Govt must pay heed to do-nothing ad-vice

Economists, industry representatives, and other stakeholders regularly offer counsel to the government on how to frame and execute economic policy. Sometimes, the government pays heed to their recommendations.

This time the decision makers took their cue not from experts but from an advertisement by a popular chocolate brand, which says, “Kabhi kuchh na karke bhi dekho (Sometimes, just do nothing)” The ad has several variations, all hinting at the virtue of doing nothing.

In a country where politicians are always eager to ‘do something,’ they usually end up unnecessarily intervening in the economy—invariably with unpleasant consequences. In the wake of the decision to reduce the slabs of goods and services tax (GST) to two, Finance Minister Nirmala Sitharaman verbalized such an instinct. She said that companies must pass on the benefit of lower GST rates to consumers.

In an interview with TOI, she said that ministries are already working with the industry to ensure that the gains are fully transferred to consumers and pointed to several companies, such as state-run insurers and a leading Indian auto company, announcing plans to reduce prices. “We are keeping a close watch on prices, and MPs have told me that they are doing so in their constituencies. Ministries are also in talks with the sectors concerned. From Sept 22, my entire focus will be on this,” the FM said.

To her credit, her Ministry has ruled out the setting up of an anti-profiteering authority. Such a body was constituted in 2017 when the GST regime came into effect. A temporary arrangement—it was supposed to be in existence for a year—it got several extensions. Milton Friedman was right: “Nothing is so permanent as a temporary government program.”

It is unfortunate that even more than 34 years of liberalization have failed to inculcate respect for the market economy in the minds and hearts of our political masters. The worst features of socialism were discarded in 1991, but the beast refused to die; it just got wounded; it keeps coming back in new avatars, the latest one being fiscal socialism. It was born with GST, embedding itself in the formulation and execution of the GST regime.

“Can [a] luxurious car like Mercedes and slippers have the same tax,” the finance minister at the time of GST rollout, Arun Jaitley, asked rhetorically while defending multiple GST slabs. The multiple slabs defeated the purpose of the motto, One Nation-One Tax, but then sentimentalist dialogue-baazi is appreciated in the political arena.

However, the unction of sentimentalism cannot hide the reality for too long—the reality that the economy functions smoothly and occasions prosperity only when market forces are allowed free play, when the whims and fancies of politicians and bureaucrats are restrained, when wealth creators are not bogged down by the complexities of compliance.

Unfortunately, GST became synonymous with complexity with five slabs (0 per cent, 5 per cent, 12 per cent, 18 per cent, and 28 per cent). In effect, the Indian business had to deal with 45 tax rates; this happened as different tax slabs combined with various cess rates. The result: complexity, duty inversion, arbitrariness, and worse. For the businessperson, GST proved to be a taxing experience—taxing in every sense of the word.

All this because Jaitley and other policy makers made a tryst with fiscal socialism. They began to redeem their pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour on July 1, 2017, when the world slept, India woke up to the mess called GST.

Typically, it was the shock of US President Donald Trump’s tariffs that goaded the government to reform indirect taxation. Ideally, GST should include all goods and services, including fuel and alcohol, and there should be just one slab. But two slabs are better than five. It is piecemeal reform, alright. That’s progress.

Unfortunately, socialism not just hurt the economy but also corrupted thinking across the sections of Indian society. It’s not just Leftist intellectuals who favor statist measures; ordinary people also do that. A survey found that 87 per cent of people wanted the government ‘to do something’ to ensure that businesses pass on GST benefits. Ditto with the Opposition parties.

Thankfully, instead of veering towards establishing a body dedicated to this goal, the government is engaging with industry. Many companies, including Bata, have proactively slashed prices. Revenue Secretary Arvind Shrivastava has expressed satisfaction over compliance by the industry.

For once, the government seems to be noticing the virtue of doing very little, if not doing nothing. After all, that government is the best that governs the least.

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