The Hindu Editorial Analysis | 24th June 19

Table of Contents

Lacklustre meet

GST Council has missed the chance to send positive signals to boost consumer demand

The Goods and Services Tax Council’s first meeting under the new government did not deliver any big surprises. Apart from some minor changes to the existing structure and procedures under the GST, the council’s meeting on Friday, under Finance Minister Nirmala Sitharaman, was largely a lacklustre event. There was some expectation that the council would consider a significant cut in tax rates across the board in order to help spur consumer demand that has been sagging in recent quarters. But none of that happened. The meeting ended with some changes in procedure that are expected to tackle tax evasion and make GST filing easier. In particular, Aadhaar has been approved as sufficient proof to obtain GST registration. Even the expectation that there would be a cut in the tax imposed on electric vehicles, from 12% to 5%, was not met. The government may be worried about the revenue implications of any significant across-the-board tax cut. Although GST collections have been encouraging in the past couple of months, monthly tax collections have largely been modest since the introduction of the tax regime in mid-2017, failing to meet the government’s own targets most of the time. But such caution may not help the larger cause of the economy, which urgently needs a boost in some form. A significant cut in rates could have sent out the strong signal that the NDA government is serious about pushing through serious pro-growth reforms during its second term in office.
Another notable decision taken by the council was the one to extend the tenure of the National AntiProfiteering Authority by two years, till November 2021. Further, the council increased the quantum of penalty that could be imposed by the authority on profiteering companies, from the current maximum of ₹25,000 to an additional 10% of the profiteered amount. Given that the government has increased the powers of the anti-profiteering body, it would not be surprising if the body becomes a permanent feature under GST. This does not send a promising message to the business community ahead of the Union Budget, scheduled to be presented in Parliament on July 5. The anti-profiteering clause assumes that government action is absolutely necessary in order to pass on the benefit of tax cuts to consumers, or else tax cuts may simply end up adding to the profits of businesses. This is wrong. While businesses naturally try to profit from lower taxes, the forces of competition make sure their profit margins are driven back down to normal. The alternative of having a bureaucracy to deal with the issue makes profit look like a bad word, and encourages rent-seeking by corrupt authorities.
Introduction:
Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices. However it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices. This was obviously happening because the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering. National Anti-profiteering Authority is therefore being constituted by the central Government to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a comm

Vision and Mission of NAA

The National Anti-profiteering Authority (NAA) is the institutional mechanism under GST law to check the unfair profit-making activities by the trading community. The Authority’s core function is to ensure that the benefits of the reduction is GST rates on goods and services made by GST Council and proportional change in the Input tax credit passed on to the ultimate consumers and recipient respectively by way of reduction in the prices by the suppliers.
The formation of NAA comes in the background of rate-reduction of large number of items by GST Council in its 22nd meeting at Guwahati. At the meeting, the Council reduced rates of more than 200 items including goods and services. This has made tremendous price reduction effect and the consumers will be benefited only if the traders are making quick reduction of prices of respective items.
The Authority’s main function is to ensure that traders are not realizing unfair profit by charging high price from consumers in the name of GST. The responsibility of NAA is to examine and check such profiteering activities and recommend punitive actions including cancellation of Registration. The chairman, NAA along with 4 Technical members and with help of the Standing Committee, Screening Committee in every state and the Directorate General of Safeguards in the Central Board of Excise & Customs (CBEC), will work together on the anti-profiteering front.
We hope to bring transparency in our decisions and be more proactive in persuading the industry and traders in passing on benefits to the consumers.
Is the 21st century going to be marked by a fruitful conversation among civilisations or marred by a frightening conflict of civilisations? This is one of the most vigorously debated questions in our times.
In the closing decade of the last century, Samuel Huntington, a noted American political scientist, put forward the thesis of ‘The Clash of Civilisations’. He claimed that the future trend of world politics would be defined by the conflict between Western and non-Western civilisations. His belief: the West’s superior civilisation would triumph in this clash. Many in America and Europe lapped up his thesis, since it had appeared soon after the end of the Cold War, which saw the disintegration of the Soviet Union and the emergence of the U.S. as the sole superpower.
Since then, numerous public figures around the world have countered Huntington’s theory. Notable among them was Mohammad Khatami, Iran’s President from 1997 to 2005. To its abiding credit, the United Nations endorsed his counter-concept and proclaimed 2001 as the “UN Year of Dialogue among Civilisations”.
A new Cold War?
The U.S. has become a diminished power in the past three decades. Nevertheless, it appears that Huntington’s argument still has backers in the Donald Trump administration. One of its high-ranking officials has sought to paint the current U.S.-China trade war on the canvas of a ‘clash of civilisations’.
In a recent speech, State Department Policy Planning Director Kiron Skinner alerted Americans to the “long-term threat” posed by China, and said that countering this threat is “a fight with a really different civilisation”. She described the Cold War between the U.S. and the Soviet Union as “a fight within the Western family”. In contrast, she said, “It’s the first time that we will have a great power competitor that is not Caucasian.” In addition to arrogantly proclaiming civilisational superiority, her remark was plainly racist. Many around the world are today wondering: is Washington planning a new Cold War? Will the world have to pay a heavy price once again?
It is against this backdrop that we should see the significance of a new initiative by Chinese President Xi Jinping. In recent years, no leader has been championing the need for inter-civilisational dialogue for world peace and common prosperity more forcefully and consistently than Mr. Xi. He is also the only contemporary global leader proposing such dialogue as a path to reach a much loftier goal, of “building a community of common future for mankind”, which he expounded at the UN’s 70th anniversary summit in 2015.
In the debate on whether there will be a conflict or confluence of civilisations, three questions become pertinent. Are all civilisations equal? Can dialogue really help in addressing the big challenges before the world today? And how should nations learn from one another? Mr. Xi has answered these squarely.
In his speech at the UNESCO headquarters in Paris in 2014, Mr. Xi had said: “All civilisations are equal, and such equality has made exchanges and mutual learning among civilisations possible. All human civilisations are equal in terms of value. They all have their respective strengths and shortcomings. There is no perfect civilisation in the world. Nor is there a civilisation that is devoid of any merit. No one civilisation can be judged superior to another.”
Speaking at the 19th Congress of the Chinese Communist Party in October 2017, he highlighted the relevance of this debate to the newest, and one of the most pressing, problems facing the entire planetary population: climate change. He said the world needs to make a transition from “industrial civilisation” to “ecological civilisation”, and learn to create “harmony between man and nature”, a noble teaching embedded in all the world’s civilisations, cultures and religions.

Dialogue of civilisations

He continued his advocacy by hosting a major ‘Conference on Dialogue of Asian Civilisations’ in Beijing last month, in which I participated as a non-governmental delegate. Over 2,000 participants representing the 48 Asian countries, and also many distinguished personalities from other continents, attended the event. In his keynote, Mr. Xi stressed the importance of Asia, a continental “cradle of civilisations” that “covers a third of the earth’s land mass and has two-thirds of the world’s population”. Explaining the purpose of the conference, he said, “The world today is moving toward greater multipolarity, economic globalisation and cultural diversity, and is becoming increasingly information-oriented. All this points to promising prospects for the future. Meanwhile, instability and uncertainties are mounting and the global challenges faced by humanity are becoming ever more daunting, calling for joint responses from countries around the world.” His prescription: “to meet our common challenges and create a better future for all, we look to culture and civilisation to play their role, which is as important as the role played by economy, science and technology.”
In an indirect reference to the protectionist and supremacist stance being adopted by the U.S., Mr. Xi cautioned: “Civilisations don’t have to clash with each other; what is needed are eyes to see the beauty in all civilisations… If countries choose to close their doors and hide behind them, human civilisations would be cut off from each other and lose all vitality. We Asian people hope that all countries will reject self-exclusion, embrace integration, uphold openness and promote policy, infrastructure, trade, financial and people-to-people connectivity.”
History is witness to how civilisations decline and die when they become exclusivist. Mr. Xi put it well: “We need to stay open and inclusive and draw on each other’s strengths. All living organisms in the human body must renew themselves through metabolism; otherwise, life would come to an end. The same is true for civilisations. Long-term self-isolation will cause a civilisation to decline, while exchanges and mutual learning will sustain its development.”
Why was India absent?
As an Indian, I was happy when Mr. Xi in his speech made a special reference to India’s contribution to the richness of Asian civilisations by mentioning the Rigveda, Ganga and Indus rivers, and, above all, the priceless gift of Buddhism. However, again as an Indian, I was assailed by a disturbing thought: when China is taking the lead in spiritedly championing inter-civilisational dialogue within Asia and around the world, why is India, inheritor to one of the richest and oldest civilisations, so inactive at the governmental level? Also, why didn’t India send an official delegation to the conference?
An official delegate could have presented a picture of India-China civilisational solidarity, which is best described by this poem by Rabindranath Tagore, who is as highly respected in China as in our own country: “Once I went to the land of China,/ Those whom I had not met/ Put the mark of friendship on my forehead/ Calling me their own”.
India’s Constitution-makers thought of India as a union of States with a centripetal bias, done, advisedly, to preserve the unity and integrity of a newly fledged nation. Since then, the Indian economy, polity, demography and society have undergone many changes. The new aspirational India is now firmly on a growth turnpike. It is in this context that we revisit India’s fiscal federalism and propose redesigning it around its four pillars.
Typically, federations (including the Indian one) face vertical and horizontal imbalances. A vertical imbalance arises because the tax systems are designed in a manner that yields much greater tax revenues to the Central government when compared to the State or provincial governments; the Constitution mandates relatively greater responsibilities to the State governments. For example, in India, post the advent of Goods and Services Tax (GST), the share of States in the public expenditure is 60% while it is 40% for the Centre to perform their constitutionally mandated duties.
The horizontal imbalances arise because of differing levels of attainment by the States due to differential growth rates and their developmental status in terms of the state of social or infrastructure capital. Traditionally, Finance Commissions have dealt with these imbalances in a stellar manner, and they should continue to be the first pillar of the new fiscal federal structure of India.
Understanding the imbalance
However, in India, the phenomenon of horizontal imbalance needs to be understood in a more nuanced fashion. It involves two types of imbalances. Type I is to do with the adequate provision of basic public goods and services, while the second, Type II, is due to growth accelerating infrastructure or the transformational capital deficits. The latter are known to be historically conditioned or path dependent. Removing these two imbalances clearly comprises two distinct policy goals and calls for following the Tinbergen assignment principle, which are two different policy instruments. It is here that we believe that NITI Aayog 2.0 must create a niche, assume the role of another policy instrument and become the second pillar of the new fiscal federal structure.
In the past, the Planning Commission used to give grants to the States as conditional transfers using the GadgilMukherjee formula. Now with the Planning Commission disbanded, there is a vacuum especially as the NITI Aayog is primarily a think tank with no resources to dispense, which renders it toothless to undertake a “transformational” intervention. On the other hand, it is too much to expect the Union Finance Commission to do the dual job. In other words, there is an urgent need for an optimal arrangement.
It is best that the Union Finance Commission be confined to focussing on the removal of the horizontal imbalance across States of the Type I: i.e. the basic public goods imbalance. We need another institution to tackle the horizontal imbalance of the Type II; for this the NITI Aayog is the most appropriate institution. It can be argued that the Finance Ministry is the other alternative to deliver the goods in this regard but it is ill-suited to do this; its primary duty is to concern itself with the country’s macro-economic stability and the proper functioning of the financial system rather than be an instrument of growth at the sub-national level

In economics, what is Tinbergen rule?

This refers to a rule of thumb which states that policymakers trying to achieve multiple economic targets need to have control over at least one policy tool for each policy target. This is because the achievement of certain economic targets precludes the achievement of others. For instance, a central bank with just the power to influence the money supply in the overall economy can only control either inflation or the exchange rate. It cannot simultaneously ensure low inflation and a depreciating currency because decreasing the money supply to lower inflation will cause currency appreciation. The rule was formulated by Dutch economist Jan Tinbergen.
Towards this task of cooperative federalism, NITI Aayog 2.0 should receive significant resources (say 1% to 2% of the GDP) to promote accelerated growth in States that are lagging, and overcome their historically conditioned infrastructure deficit, thus reducing the developmental imbalance.
In short, the NITI Aayog should be engaged with the allocation of “transformational” capital in a formulaic manner, complete with incentivecompatible conditionalities. The variables or parameters used in this formulaic transfer will be very different from those traditionally used by the Finance Commission.
NITI Aayog 2.0 should also be mandated to create an independent evaluation office which will monitor and evaluate the efficacy of the utilization of such grants. In doing so, it should not commit the mistake of micro-management or conflicts with line departments. It must be also accorded a place at the high table of decision-making as it will need to objectively buy-in the cooperation of the richer States as their resources are transferred to the poorer ones.
Ushering in decentralisation
The same perspective will have to be translated below the States to the third tier of government. This is crucial because intra-State regional imbalances are likely to be of even greater import than inter-State ones. Decentralisation, in letter and spirit, has to be the third pillar of the new fiscal federal architecture. De jure and de facto seriousness has to be accorded to the 73rd and 74th constitutional amendments. For this, the missing local public finance must be birthed. One of the ways for this is through the creation of an urban local body/panchayati raj institutions consolidated fund. This would mean that Articles 266/268/243H/243X of our Constitution will need to be amended to ensure that relevant monies directly flow into this consolidated fund of the third tier.
Through such constitutional amendments, the Centre and States should contribute an equal proportion of their Central GST (CGST) and State GST (SGST) collections and send the money to the consolidated fund of the third tier. For instance, one-sixth sharing of the CGST and SGST with the third tier can generate more than 1% of the GDP every year for the financing of public goods by urban-level bodies. Such an arrangement will be the third pillar of fiscal federalism.
Further, the State Finance Commissions should be accorded the same status as the Finance Commission and the 3Fs of democratic decentralisation (funds, functions and functionaries) vigorously implemented. This will strengthen and deepen our foundational democratic framework.

Fine-tuning the GST

The fourth pillar — and in a sense what is central and binding — is the “flawless” or model GST. It is to the credit of our democratic maturity that the GST Bill was passed unanimously by Parliament; but in its present form, it is far from flawless. It needs further simplification and extended coverage.
We need to quickly achieve the goal of a single rate GST with suitable surcharges on “sin goods,” zero rating of exports and reforming the Integrated Goods and Services Tax (IGST) and the e-way bill.
The GST Council should adopt transparency in its working, and create its own secretariat with independent experts also as its staff. This will enable it to undertake further reforms in an informed and transparent manner. Thus, India will be able to truly actualize the “grand bargain” and see the GST as an enduring glue holding the four pillars together by creating the new fiscal federal architecture and strengthening India’s unique cooperative federalism.
Is the die already cast for U.S. Secretary of State Mike Pompeo’s forthcoming visit to India? Mr. Pompeo, and his Indian counterpart, External Affairs Minister S. Jaishankar, are the trusted lieutenants of their leaders, U.S. President Donald Trump and Prime Minister Narendra Modi, respectively, and largely aligned with their politics. But Mr. Pompeo and Mr. Jaishankar are also the links between the disruptive politics of their chief executives and the conventional strategic approach of professionals who work under them, and the legacy ecosystems in their respective countries. They have the tough task of managing a bilateral relationship that they both know is critical, without appearing to be undermining the nationalist, cultural and economic agendas of their leaders, which mirror each other, and hence create a situation of likes repelling each other.
A general presumption informing scholarship on international relations is that there is a non-negotiable and unchanging precept of national interest that determines the conduct of nations. Mr. Modi and Mr. Trump are two leaders who are rewriting the notion of national interest itself — for instance, secularism was considered to be India’s national interest until recently; immigration and trade were considered to be in America’s national interest.
Mr. Trump and Mr. Modi are guided by nationalisms that have cultural and economic components. In both, their views converge in some aspects and conflict in some others. For instance, on the cultural front, they could cooperate on global Islamism. But the growing presence of Indians in America is a source of conflict — Mr. Modi’s politics involves boosting the global Hindu; but Indian Americans are cultural aliens to Mr. Trump’s supporters, besides being seen to be their economic adversaries. The sustained squeeze on Indian guest workers entering the U.S., particularly through the H-1B visa programme, is a case in point.
Country-specific perspectives
What does Mr. Modi want for India from abroad? He wants investment, technology, arms, but does not want finished products (other than arms) or foreign ideas — Christianity, an open global market, the right to self-determination, human rights, Western strands of democracy coming through missionaries, international bodies and non-governmental organisations (NGOs). This has been expressed through higher tariffs on imports and restrictions on global NGOs. This list does not entirely correspond to what Mr. Trump wants to sell — he wants to sell only finished products at lower tariffs, and keep technology and capital within the borders of America protected.
From an Indian perspective, Mr. Trump has upended American strategy in two fundamental aspects. His approach to international ties gives precedence for commerce over the strategic, and workers over corporations. Professional strategists conventionally understood the U.S.’s international ties from the perspective of its multinational corporations. These corporations wanted cheap manufacturing in China and Southeast Asia and U.S. policy enabled that pursuit. Corporations wanted cheap labour from India by outsourcing work and importing workers into the U.S. But Mr. Trump does not want American work coming to India, or Indian workers going to America; Mr. Modi wants both.
Mr. Trump’s disinterest in strategic matters and obsession with selling meet Mr. Modi’s desire for arms acquisition, however. Given a choice, Mr. Trump would be willing to sell arms to India without regard for issues such as regional stability that preoccupy professionals in the State Department.
India’s trade surplus is tiny relative to the size of the American economy and its trade volumes. Presidents before Mr. Trump always privileged the strategic components of America’s global ties over trade and commercial issues. India benefitted from that approach. When commerce becomes the only lens that the U.S. sees the world through, India and China look similar — trying to extract benefits from it. Mr. Trump thinks — he has said it several times — that India and China took his predecessors for a ride. Mr. Modi thinks his predecessors were weak leaders who were taken advantage of by the world, and he also wants to show how strong he is.
When Mr. Trump sees India and China as two similar countries that are taking advantage of America with protectionism, weak intellectual property protection, and higher emissions under the climate treaty, the strategic reason for India-U.S. alignment, which is the menacing rise of China, gets weakened. In fact, the Wuhan summit, that marked a new thaw between India and China, had as its backdrop Mr. Trump’s tirade against both countries on these issues.
The terror fight
One war that Mr. Trump wants to end (in Afghanistan) and another war that he appears to be itching to begin (with Iran) have major implications for India and its ties with the U.S. India wants America’s continued engagement in Afghanistan and peace with Iran.
Just as the U.S. was campaigning hard to have Masood Azhar designated as a global terrorist, it was also seeking Pakistan’s help to persuade the Taliban for a deal in Afghanistan. The point being that India-U.S. cooperation on terrorism has several components to be factored in and the Indian euphoria surrounding Mr. Trump’s relentless bluster against Pakistan needs to tempered with some realism.
The Hindutva nationalists in India have a deep suspicion of China and its intention and they consider the U.S. as an ally and a partner, but the tactical nature of that approach is not hidden or unstated. The cultural suspicion of the U.S. itself is an additional factor.
A speech by Rashtriya Swayamsevak Sangh chief Mohan Bhagwat to a gathering of the organisation on June 16 in Nagpur is instructive: “We are progressing and we will continue to progress. When India advances, when our Hindu society advances… the implication of that is that the selfishness that dominates the world is bound to come to an end… Countries that dominate the world using their money power and military power with the facade of grandiloquence. Therefore, there are many out there who do not want India’s progress. I don’t take names, but you understand. Many countries in the world are forced to support us because we have now become stronger. That is for advancing their interests. If we let them take advantage of our internal differences, our new beginning after 70 years will be eclipsed before it fully blossoms and bears fruit.”

Explainer: Removal of Judges from Office

Today, some Members of Parliament initiated proceedings for the removal of the current Chief Justice of India by submitting a notice to the Chairman of Rajya Sabha. A judge may be removed from office through a motion adopted by Parliament on grounds of ‘proven misbehaviour or incapacity’. While the Constitution does not use the word ‘impeachment’, it is colloquially used to refer to the proceedings under Article 124 (for the removal of a Supreme Court judge) and Article 218 (for the removal of a High Court judge).
The Constitution provides that a judge can be removed only by an order of the President, based on a motion passed by both Houses of Parliament. The procedure for removal of judges is elaborated in the Judges Inquiry Act, 1968. The Act sets out the following steps for removal from office:
Under the Act, an impeachment motion may originate in either House of Parliament. To initiate proceedings: (i) at least 100 members of Lok Sabha may give a signed notice to the Speaker, or (ii) at least 50 members of Rajya Sabha may give a signed notice to the Chairman. The Speaker or Chairman may consult individuals and examine relevant material related to the notice. Based on this, he or she may decide to either admit the motion or refuse to admit it.
If the motion is admitted, the Speaker or Chairman (who receives it) will constitute a three-member committee to investigate the complaint. It will comprise: (i) a Supreme Court judge; (ii) Chief Justice of a High Court; and (iii) a distinguished jurist. The committee will frame charges based on which the investigation will be conducted. A copy of the charges will be forwarded to the judge who can present a written defence.
After concluding its investigation, the Committee will submit its report to the Speaker or Chairman, who will then lay the report before the relevant House of Parliament. If the report records a finding of misbehaviour or incapacity, the motion for removal will be taken up for consideration and debated.
The motion for removal is required to be adopted by each House of Parliament by: (i) a majority of the total membership of that House; and (ii) a majority of at least two-thirds of the members of that House present and voting. If the motion is adopted by this majority, the motion will be sent to the other House for adoption.
Once the motion is adopted in both Houses, it is sent to the President, who will issue an order for the removal of the judge.

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