GST: A Leadership Case Study
If I were to describe GST in one line, I would liken it to a fool-proof block-chain technology which records transactions along the chain from production to consumption. GST is a consumption tax and every link in the chain will have to be accounted, so tax compliance will grow manifold.
The purpose of this note though, is to focus on the leadership factor in implementing the GST. To begin with, considering the number of interested parties in the multilateral negotiation, to break through the ruling-opposition dynamics, to evolve consensus, to complete the enormous amount of legislative work involved, to get the upper and lower houses to clear the bills, and to finally get 29 states to pass the bills in their respective assemblies is nothing short of a miracle.
When it came to implementation, most magazines and their surveys predicted that small enterprises are ill prepared. The headline cover-page stories of Businessworld for instance had the following cover page quote “SME’s reluctance to embrace indirect tax reforms is understandable, even large ones would have liked the rollout postponed.” finds a survey. Another essay said “India’s tryst with GST” starts on a “wing and a prayer”. Other magazines had similar covers.
Let’s consider industry representations. One IT representative said “for an industry already reeling under change of business model, and further suffering headwind of increasing global protectionism, to further complicate it by multiple registration would only add to its woes.” The airline industry, including the state owned Air India said most of India’s airline operators are dependent on globally spread computer reservation systems, we need time. For the financial services industry, the IBA represented that the preparedness of all banks is a question mark -how do you determine the location of the recipient of a service in a digital world where anywhere and everywhere banking is the norm?
From one POV, all are logical concerns. But if you show too much empathy, you would stop in your tracks. A slight hesitation would have been enough for the system to pile on pressure. You postpone it once- you never what new variables may creep in and what derails. Meanwhile, from the government’s point of view: “If there is chaos all around on launch, we’ll be publicly responsible for the mess. And worse, many would say I told you so. On the other hand, we think we’re prepared. But we can never be too sure.”
In the midst of all this, the firmness with which the administration went about the launch date is admirable. Mr Adhia, Union Revenue Secretary pointed out- “listen, the private sector is always more efficient than the government we expect them to catch up with us.” To concerns of having to register separately in each state his comment was rather stock: “You do not have an option, it is the law, please follow the law, we will try and ease any hassles later.” Mr Naveen Kumar, Chairman of GST said, “for 80 lakh taxpayers the number of invoices to upload would be a maximum of 320 crore, we have prepared the capacity.” I could almost hear the administration say “It’s July 1, now get on with it”. That’s leadership mettle.
Management schools teach case studies about how Lou Gerstner, Meg Whitman or Howard Shultz turned around IBM, e-Bay or Starbucks. All great stories, but the technical, legislative and implementation challenges of a tax reform of this magnitude in a federal structure, in the midst of pushbacks, in a diverse nation of millions of enterprises, towers far above these case studies a thousand times over. GST is an extraordinary case study on transformation initiated by governments.
Incidentally, a week into the launch, implementation seems to be smooth and micro-entrepreneurs have got on with it rather fine. The long term impact is yet to be analysed.
The implementation of the GST has greatly inspired us that anything is possible to achieve in this country if the government takes the role of a lead entrepreneur and pushes reform, no matter how hard representations come at you. There are yet difficult reforms to conclude like letting go of guzzling PSUs, education, agriculture and labour reforms, but the implementation of GST and demonetisation give me confidence that this government can prepare, take their chances, live with the concomitant risks, and give it a go.
