GST’s Rajya Sabha impasse
Italy is Europe’s fourth most populous country, and in terms of gross domestic product (GDP), the eighth largest in the world, only slightly behind India. It has been a parliamentary democracy since World War II. But not even once did it elect a government that could last a full term of five years. It has had 63 different governments so far. One source of this instability is the nature of its bicameral legislature. The upper and lower Houses have 315 and 630 members, respectively, elected by proportional voting. Hence, smaller parties (with more than a threshold of 3% of the vote) can hold great sway. A party with less than 10% of seats can even form the government, typically with a coalition. Passing legislation requires it to pass the simple majority test in both Houses. On many occasions, legislation has stumbled because it was blocked by the upper House. In that sense, the upper House has equal power and a very unusual veto. This dysfunctional feature has led to instability, revolving-door governments and frequent charges of horse-trading. To change this, Italy needs to reform its constitution, and curtail the power of its upper House. Indeed, this reform has been the top priority of Matteo Renzi, who at age 39 became Italy’s youngest prime minister two years ago. After a lot of jockeying, this reform bill was finally passed in Parliament in April, despite huge opposition. One opposition party tried desperately to derail the passage, by proposing 82 million amendments to the draft bill! These were computer generated multiple versions by changing small stuff like a comma or full stop. The rules required that each version had to be printed and put on record. Obviously, some people can go to ridiculous lengths to stop reform. Luckily for Italy, this reform has passed at long last, and a referendum in October will lead to the constitutional overhaul. This portends more stable governments in the future.
The problem of the upper House of bicameral legislatures holding up crucial reform is also being experienced in Canada and Australia, albeit less severely than Italy. The origin of this problem can be traced to a mini-crisis in 1911 in UK Parliament, when the budget passed by the House of Commons was rejected by the House of Lords. It led subsequently to the Parliament Act of 1911 and 1949, establishing the formal dominance of the lower House, and also the Salisbury Doctrine, that the upper House would not by convention, oppose bills on second or third reading, having once passed by the lower House. One consequence of this is that ‘money bills’ are required to be passed only in the lower House, a feature codified in India’s Constitution.
India’s upper House is council of states whose members are elected indirectly by state legislatures. (By contrast in the US, the upper House, i.e. the Senate members, are directly elected). The Rajya Sabha represents the states. Its role is also that of providing checks and balances in lawmaking, to provide reason and deliberation, and to function beyond considerations of party politics. If a legislation that originates from the Lok Sabha is driven by popular will and brute majority, then Rajya Sabha can subject it to the broader test of rationality, practicality, relevance and reasonableness. That’s because the Rajya Sabha is more immune to electoral interests. But sometimes its deliberations can also slow down legislation or eventually kill it (see for instance, The Deliberative Indian ). In rare instances, the Rajya Sabha’s delay and intransigence can become counter-productive.
One such rare instance may be the present case of the goods and services tax (GST) bill. The GST journey is already 16 years old. This span covers two stints each of both Congress and Bharatiya Janata Party-led governments, with each having promised to roll it out during their respective terms. One can safely assume that there is strong bipartisan support. It will be the most important indirect tax reform since independence. It is a huge deal, because it entails all 29 states and seven Union territories voluntarily giving up their constitutional right to impose sales tax (and sundry other taxes) in exchange for a uniform countrywide system. It’s a grand bargain. It will create a borderless common and integrated economic market within India, and is expected to permanently add to GDP growth significantly. The roll-out of GST requires a constitutional amendment, and hence passage in both Houses. It has cleared the lower House. But now, it is stuck in the Rajya Sabha where it needs 164 votes. The GST is not a ‘money bill’, hence needs assent of both Houses. Passing the GST bill is also fulfilment of a promise made in the manifestos of both the national parties. Of the three technical objections raised in the Rajya Sabha, two have been sorted out. These relate to eliminating the 1% additional tax, and evolving an autonomous dispute resolution scheme. The only sticking point is whether to put an upper numerical limit in the law on the applicable tax rate. This can surely be incorporated in the rules that will be framed or in some appropriate manner. The Rajya Sabha should now develop an informal convention (a laSalisbury) that a policy which has been thoroughly discussed, has broad and bipartisan support, and has passed with a majority in the lower House, should not be held up. As far as the GST bill is concerned, members of the Rajya Sabha should not be constrained by their party whip. While we don’t quite need an Italian surgery, we can surely avoid an unnecessary impasse.
Ajit Ranade is chief economist at Aditya Birla Group.
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