A day after former Finance Minister Arun Jaitley passed away, Thomas Isaac, Kerala’s Finance Minister tweeted, ‘Arun Jaitley leaves behind lots of fond memories about formative years of GST Council. Of course, he had his agenda. But he was willing to listen, argue and, many a time, compromise in order to carry everybody together. I have come to pay my last respects.’
Eulogies about political rivals are hard to find in India’s bitterly polarised environment these days. It says something about the man for whom the words were tweeted. From the days he began his politics as a student leader in the Akhil Bhartiya Vidyarthi Parishad (ABVP) until his last days in the Government, as Narendra Modi’s Finance Minister during 2014-2019, Jaitley was always committed to the ideology of the Bharatiya Janata Party (BJP). But he never let ideology come in the way of forging better relations with people with a different politics, across the aisle in Parliament or in the closed chambers of the Goods and Services Tax (GST) Council. He was a consummate practitioner of the art of compromise.
His emergence and rise in India’s political establishment had a lot to do with the necessity of the system requiring a person like him who came armed with legal acumen and political skills. 1984 was the last General Election in which a political party mustered a majority on its own in Parliament. For the next 30 years, coalitions were often messy and even prime ministers with the best of intentions and vision for the country had no control over political uncertainty. There are many examples of governments unable to pass laws as they were unable to carry out effective ‘floor management’ in Parliament. Numbers alone are not everything, even at the best of times.
In 2014, when Narendra Modi became Prime Minister, the National Democratic Alliance (NDA) faced a piquant situation. It had a stunning majority in the Lok Sabha but was way short on numbers in the Rajya Sabha. Campaign promises made in the contested early months of 2014 were in danger of remaining just that, promises.
It was at that time that Jaitley swung into action and steered the package of Bills and constitutional amendments that were necessary to bring GST to life. In the years preceding enactment of the GST law, a fruitless ‘pass the ball’ game continued for nearly five years. The Empowered Committee (EC) of state chief ministers kept on labouring, to no avail. Even when it was led by skilled politicians like Asim Dasgupta, the then Finance Minister of West Bengal, nothing moved. States were the most concerned stakeholders in what was conceived as the single biggest indirect tax reform since Independence. Their concern was twofold. Their first issue was the scale of revenue losses in case the plethora of indirect taxes were subsumed under a single tax. There was another issue as well: who would make good these losses? The keep-on-passing-the-ball suited everyone but the country’s starved fiscal system.
Beginning in the summer of 2014, these issues were handled one by one. First states were assuaged that their revenues would not go into a tailspin. This required more than just marshalling of economic facts and dry statistics. Harried politicians are slow to trust these things unless there is a catalyst at work. Here Jaitley played a very important role. His friendly relations with chief ministers were the stuff of legend and came in handy at this time. At key moments when everything appeared to be deadlocked, he stepped in and ordered a break in the proceedings. A sumptuous meal would be served to break the ice. Very often the trick worked and almost acquired a formulaic efficiency.
There were, of course, fortuitous events on the way that helped Jaitley in an invisible-hand fashion but one that he recognised and grasped quickly. One example in this context is that of the 14th Finance Commission (FC). The FC is a constitutional body that recommends the basis on which taxes are to be shared between the Centre and states. In India’s history, the Centre has jealously guarded its powers of taxation while states have always complained that their powers in this regard are ‘municipal’ in nature. The 14th FC, which issued its recommendations in 2013 for 2015-2020 was the proverbial at the time when GST was being rolled out. In one swoop, the FC ordered that states be given 42 per cent of the divisible pool of resources. As Finance Minister Jaitley welcomed this and implemented the FC decisions with gusto. It remains one of those hidden stories of India’s economic history on how states were comforted at a key moment by this increase in resources for them even as they fretted about revenue losses from GST. In the end not only did they get more resources from the 14th FC award but also by law after the GST (Compensation to States) Act, 2017.
That, however, is not the end of the story. If bringing GST to life was one huge act of juggling a diverse array of interested parties, working with it brought its own challenges. In the GST Council the requirement for taking a decision is three-fourths of the weighted votes of the council where the Centre’s weight is just one-third of the membership. The stacks are loaded in the favour of states. It took all of Jaitley’s skills of persuasion to change rates and bring in various goods and services under the ambit of the law at the Council. In a country notorious for political arbitrage—a fancy word for everyone for himself or herself—getting any decision made when the rules are onerous is something of a wonder. There were, no doubt, acrimonious moments in these proceedings but none of the kind that made it out as screaming headlines. The right mix of compromise and cajoling by the Union Finance Minister did the trick with the weight being heavier on the side of compromise.
This is not where the Jaitley story ended. In fact it began much earlier when he played an important role at a number of junctures that were important for India. One example is that of the multilateral trade negotiations at Cancun in Mexico in 2003 when everything seemed stuck. Domestically he will always be remembered as the man who brought GST to life. But that was just one reform that he piloted. Almost at the same time as GST was being deliberated and shaped, he was pushing another law, the Insolvency and Bankruptcy Code (IBC). In the years before the National Democratic Alliance (NDA) came to power, a law modelled on Chapter 11 of the US bankruptcy law was a popular demand among reforms that knowledgeable people wanted in India. It is pertinent to remember that it was sometime in 2015 that it became obvious India was sitting on a ticking time bomb of bank loans gone bad and overleveraged companies not willing to borrow more. Nervous borrowers who were at the wrong stage of the business cycle also fretted about legal consequences of their loans going bad. A clear law that led to a path of resolution was the need of the day. The IBC was the product of those demands. Here again, it took Jaitley to push the law and ensure that it did not go on the back burner in some committee endlessly deliberating on the issue.
There has been plenty of criticism in recent months and years about the shortcomings of GST and IBC. These criticisms are fine but should also take into consideration the complex nature of the Indian polity where some sorts of ‘federal compromises’ are inevitable. It is a good exercise to calculate the odds of a ‘perfect’ GST coming into being in terms of the number of years that would have taken. In making these compromises, Jaitley had to bear in mind two extremes: not being seen to trample on ‘federal sentiments’ and ensuring that the law became a reality. In doing so he also adhered to the political outlook of his party.
That in India everyone wants reforms but no one wants to pay the price is a truism that probably few appreciate. Many times even when these reforms are ‘costless’ the sheer inertia of the system ensures that nothing gets done. A favourite libertarian demand is that antiquated laws that are of no use—but can be positively misused—should be repealed. It took the new NDA Government in 2014 to start the process rolling. No one remembers the last year when such laws were scrapped. Jaitley was instrumental in getting such laws off the statute book by dozens. Some of these laws dated to the 1800s. In doing this and everything else, the late Finance Minister knew that India does not like radical departures. The trick, he knew, was to move on without making haste. It worked well for him and his party.