'Reform has to be a continuous process. If it is within two years, we will do it.'
Days after the big-bang goods and services tax reform announcement, Union Finance Minister Nirmala Sitharaman, at her North Block office, spoke at length on a range of issues in an hour-long interaction with Business Standard's Asit Ranjan Mishra, Vikas Dhoot, Nivedita Mookerji and A K Bhattacharya.
Part one of a multi-part interview:
What was the economic policy vision behind the big-bang reform? It is coming after the income-tax law changes...
So, how do you situate this GST initiative in the larger economic context, both in terms of policy as well as the state of the economy?
GST has completed eight years. In the course of those eight years, there were several lessons learnt. Unfortunately, Covid came in between.
So, lessons which could have been learnt within four to five years could not happen because of Covid. One or two years after that were taken to restore normalcy.
So without the two to three years of Covid-affected period, we have revamped GST within five years of its introduction.
We have not timed it for the (US) tariff, we have not timed it for anything....
An Income Tax Act in this country has existed from 1961 till 2025.... So, it is not as if it has come too late.
Are you surprised by states' response? There was virtually a quiet acceptance barring a few noises.
I was very happy. I came out and immediately recognised it. And let me tell you, I have written a personalised letter to each one of the finance ministers.
I wrote with a great sense of appreciation that all of us together have risen to the occasion. People of India deserve this.
We have deliberated, we have had differences but we have all stood together to say: Yes, this should happen, and therefore, I am very thankful.
Because this decision has been taken by consensus, not by voting...
Yes. In between, I did say I should put it to vote or else, we could have a discussion also. There was no difference on the rate change proposed by the Union.
We are in support of the proposal which is pro-people, pro-middle class, pro-MSME, pro-the large interest of the economy to grow faster.
There was no opposition against that. If anything, the concern was what happens if my revenue goes down, state's revenue goes down. So the proposal was not opposed ever.
With the GST rate cuts and income-tax relief before that, are there any early assessments of demand, GDP and inflation impact?
The finance ministry has not put out anything. It will be too early for us to give you an estimate.
What was the trigger point or defining moment when the government thought that GST should be changed and it should be simplified?
There was no defining moment or trigger point. It was like the way we handled IBC (Insolvency and Bankruptcy Code)... In IBC, we brought in three to four amendments because we wanted to keep it robust and relevant to the needs of industry.
Here, the relevance and need is that the people should get a simplified rate of tax which is friendly.
Above all, the structure has to become absolutely simple to understand, compliance has to become simple to understand.
Those were the reasons with which we have made the changes. There are no trigger points in such things.
Reform has to be a continuous process and I will not wait for decades to get reform done. If it is within two years, we will do it.
This government has championed supply-side measures. The corporation tax cut in 2019 was a big example. But since then, the income-tax cut was a demand-side measure and then the GST rate rationalisation now....
Is that a conscious shift to boost the economy?
A government cannot afford to do demand side measures once, and after a few years, supply side measures. They have to be balanced even as we are going along.
It's a continuous balancing act, and there is no shying away from balancing. It's not as if I can go to one extreme this side, and after a few years, come back.
It's like the market equilibrium. It has to be continuously kept afloat.
Most of industry has welcomed the GST revamp, and companies have said they will be passing on the benefits. But many are flagging transition issues, whether it's-fast moving consumer goods or cars.
Some are even asking the government to defer the September 22 rollout. Your views?
I don't know where that is coming from. At least people who are speaking to us are more than willing to go on.
We are putting out the FAQs on how we treat it, and in fact, let me take this opportunity to pat my back for a moment.
Tell me one finance minister, who after any press conference, after a dream budget, has put out a 70-page press note. We are clear about what we are doing.
There is a sense that insurance companies won't get input tax credit (ITC) because of the zero levy. So is a zero rating of their product a solution?
We have thought through all this. So if I have given a waiver for some categories, we have left the others wherever they were... like group insurance.
Government takes a conscious call after talking with the stakeholders. There are some sectors who would want it with input credit.
And there are others who don't want any of the input credit. Industry knows where it wants to position itself.
So we give them both the options. The end result should be that people get the benefit. Yes, we don't want industry to be totally disrupted.... decisions are taken with their consent.
And when public sector insurance companies can come out and say they will pass it on, why can't others do it?
So there is no review on that score. Right?
No. Because ultimately, they are all working in a free market situation. I am not interfering in any company's activity. Boards are driving them. You take a call.
Do you expect the GST rate rationalisation move to be a stimulus for corporate India? And do you think this will help them invest more?
I think it's a very clear step forward when the government has cut the rate. And that is going to have an impact on literally every one, whether you buy a toothpaste, a safety pin, a car, shoes or medicines or you go to a diagnostic centre.
With this rate rationalisation, everyone is going to have that relief. That itself will trigger consumption.
Demand will increase. And if demand increases, what will the industry wait for? .... Once the investment comes, capacity will be built and jobs will be created.
So this GST reform is a classic example of that virtuous cycle. It is being kicked in now.
How much time do you think it will take for India Inc to respond?
I wouldn't be able to guess.
The Central Board of Indirect Taxes and Customs chairman said in an interview to Business Standard that sin goods (demerit goods) would face an extra levy on top of the 40 per cent GST rate.
In what manner can this levy come?
At this stage, I won't be able to say anything. We'll have to work on it. There's some work going on. I'll have to see how well we'll fashion it out.
Will you share that revenue with states?
I don't know about it yet.
Feature Presentation: Aslam Hunani/Rediff
