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Welcome GST

Strong leaders of regional political parties like J Jayalalithaa and Karunanidhi could defy attempts by the Centre to bring about significant policy changes. With the over-emphasis on welfare measures that result in the proliferation of freebies and massive subsidies, Tamil Nadu’s finances were in bad shape. Remember the state, refusing to reform the power sector? The state delayed the formation of the State Electricity Regulatory Commission, resisted separation of generation and distribution through separate companies (neighbouring Andhra Pradesh did this to great benefit)... The finances of the electricity board were in a mess with regular losses and mounting debts. Jayalalithaa as Chief Minister routinely resisted several proposals of the Centre to the detriment of the state’s economy. She was also unmindful of the harm done to the state’s economy by such an attitude. 

A weak Centre under the UPA, dependent on the support of several regional parties, was unable to prevail over such strong local leaders. Such an attitude has also been giving rise to agitations by special interest groups. We witnessed these in recent times in the opposition to the hydrocarbon project in Vadivasal, the constant agitations by lawyers, farmers and more recently, by government doctors and transport workers. One can witness the impact of a strong Central government with a single party commanding majority in the Lok Sabha. The Modi government has been able to stand firm and not yield to demands considered unfair. One hopes pressure groups would realise the futility of protesting issues that had received extensive support on the national plane. The state leadership should also weigh the overall benefits to society not influenced by demands of sectoral interests. 

The traders’ lobby has gained considerable support and clout in recent years. On 5 May of every year, traders’ associations across the state observe the traders day and show their solidarity by closing all shops! The association presents a list of demands seeking special favours. 

The services sector that includes such trading is estimated to account for over 60 per cent of the GDP, but it has been accounting for less than 10 per cent of total tax revenues. Despite substantial growth traders have been successfully resisting attempts to bring their operation under the tax net. 25 years ago Dr. Manmohan Singh, as finance minister, proposed a simple presumptive tax ,of just Rs. 1400 pa, with no questions asked on books kept. The trader lobby successfully resisted and forced the government to withdraw this tax. State governments also lack efforts in bringing this huge section, quite a portion of this prosperous, under the tax net. 

The GST system, one hopes, would address this issue. This single factor can increase tax revenues substantially. This is yet another area for the Centre to focus. 

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