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Tag Archives | Indian Parliament

GST Bill: A Successful Exercise of Consensus-Building in Democracy

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Image courtesy of The Indian Express

Bhavani Castro is a Fellow of Indian Studies, Getulio Vargas Foundation in São Paulo

The first half of 2016 was marked by several setbacks for democratic institutions and liberal values all over the world. From the Turkish government’s repressive response after the failed military coup to the rise of radical parties in Europe, a controversial impeachment process in Brazil and the rise of Donald Trump in the United States, it seems that democracy has recently been under significant pressure. Intense animosity and partisan divisions are challenging the way democracy works and its core values, undermining decision-making processes in parliaments, blocking key reforms, and leading to authoritarian administrative measures. However, in the midst of many worrying examples of flaws in democratic regimes in different parts of the world, it is possible to identify one case of significant success when it comes to democracy’s capacity to overcome division and build consensus: the passage of a groundbreaking tax reform by the Indian Parliament.

Goods and Services Tax Bill (GST) was passed in August in the Upper House of the Indian Parliament, the Rajya Sabha, and approved by President Pranab Mukherjee on 8 September. The GST, now turned into law, creates a single tax system in India, and represents a significant breakthrough that in practice will transform the Indian states into a common market. This notable success generated little reaction in the international media, especially in emerging and developing countries; however, it holds important lessons on how game-changing reforms can be implemented in a democracy.

The world should look at the ratification of the GST law as a substantial example for effective democracy for a variety of reasons. First, it shows the capacity of a messy, multiparty parliamentary system. Since the 1990s, the Indian government needs to recur to coalitions to rule at the national level, as the increasing number of national and state parties make it impossible for a single party to rule alone. This means often making deals and negotiating not only with the opposition, but also with strong regional parties that seek policies that benefit only – or mostly – their local constituencies. Similar phenomena are visible in other large democracies like Brazil, where large coalitions make governing extremely difficult.

An increase in polarization usually means fewer laws pass in Parliament. For emerging countries like India, where there is a necessity of progressive reforms to manage the economic transformation and push for social improvements, political fragmentation and a lack of consensus building can have devastating effects. To avoid setbacks, the strategy adopted by the Indian government was to engage and include strong regional parties in the discussion, rather than coercing and embracing a combative tone. At the same time, the biggest opponent, the Congress Party, was slowly isolated and eventually, faced by the risk of having its image damaged, had to accept the bill and enter the negotiation. Consequently, opposition parties contributed to changes in the bill, while the ruling coalition yielded to demands and offered concessions in the final written version. The process was not simply an exchange of favours as it is usually observed in multiparty democracies, but instead a conciliatory process of political commitment by all parties involved.

Moreover, the GST, when implemented, will go against an ongoing international trend of isolating peoples and markets – the new tax system has even been called a “reverse Brexit”. While the European Union is going through one of its biggest crises – with rise in partisanship and the exit of an important economic member – India is showing the world that democracies can do better. The new tax system will replace dozens of different tariffs that made selling a product to another Indian state as hard as selling products abroad. That means connecting 1.2 billion people in a European-style market and an expected increase of 1-2 per cent to the country’s GDP growth rate.

Finally, it is important to consider the dimension of this tax reform. The GST was designed along the lines of the value-added tax (VAT) model from OECD countries, and it is considered a key reform for restructuring economies. For India, it is one of the biggest institutional reforms since its independence in 1947. Most countries still struggle to enact legislation that will lead to this type of revolutionary work, as it can negatively affect some industry sectors and interest groups. Brazil, another populous democracy, has been trying for years to design a tax reform to substitute its inefficient system; however, it never even managed to produce an initial project for a new tax scheme. India’s lessons on the GST law-making process could be extremely valuable for countries like Brazil, which could follow India’s steps: first creating a highly skilled committee to design a uniform tax system, and then submitting the initial proposal to the legislative for a comprehensive discussion and adjustments between all political parties.

India still faces many problems threatening its democracy, including an ongoing civil upsurge in Kashmir, suppressed by the government, and a severe water-sharing dispute that increases tensions between southern states. However, in the case of the GST process, the government proved that it is possible to use democracy as a tool to reach potentially painful but necessary reforms in a pluralistic country. It took more than a decade to pass the GST Bill, but democracy is a slow process and does not provide fast solutions to urgent problems. India’s political system can be inefficient, polarized, disorganized and sometimes exhausting, but hopefully this experience will be a positive example for other democratic countries still struggling with much-needed institutional reforms.

Bhavani Castro is a Fellow of Indian Studies, Getulio Vargas Foundation in São Paulo

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ದೇಶಕ್ಕಾದ ನಷ್ಟ ಗೊತ್ತೇ

Kannada translation of the blog post “Cost of a non-functioning parliament” appeared in Prajavani on 21st August 2015.

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Cost of a non-functioning parliament

The impact of a non-functional parliament goes beyond mere attendance or the cost incurred to run the houses of the parliament – Varun Ramachandra(_quale)

“An Introduction to Parliament of India” is a document produced by Dr. Yogendra Narain a former Secretary-General of Rajya Sabha to acquaint the lay reader with the organisation and functioning of the parliament. (The pdf can be accessed from the Rajya Sabha website). The document describes the parliament variously as: a magnificent manifestation of democratic ethos, a body that encourages nurturing and participatory democracy, a body that has functioned as the ‘grand inquest’ and ‘the watchdog’ of the nation.

One must remember that the primary function of the Indian parliament is to enact laws. In addition, the parliament is also entrusted with the duties of discussing the finances of the nation and people’s grievances through various parliamentary mechanisms that are in place. To accomplish these tasks, the parliament is in session 3 times each year for the budget session, the monsoon session, and the winter session. The parliamentary committees however transact throughout the year.

The current Lok Sabha(16th) was scheduled to meet for its monsoon session between 21st July and 13th August 2015. This session has been a complete dud i.e., no meaningful business was transacted in this session. For various political reasons, the opposition stuck to boycotting the session, the ruling party failed to negotiate, and the speaker suspended 25 members of the parliament for ‘persistent and wilful obstruction’ of the house.

A simple assessment shows us that the parliament has lost 33.3 per cent of the available time this year. Pedantically speaking, the present Lok Sabha, the lower house, has lost 6.67 per cent of its total available time in the parliament.

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Naturally, the din in the media is about how a non-functioning parliament is a waste of taxpayers’ money. Various numbers based on the parliament’s budget are bandied to drive home this point. Flippant statistics about the price of the food being served in the parliamentary canteen, salaries of the members of the parliament is discussed too. While these are all valid assessments, the real story remains untold.

The impact of a non-functional parliament goes beyond mere attendance or the cost incurred to run the houses of the parliament.  For instance, the list of important bills that were scheduled to be passed during this session included The GST bill, the child labour amendment bill, the prevention of corruption bill and the right to fair compensation and transparency in land acquisition bill to name a few.

Each of these bills are likely to have a profound impact on the way India will progress over the next few years. Various news reports have suggested that the introduction of GST has the potential to add anywhere between 1 – 2 per cent to India’s GDP (an addition of 20 billion to 40 billion dollars). The prevention of corruption bill which deems the act of bribing a public servant a criminal offence can dampen the flow of unaccounted money in India. Lastly, the child labour amendment bill can enable a large number of children — who are bound by the shackles of employment — to attend school.

With respect to the land acquisition bill, the government and the opposition had a chance to debate the fundamental questions on property rights and land titles. Instead, theatrics has taken center stage, leaving the voters and the public in a state of confused frustration.

Therefore, the actual cost of the parliament not functioning is the 2 per cent that would have been added to the GDP thanks to GST, the lack of education of those kids who are working instead of going to school, and the addition of unaccounted money into the economy thanks to corrupt public servants. Economists term this as “opportunity cost” — the value of the alternative that is given up. When viewed through this lens, a non-functioning parliament has far reaching consequences on the economy, society, and democracy.

Along with the passing of the aforementioned bills, the parliament was also scheduled to introduce several other important bills in this session. An important aspect of law making that is worth our notice is that enacting laws and implementing them takes time. There is a delayed effect and the real impact of a law is palpable only after several months of its enactment. Now that the session is washed out (for all practical purposes) these bills will be introduced at a later stage, discussed and passed/withdrawn even further in time.

Needless to say, the rhetoric around the loss of taxpayers money due to the parliament without regard to opportunity costs is penny wise and pound foolish. Perhaps, it is also wise for our parliamentarians to read “An Introduction to Parliament of India” with care.

(The author would like to thank MR Madhavan from PRS Legislative research for his inputs)

Varun Ramachandra is a policy analyst at the Takshashila Institution — a Bengaluru-based independent think tank and school of public policy. He tweets @_quale

Image credits: Simantik Dowerah (Creative commons)

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