund of such taxes involves a lot of paper-work.

Under India’s constitution, most of the Centre’s revenues come from Income or direct taxes while the States get most of their revenues from commercial or indirect taxes. With the introduction of the GST — which is still opposed by many states like Gujarat — the states would become more dependent on the Centre passing on the revenues collected by it through the single tax.

Mukherjee has already committed to introducing the enabling law for GST in the current session of Parliament.