Chidambaram explains why GST will not ensure increased GDP

P-Chidambaram-interview Former finance minister P. Chidambaram | PTI

Who told you that when GST is implemented the GDP would grow by around two per cent per year? In an exclusive interview with Malayala Manorama, former finance minister P. Chidambaram dismisses the argument of Finance Minister Arun Jaitley on the potential GDP growth terming it 'pure speculation.'

Chidambaram warns Jaitley that it will be detrimental to fix the standard rate of GST above 18 per cent as it would lead to inflation and urges him to listen to the good counsel of the Chief Economic Advisor. Further, with much patience, he goes on to answer layman's query on inflation, explains how the Congress party has grown wiser and advises the government to be prudent enough to listen the voice of the common man.

Excerpts from the interview:

Most of the states are having 28 to 30 per cent taxes—central and state taxes put together. What is the economic logic behind saying even a 20 to 22 per cent GST will lead to inflation?

The economic logic is contained in the Chief Economic Advisor's report. Today, service tax is around 14.5 to 15 per cent. Services represent nearly 60 per cent of the GDP. There is no other tax on services except service tax. Likewise, on manufactured goods, there is an excise duty and a VAT. In some cases the VAT is exempt. There are also numerous exemptions in excise duty. So, while arithmetically it might appear that you should add excise rate and the VAT rate, in the case of most of the goods, both taxes don't apply, and there is no question of adding the two taxes.

Given this situation, if you impose a uniform tax, say, 24 per cent or 26 per cent, on all goods and services, the Chief Economic Advisor's report itself says it will be highly inflationary. In fact, he has calculated it himself and has said if the tax rate is 18 per cent, there will be a very mild inflation. And even on the other day, he reiterated that if the standard rate goes beyond 18 per cent, it will be inflationary.

I am only quoting from the Chief Economic Advisor's report.

But Congress' own bill didn't propose a GST rate

It was at that stage. There was no CEA report then. New information has come to us. If new information comes, do you act on the new information or do you discard the new information?

While watching the debate in Rajya Sabha, one got the impression that you would stop short of supporting the amendment bill. You had a valid point when you demanded an assurance that the GST bill would not be brought as a money bill. But the FM didn't do that and still you voted in favour

Constitutional amendment bill is neither a money bill nor a financial bill. It is a constitutional amendment bill. We are supporting the constitutional amendment bill. We are demanding that the next bill should not be brought as a money bill. Let us see what they bring.

But the assurance was not given

Why hasn't he given any assurance? If their intentions are clear...and transparent, if they genuinely want a debate, why should it be brought as a money bill?

What is your assessment about GDP growth of around 1 to 2 per cent (once GST is implemented)?

Those are all pure speculation(s). GDP growth is not dependent on the tax rate alone. It is dependent upon a number of factors. To say that if you bring GST, there will be additional GDP growth is pure speculation.

But the states are not agreeing with the proposed GST rate. They are demanding 22 or even 23 per cent (GST)

States may demand a higher rate, but there are three sides to the triangle. One is the union of India, the other is the state governments and the third is the people of India. Obviously, states will ask for maximising their revenues. The union of India will ask for maximising its revenues. But somebody must speak for the people. We are firmly on the side of the people. You go and ask the people. If you ask the finance ministers, they will say, yes, the rate must be 24 or 25. You go and ask the people, they will tell you the rate must be 18 per cent or even lower. In letters to the editor in many (news)papers, people are already demanding that it should not exceed18 per cent.

Collection of revenue is still imperfect

You put in place a more perfect system. That is the business of the government. Put in place a more perfect system to collect taxes. Improve your tax collecton system. Just because your tax collection system is deficient, you should not load a high tax on citizens who are complying with taxes and let those people who are evading taxes get away.

What do you expect from the bill proper?

Let the bill come.

Are you hopeful that it will be brought as a financial bill?

Well, we have demanded. Not only the Congress party, every political party has demanded that it should be brought as a financial bill, both houses must debate it and both houses must vote on it. If the government has a majority in the Lok Sabha and if it believes that it has a majority in the Rajya Sabha, a simple majority, why is it fighting shy of bringing it as a financial bill? Is the government conceding that it does not have a simple majority in the Rajya Sabha? Then, let the government say we don't have the simple majority in the Rajya Sabha.

Don't you feel that a lot of time has been lost in bringing the bill?

That is because of the BJP. It could have been passed in 2011 or 2012. Why did they stop it for three years?

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Topics : #P Chidambaram | #GST

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