Armed with a landslide victory in Uttar Pradesh, a key northern State that drives the national political narrative, the NDA government is set to give a major push to economic reforms agenda in the days ahead. Since the UP win is seen as a clear public endorsement of the demonetisation policy, there are expectations that Prime Minister Narendra Modi will unveil follow-up steps and pursue reforms, covering real estate, banking, labour and other areas, with more vigour. The first in the series of reforms measures to get off the block is the Goods and Services Tax (GST) whose July 1 rollout now looks certain with the GST Council approving two crucial Bills — State and Union Territory (SGST and UTGST) – on Thursday. It has already cleared Central GST and Integrated GST Bills and the Compensation legislation. All these draft Bills will now go to Parliament and State Assemblies for approval. This will pave the way for the creation of a uniform market in the country in what is seen as the biggest tax reform since independence. The long-pending labour Bills on wages and industrial relations are also expected to get a big push to boost job growth. Labour Minister Bandaru Dattatreya has proposed boiling down 44 industrial laws into four codes to simplify employment rules and raise social security benefits for workers. Also on the anvil is a major reform to simplify and streamline clearances and approvals for construction permits in big cities using information technology tools.
The road to GST had its share of political hurdles and disagreements between the Centre and States, but it is finally coming to fruition. The banking sector reforms, on the other hand, still evade a consensus. Specific steps to tackle the bad loans and restore banks’ health are still pending. The success of GST, which will facilitate seamless movement of goods, is a testimony to the inherent resilience and robustness of India’s federal structure and its ability to implement a complex reforms process involving diverse interests. Apart from reducing the complexity of taxes by subsuming all other indirect taxes like service tax, octroi, Central and State sales taxes and turnover tax, the GST will lead to a reduction in transaction costs of businesses, plugging leakage of tax, lowering tax burden on the common man and improving ease of doing business. It is expected to boost GDP growth by two percent. For now, there would be four tax slabs of 5, 12, 18 and 28 percent and a levy on taxes on luxury items like cars, aerated drinks and tobacco products to compensate States for any revenue losses in the first five years. It is heartening that all States have now come on board to cooperate in the rollout.