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How Modi government managed to solve the GST puzzle
April, 03rd 2017

Pundits are unanimous that GST is a game changer. But the process that led to untying the GST knot was a game changer too. It involved mature political leadership that kept the big picture front and centre regardless of the politics of the day as well as some deft political and administrative negotiations that smoothed over many divisions of a fractious federal system.

Prime Minister Narendra Modi led the process, taking big calls, and finance minister Arun Jaitley was the key interlocutor with several demanding stakeholders.

ET spoke to several officials for this story. They all spoke on the condition of anonymity.

A defining example of the Modi government’s political maturity, the commitment to GST came when the PM reached out to Congress leadership just a month after BJP’s loss in Bihar. The PM, the FM and parliamentary affairs minister Venkaiah Naidu had a meeting with former PM Manmohan Singh and Congress President Sonia Gandhi. This was totally different from politics as usual approach, officials said, and that meeting set the tone for further progress.

The PM’s message was that the country needs the reform and the FM explained to the Congress leadership why some of the latter’s positions, like capping tax rate at 18% in the GST statute, had to be reconsidered. The FM had told Singh and Gandhi that a poor GST was not an option but that Congress’ other demands will be addressed.

From then on, there were many knots to untangle and questions to answer, but the government leadership’s message remained consistent– GST was too big a reform to fail, it was uniting the country in a fundamental way, every stakeholder would be listened to, never mind his or her politics, and that there is a deadline for its rollout but it won’t be rushed through without clearing the doubts.

At Cabinet meetings, the PM kept on saying GST was more than a tax reform and exemplified India’s “unity in diversity”, officials said, and he had asked that communications on GST be kept a top priority throughout. The FM, on his part, made sure political rivalries didn’t come in the way of smart negotiations. When Delhi finance minister and Aam Aadmi Party leader Manish Sisodia made a suggestion on real estate under GST, the FM led efforts in the GST Council that decided that it can be under the new tax regime after it’s rolled out for some time. That AAP has harangued BJP or targeted both the PM and the FM personally didn’t matter.

Again, when the second of the 12 meetings of the GST Council showed emerging signs of political acrimony and by the third meeting, disputes were being openly aired, the government leadership decided that the only way forward was seeking consensus and encouraging everyone to offer solutions. When GST negotiations seemed to be getting stuck over details of tax administration, the Centre demonstrated it had no intention of cornering states, an official said. That’s why, he said, contentious issues like the threshold limit for taxation could be resolved.

There was also some deft political footwork involved. Just as the PM reached out to Congress after BJP’s Bihar loss, despite Congress leadership’s displays of aggression, the leadership also kept channels open with Bihar chief minister Nitish Kumar. After BJP’s win in Assam over Congress, further efforts were made to reach out to key Opposition leaders. The FM reached out to CPM's Sitaram Yechury, SP's Ram Gopal Yadav, TMC's Derek O'Brien, BJD's Dilip Turkey, NCP's Praful Patel, alongside engaging afresh with Congress point-persons.

At one GST meeting, an Opposition state-level minister wanted to include a note of dissent. The FM later agreed to this, understanding the minister’s political compulsion.

One official familiar with the PMO’s active involvement in the process said the message was to work at top speed while maintaining high quality. Over the last eight months, hundreds of officials worked in small groups and solved difficult questions of both producing and consuming states.

“It took us several months and many informal discussions to reach a consensus on how the final draft should look like," a top official of the government said.

Senior officials said credit must go to teams of officials who worked on weekends and holidays and were ready with options before the ministers met. For example, the 11th meeting of the GST Council that was to go on for 2 days ended in 2 hours because officials had done most of the work on sorting out issues.

Officials said it’s thanks to this broad approach, an administrative version of the PM’s ‘sabka saath, sabka vikas’ motto, as one official put it, that the GST framework is ready three months before the July 1 deadline.

Now, the PM’s focus is on communication, officials said, and the government have received detailed suggestions on how to take the message on GST to all public stakeholders.

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