Untying the GST Gordion knot

This post first appeared in DNA India on 16th November, 2017.

The recent amendments made to the goods and services tax (GST) rates for multiple goods has had Twitterati abuzz along rather predictive lines. Supporters of the government argue that this is indicative of the government’s desire to take citizen feedback seriously and to be proactive in ensuring that any drawbacks of the GST rollout are addressed speedily. The government’s detractors argue that if so many items had to be moved away from the highest tax bracket to the lower ones, why couldn’t it have been better thought so as to not include them in the higher tax bracket in the first place? They see this as a government perennially in the mode of trying to build a plane and fly it at the same time.

My own thoughts on this are somewhat mixed. While personally, I am a fan of GST, I must admit that as a start-up, the GST rollout has caused no little angst for us small players, especially in relation to our working capital. All the “roll backs” give us some confidence that the government is listening to us and will take appropriate action. However, as I sat down and tried to analyse why we were seeing a series of course corrections, it struck me that what we were witnessing had the hallmark of a classic multi-party, multi-issue negotiation.

Let me explain what I mean. Negotiations, as everyone knows, are hard. None perhaps is harder than a multi-party, multi-issue negotiation where each party has its own agenda, limitations and constraints in which to manoeuvre. This is certainly true of the GST negotiations between the government and the states. While some of the southern states like Tamil Nadu bemoaned the potential loss of revenue due to GST, other states like Bihar or UP would have been happy about that although unhappy about the rates for different items. Given that the Centre was trying to get all states on board, the only way for the negotiation to reach a successful conclusion was for a distributive approach where while no single state could claim to have got all that it wanted, together, most states would have been comfortable with the final outcome.

As they say, it is to everyone’s credit that rather than trying to get a perfect GST before rollout, the Centre and the states did not let the perfect become the enemy of the good. My contention is that the negotiators for the Centre probably realised the challenges and issues that people would face but that they were also confident the GST Council would be able to apply the requisite course correction, once the system came into being. The alternative to this would have been another irresolvable log jam and more time wasted for a country that was already behind the eight-ball on the economic front. Without these compromises to bring every state to sign off on the initial agreement, the GST rollout might well have not happened during the government’s tenure.

It was smart negotiating by everyone that ultimately led to untying the GST Gordion knot and that is a consummation that everyone devoutly wished for!

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