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‘GST in its present form is flawed’

Yashwant Sinha, senior BJP leader and former finance minister, is considered by many as someone who transformed the Indian economy.…

‘GST in its present form is flawed’

Yashwant Sinha (Photo: IANS/File)

Yashwant Sinha, senior BJP leader and former finance minister, is considered by many as someone who transformed the Indian economy.

Sinha joined the Indian Administrative Service in 1960 and spent over 24 years holding important posts during his tenure before entering politics. From 1990 to 1991 he was finance minister in the Chandra Shekhar Cabinet. In 1996, he became the national spokesperson of the BJP.

He again served as finance minister from March 1998 to May 2002 and as foreign minister till 2004 in the Atal Bihari Vajpayee government. Sinha is credited with reforms which put the Indian economy on the right trajectory such as lowering of interest rates, introducing tax deduction for mortgage interests, freeing the telecommunications sector, deregulating the petroleum sector and contributions to Central VAT.

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In an interview with PRASHANT MUKHERJEE, Sinha was critical of the government over the rollout of the Goods and Services Tax (GST) and the state of the economy.

 Excerpts: 

Q.What is your assessment of the country's economy over the last three years of the Narendra Modi government?

A: Before we formed the government at the Centre in May 2014, and I was the spokesman of the party, especially on economic affairs, there was one point I particularly used to make, that we will inherit an economy which has been paralysed for some years now. It has been largely paralysed because of stalled projects worth over Rs 25 lakh crore. Because of paralysis in decision-making in the UPA government most of these projects that required various clearances were stalled. Therefore, the problem of stalled projects leads to further problem of huge non-performing assets (NPAs). And it leads to reluctance by the banks to lend further. This is one of the reasons why private investment dried up while the RBI kept on increasing key interest rates.

With limited or insufficient government expenditure, the economy started slowing down. So, the first problem that needed to be successfully tackled was stalled projects. The second important thing was sequencing of expenditure. Post the financial crisis of 2008, the then UPA government encouraged consumption demand. Through various methods they decided to put money in the consumers’ pockets. This was completely contradictory to what we had followed in NDA-I. We had put investment demand first.

The building of roads, power infrastructure and other schemes were deliberately planned to encourage investment demand. And once investment starts flowing in the economy, then jobs start getting created. Take housing for example. It has the potential of a multiplier effect in the economy, creating investment and lots of jobs. But the entire sector has almost collapsed now.

This was the problem of the Indian economy and in the last three years, I would say honestly and objectively without being unnecessarily critical that this cycle of clearing stalled projects and high NPAs has not happened. The government has said the economy is growing at over 7 per cent but that is according to the new formula.

If the growth is calculated according to the old formula, then the growth is at 5 per cent, which is almost the same as the growth rate of the UPA government in its last year.

Q:The biggest challenge the economy is facing today is employment. There is virtually no job creation taking place. Your comments.

A: A growing economy, of which naturally manufacturing will be an important part, will create job opportunities both in direct and indirect sectors. Now from all accounts, employment has not grown. My take is since the economy is not growing at the rate government is claiming, hence there is no growth in employment.

Q. What is your take on demonestisation? And do you also believe that the sharp dip in India's GDP growth down to 6.1 per cent during the JanuaryMarch quarter was caused by the government's note ban move?

A: I believe that demonetisation was never a reform measure. Demonetisation was a cleaning-up of the economy. You started with an intention to clean up the economy because you thought that a large part of the economy is black. Whether we have succeeded in our objective in cleaning the economy will depend on the number of old currency notes coming back to the system.

The RBI was initially coming out with weekly figures of the amount that was coming back and they suddenly stopped. They are not revealing the final figure of how much money has come back. How was the RBI giving the figures every week earlier? Now they are saying they are still counting. The banks which were collecting the old currency notes had already counted and given it to RBI. What they are counting now?

They should have come out with a figure with full honesty after a month or so, as they were doing earlier. Even after eight months we don't have the basic figure of how many notes in circulation came back, and hence we are not in a position to pass any judgment on whether the government has succeeded or failed in its objective.

The other side is when you withdraw such large amounts of currency from the economy, it will certainly have an impact on everything. Some decline in GDP has already been recorded in the fourth quarter numbers.

Q. Former Union Finance Minister P Chidambaram recently said the Modi government has rolled out a "very imperfect, mockery of GST", and that this was not the GST envisaged by him, Pranab Mukherjee and you (Yashwant Sinha). Do you agree with him?

A: I have already gone on record and said that in its present form the GST is flawed. I had a particular reason to be disappointed with this form of GST for the simple reason that I had carried out extensive reforms in the indirect tax system of the country. I introduced the Central VAT where it had three slabs. Now, if you introduce GST with seven slabs, then you are going back on a major reform you have already achieved. Multiple rates cause various problems. Multiple rates lead to lobbying and we have already seen a great deal of lobbying taking place. Then, it leads to discretion. Earlier the finance minister used his discretion and here the GST Council will use its discretion. And third, it leads to litigation.

Q. Are you satisfied with the rate fixation theory?

A: There are discrepancies in fixing of rates. I pointed out that you have put gold under 3 per cent and notebooks which students use at 18 per cent and there many other discrepancies that have come in. Khadi has been taxed, but the minister is hoping the GST Council will change it. Since every change will require GST Council’s consent, it will not be that easy to change. Another part is 40 per cent of the revenue stream is outside GST. Petroleum products, some real estate functions are outside, so it covers only 60 per cent. The ideal GST should have been only one rate. The Prime Minister borrowed the term 'Good and Simple Tax' but it’s not simple, it is more complicated.

Q: Being one of the initiators of GST and working on it for more than a decade, are you hurt that the government did not consult you?

A: I have been involved throughout in the evolution of a tax like GST. Now, it was entirely up to the government to have consulted me. I cannot go to the government and say take my advice. They have not come to me for advice and I have not offered them any advice.

If they had consulted me I would have told them the same things I am telling you. Why should I be hurt? It is the man or woman on the spot who takes the credit or the blame.

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