GST is all set to roll out on July 1. What is your view on the tax rates that have been fixed so far?
I am delighted that the incidence of the tax is going to be down
relative to today. Now in the report that I wrote if you recall I had
that said there would be pretty substantial compliance gains and in some
ways the decision to opt for a lower headline incidence reflects the
conviction that there will be compliance gains. So that, if the
incidence is going to be lower going forward especially on the goods
consumed by the poorer people, you are going to get both equity benefit
but also all the fears about inflation should now be held in check.
We have to make sure that tax cuts are passed on so that consumers
actually benefit but the inflation fears are should subside, a) so it is
overwhelmingly positive. b) one India one tax, one India many taxes.
There are two standards against which you can measure that.
The
first standard is an improvement on the current regime and my honest
assessment is that compared to today, it is going to be a huge
improvement even in complexity.
If you look at the excise
rates, there are 12-14 excise rates. Similarly, on the service tax,
today there are seven or eight rates. Relative to that, it is going to
be an improvement and that is also very positive. But if your standard
is that we could have used this opportunity to clean up much more, I
think there is probably too much complexity on that standard. But if we
can work on this on an ongoing basis, then over time we should try and
clean up and maybe we will be able to clean up this complexity as a
gradual evolutionary process.
This is perhaps what the real unique GST will be.
We need to continually evolve this system on two fronts, not just the
complexity of the rates but also the base. We need to bring in land and
real estate, health, education, power and petroleum. On both front --
the complexity front and the base expansion front -- we need to do this
going forward.
When do we see the expansion happening in realistic terms? It has taken us a decade to come where we are now.
Now we have the GST council. We have this terrific intergovernmental
process and then in principle it can happen any time. If they get
together and say look our experience after one year is that there is
leakage here, complexity here, they can always at any point choose to
evolve the system and I am hoping that there will be that pressure at
work on an ongoing basis.
You have been very candid in
your assessment of Indian industry. India Inc has said almost
unanimously that we hope rates will not be reviewed very frequently.
There has to be certain amount of predictability and longevity to these
rates. Do you essentially agree with that?
Well it is a
trade-off. If you want to balance predictability and complexity, you
have to try and effect improvements that will substantively make this a
better tax system.
While most rates have been kept to
where they were previously with a little bit of difference here and
there, I am little surprised that what the council has done with hybrid
cars for instance. Rates have gone up there by about 15 odd per cent, it
is at 43% right now, I mean after the GST council… is there scope for
review because whether it is the auto guys or ministers like Nitin
Gadkari, everybody seem to believe that there is scope for a review
there.
In fact, one of the challenges of this process
is that anyone whose rate has gone up is going to complain. This part of
the political challenge is to try and explain why we have reduced where
we have, why we have cleaned up where we have, why we have not been
able to clean up as much as we should have or could have and that is
part of the political challenge.
We are going to get these kind
of issues raised not just by one but perhaps even by other industries.
There is a sense in which the political process has to take an overall
view, after all, it is not over yet. June 3rd we are going to have at
least five or six more very important sectors… At end of that process,
we have to take a considered view. So we need to take a holistic view on
June 3rd.
From cola to car maker, everybody has a view on the rates that they have been put under.
And they have to say cut my rate. That is all…
But
if there has been an aberration, they will petition the government and
they will petition the finance ministry. I do not know how it works out
but because there are industries from cola to car makers who want a
review, who are not comfortable with where they are. The cola guys say
what is the incentive for me to produce low-sugar drink? What is the
incentive to innovate? From now to 1st of July, perhaps we will see a
lot of clamour in that sense, a lot of accommodation that the government
will have to do because this is going to be a political exercise?
I do not know. Let us wait till June 3rd because that is when
everything will be known fully and then let us see what happens and then
there will always be some push back. It is going to depend upon how the
government assesses how valid these claims are versus the larger
objective of GST. Let us wait till June 3rd for that assessment.
I
want to talk about the other elephant in the room and that is NPA.
There is finally an ordinance. There is legislative legitimacy and all
of that but people turn around and say this is like a loaded gun that
has been given to the RBI. Who is going to pull the trigger? Will it be
your friend Viral Acharya? Will it be Urjit Patel? Is too much faith
being reposed on that ordinance for fixing things up that are toxic?
Before the ordinance was passed, that allegation was government is not
doing enough, people are not doing enough. Now that all parties have
consulted and have taken this very seriously and taken this decisive big
action which is the ordinance, we have to give this a chance to work
and see how it pans out.
Earlier the complaint was there is no gun, now you are saying it is a loaded gun. There is no winning in this business.
But is this going to resolve things, be honest with me?
As you said it is a powerful instrument and it could potentially work but the proof is going to be what actually happens.
In
some sense, are you undermining the commercial banks because this
should have been ideally a commercial decision. It was not taken for
various reasons, institutional activism, bureaucrats being pulled up,
but do you believe this is after all a bank’s decision. I mean why
should the central bank or the government at large sit down and decide
where the haircut will be? Why should the MD or the ED of the banks not
decide that?
Well you answered the question yourself.
The point is that we do have a situation where public sector officials
find it very difficult to take these decisions and that is a fact. We
cannot wish away this reality. We have to work around the reality and
that is why the measures have been taken as they have.
Do
you believe the whole mechanism -- overriding powers to the RBI, banks
being given more power -- is going to be counterproductive to risk
appetite? What about the promoter who would want to take risk? Isn’t
this counterproductive because it is not going to be you but it is
almost like a big brotherly watch on issues that can go wrong and
sometimes those issues are out of your control, are they not?
No. Remember, you would hope that the way this process would work is
that where promoters were responsible they will have to pay a price or
either lose their stake or lose control and in other cases, we may have
situations where honest mistakes were made in the past have to be
addressed accordingly.
But it is going to be up to the process
that is being set up to actually be able to distinguish those cases and
move forward. So that is precisely why we have a process.
You do not believe this is going to compromise the risk appetite that promoters or Indian industry should be taking?
If it is done correctly, if anything, the allegation is that under the
status quo, the incentives have been badly affected going forward. So,
if we get a process that works well, then I do not see any reason why a
risk appetite should be compromised. The risk appetite has been dented
more by judicial activism and if you can move beyond that, great.
26 May 2017, 10:17 AM