States Must Show Political Steadfastness in Clearing a Workable GST

Published: 31st August 2014 06:00 AM  |   Last Updated: 29th August 2014 01:17 AM   |  A+A-


As one takes a taxi from Noida to Delhi (or in reverse direction), there is a long queue at the border to pay entry tax—note that travel is within the so-called National Capital Region. At every border point of Delhi with Uttar Pradesh or Rajasthan or Haryana, one sees a long queue of trucks lined up, partly blocking the highway for ‘verification’—this may include Octroi or sales tax collection or inter-state permit issues. The wait for each truck at each border may vary anywhere from two to six hours. A friend sent his personal baggage earlier this year by truck from Chennai to Delhi on transfer; what should normally be a three- or four-day transit for a professional driver actually took 12 days. There were at least 40 checkposts or barriers of some sort; the ‘hold-up’ at each point ranged from two to 12 hours. The local uniformed pandas and pujaris manning the barriers had invariably to be propitiated with a sacrificial gift; a total of `5,500 was paid as ‘speed money’ for the travel despite valid documentation. Multiply this scenario a million times all over the country and one will get a picture of the national loss the current procedures entail.

The writer recently spent two weeks travelling in west Europe, in a hired car, travelling about 3,000 km—in 14 days, staying in three different countries, crossing six international borders. Apart from the first entry point and final departure point at Munich, even the passports were not seen at any other border. In the smoothly interlocking, interlinking Autobahns, Autoroutes and highways, one did not even notice as the taxi transited from one country to the other. The tariff mechanism in each highway system was different—some free, some paid through toll, some through purchase of annual or weekly ‘vignettes’; one does not recall even a minute’s delay at the international borders. While there was large-scale inter-country truck traffic, one did not see any checking, checkposts, barriers, large queues of trucks at any of the borders. We as a nation do not realise the massive costs, ultimately to the account of the poor citizen, attributable to not being able to sort out elementary cooperation in the transit mechanism.

The ‘sovereign’ countries of Europe, with different ethnic, linguistic and cultural backgrounds, and with as much diversity as in India, can find mechanisms to cooperate with each other and create conditions for optimal, least obstruction of movement of goods through a customs union/ free transit arrangement. But we cannot achieve this simple management magic within the same country. Surely the Indian states do not have more ‘sovereignty’ than the nations of Europe—indeed, this vests only in Delhi. The Central, state and concurrent lists in the Constitution is not a licence to hold citizens to ransom, and ask them to pay exorbitant costs. Is there no realisation among the state governments that this cruel inter-state transit arrangement (or, really lack of it) adds a hefty amount to the cost of basic products, and contributes significantly to inflation? Is it not basic common sense that the self-aggrandised grand-standing, obstructive postures taken by our petit-Hitlers governing the states cost the nation dear?

subramanian.jpgThe standard argument is that the state’s revenue will be ‘hurt’ through a uniform GST and an inter-state transit union. The reality is that every state will gain through higher revenues by speed of movement and reduction of barriers. There are various types of pressures at work in each state: the excise, customs and transport officials at the lower levels do not want rationalisation and efficiency, as it will directly hit their pockets; unenlightened secretariat senior officials see it as their duty to cry hoarse that the state will become bankrupt due to GST, and urge the chief minister to take a thoroughly negative position. Many state leaders succumb to the temptation to take the posture that the agreement can take place ‘over the state’s dead body’. How shortsighted can the state leadership be? An interlocking, smooth traffic and transit system, with minimal official interference, will not only be Pareto optimal revenue-wise but will also greatly boost business in general, as also inter-state and international commerce, and over time yield great dividends to all state exchequers.

This is not to suggest that there should be no checks and verifications of the documentation and declaration. Indeed, the European arrangement provides for test checks and exemplary, deterrent, punitive punishment for even miniscule violation of rules or for false certification. By the same token, the temptation to erect barriers for the ‘exceptions’ like alcohol or tobacco or gasoline will defeat the very purpose of the scheme; note that most state governments get heavy financial ‘assistance’ from the excise lobby—there ought to be no exceptions in GST. The Central government on its part needs to be ‘generous’ in ensuring that the states get off on the right foot, without immediate loss. Ridiculously, we have been ‘negotiating’ the GST for 40 years now. Good leadership now from the states and the Centre ought to ensure a workable GST system with a smooth transport and transit arrangement during the current financial year. That will be a sign that the nation is maturing—that good governance will prevail—and everybody would be a winner.

Subramanian is a former Cabinet Secretary


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