As exporters and traders get their refund cheques, for July and August, in the wake of the GST balm applied by the Modi government, in the form of slashed GST rates, the government hopes that the growing pain and voter unrest, among the middle class business, will cease. The middle class sentiment among middle level businessmen, who by and large are the pillars of the BJP vote bank, for the first time since 2014, showed signs of concern bordering on resentment.
The hurried course correction can be looked at both ways. As an admission that the GST roll out should have been planned better and the fact that impact assessment had not been thought through. At the same time, the course correction itself indicates that the government is firm on the principle of GST and is willing to do a course correction in the early stages.
Simply put, it had very little option but to ease GST rules for small and medium-sized enterprises (SMEs), and reduce the GST rate on 27 items.
The trigger for the immediate course correction was not economics but politics. The growing concerns about the manner in which the new GST regime was affecting Small and Medium Enterprises (SME’s), echoed not just in the corridors of power but the other power centre – the RSS. It is reliably learnt that BJP president Amit Shah was quietly spoken to, by the RSS leadership recently and asked how the cadre and the organisation could curtail the GST related unrest among middle level businessmen, who found the tax regime complicated and extremely time consuming and exhausting.
The biggest challenge was to cut the compliance burden of medium and small taxpayers. The items selected for the slashing of GST rates is a clear indication that the middle class angst had to be contained before crucial Assembly elections, including those in Gujarat. Items such as unbranded Ayurvedic medicine, handmade yarn, stones used in flooring other than marble and granite, stationary items like clips, some diesel engine parts, a few components of water pumps, and sliced dried mango and so on.
Another factor that played a part in this course correction exercise was that small and medium-sized enterprises are crucial to the Prime Minister’s aim to create millions of more jobs. The GST added layers of paper work and compliances for companies and subsequently hit exports and affected SMEs.
Prime Minister Modi could not simply afford to tarnish his well crafted image of a reformer creating jobs and wealth and preside over an economy whose growth rate has slowed down to hitherto unheard of levels. Senior BJP leader and former Finance Minister Yashwant Sinha’s column in the Indian Express, which bluntly hit out at the handling of the economy, was certainly not dismissed and ignored, even though it may have caused a lot of hurt. Sinha has delivered five punches: that the economy was on a downward spiral; demonetisation has proved to be a disaster, GST was badly planned and executed; more jobs have been lost and that there was no hope for recovery.
With these new decisions, it is the party and the organisation which can go back to the people, especially in poll-bound states, with a relief and hope to win back a class, which in many senses, still remains the DNA of the parivar and the party, the middle class businessmen.
