Herald View: Reeling from a double whammy; Parliament must discuss GST on foodgrains

There is something seriously wrong with a regime where diamonds are taxed at 1.5 per cent while foodgrains, hospital beds and even crematorium services are taxed at 5 to 28 per cent.

This week’s increase in the Goods and Services Tax (GST) on several essential commodities like flour, pulses, dairy products and hospital rooms is bound to further skewer the economy, make prices even more unaffordable for common folk and take the inflation rate to unsustainable levels. This at a time when jobs are scarce, incomes are down and thousands of small businesses, which used to account for a lot of employment in this country, have gone belly up.

To rub salt into their wounds, Union ministers are heard saying that inflation impacts the rich worse, not so much the poor (this was even seen in a recent government economic review report). How does consumption data, the apparent basis of this surmise, miss the effect of the increase in prices of rice, milk, curd, flour and other such essentials on low income groups?

Annual WPI inflation, which measures inflation at the producer level, has been in double digits for 14 months in a row. Generally, WPI has a slow though lasting effect on retail prices. With average family incomes estimated to be between Rs 8,000 (for over 15 per cent of the population) and Rs 14,000 (for 60 per cent) in recent months (as per CMIE data), the latest GST whack will be ruinous for common people. Former Union finance minister P. Chidambaram is right in his scathing remarks on the impossibility of a course correction in the GST regime in its present form. He described it as a law with serious birth defects that have worsened over time. To salvage the situation, he says, the multiple GST slabs must be scrapped and replaced with a single low rate on all goods and services. Additionally, transparent mechanisms need to be in place for sharing of revenues between the states and the Centre. Opposition-ruled states, in particular, have complained bitterly about the loss of revenue under the GST regime, which allows the Centre to hog tax proceeds at the expense of the states. The multiple tax slabs and the convoluted GST compliance protocol have broken the back of medium and small enterprises—leading, in turn, to massive job losses and financial trauma to the low- and middle-income groups in the country.

When GST was launched five years ago, the government bragged about this so-called ‘One Nation, One Tax’ regime as the rebirth of the nation. The irony of five slabs in that ‘one tax’ was utterly lost in the hyberbole. Half a decade later, with so much devastation in its wake, one wonders how much further things must slide before the government decides on another knee-jerk reset. It is abundantly clear to all but its apologists that this GST regime has failed. Far from achieving any of its hyped-up objectives of ease (of doing business?) and transparency, it has actually pulverised small businesses, driven foreign investors out of the country, triggered an exodus of even well-off Indians, and brought many more poor to the brink of hunger and starvation. Two centuries ago, John Marshall, a US Supreme Court chief justice, said the power (of governments) to tax is the power to destroy (the people). How prescient was that?

(This was first published in National Herald on Sunday)