LESSONS FROM INDIA'S MIDNIGHT TRYST WITH FISCAL DESTINY

Many leaders and scholars came together to make GST a reality. The model of cooperative federalism that made it possible could be used in other areas too

- K M CHANDRASEKAR

IN the aftermath of the election and the first parliament session, we lost sight of the seventh anniversary of the goods and services tax or GST. After several decades of sustained, quiet effort by many people, the president ushered it in at midnight on July 17, 2017.

In 1986, the government of India took the first step in the form of MODVAT, a type of value-added tax limited to central excise duties. My introduction to VAT occurred in the mid-1990s, when I was finance secretary of Kerala. Amaresh Bagchi, the then director of the National Institute of Public Finance and Policy, held a meeting of state finance ministers and secretaries. My minister, CV Padmarajan, asked me to represent the state. I was new to VAT on a national scale, even though my state had introduced it in a few select industries. With the approval of my minister, I recall I opposed the introduction of VAT at the national level, primarily because it would adversely affect the state's flexibility in revenue collection. My connection with finance ended a couple of years later when I moved to the commerce ministry in 1996, where I remained until 2004. I then came to the finance ministry as revenue secretary.

In 1994, a service tax was introduced at the central level. The discussion gradually veered towards a goods and services tax in the 1990s, but the political uncertainty prevailing in the second half of the decade lowered the momentum. In 1999, there was a significant new development when an empowered committee of state finance ministers was formed an innovative exercise in cooperative federalism.