Political Standoff Throws India Sales Tax Deadline in Doubt

  • Repercussions of Modi’s currency ban to extend into new year
  • Investors ‘realistic’ on government’s inability to meet target

India’s parliament is ending the year in deadlock amid signs that a landmark sales tax reform will be delayed as the opposition pursues the government over the impact of its sudden currency ban, pushing the potentially volatile issue into the new year.

Supplementary legislation on the national sales tax was stalled as lawmakers from Prime Minister Narendra Modi’s Bharatiya Janata Party and opposition politicians brought the parliament to a standstill over the government’s unprecedented cash clampdown. 

The gridlock means it is unlikely that Modi will meet the April 1 tax roll out deadline, denting the prime minister’s credibility in the lead up to five state elections that are seen as crucial to his success in the 2019 national poll.

He also faces an enormous challenge to fulfill his 50-day promise to overcome the cash shortage crisis caused by his withdrawal of high-denomination notes. With just 15 days until the Dec. 30 deadline, there’s still long queues outside banks and ATMs across the country.

The limited capacity of printing presses combined with slow currency distribution risks extending the demonetization nightmare into the early part of next year, weakening Modi’s ability to pursue his reform agenda in the face of continued political squabbling.

“We are unlikely to see any new major reforms being announced within the next six-to-nine months,” said Shilan Shah, Singapore-based India economist at Capital Economics Ltd. “Most of the investors are realistic about deadlines and the government’s inability to meet them. I don’t think it will lead to sudden waning of confidence,” on Modi.

Opposition lawmakers have been shouting slogans and demanding debate on demonetization, leading to frequent disruptions in the parliament since the session began on Nov. 16.

Heading towards a complete washout, the session that ends on Friday is the most disrupted sitting of parliament since the winter session of 2010, according to the New Delhi-based PRS Legislative Research think tank. Debate took place in less than 20 percent of the time available, it said.

The standoff between BJP and opposition parties escalated on Wednesday when Congress party vice president Rahul Gandhi said he had information about “personal corruption” by the prime minister. Gandhi said he wanted to present the alleged evidence in parliament but was not being allowed to do so. The BJP rejected his comments as “baseless allegation.”

A cabinet panel will meet on Friday to consider its options to clear the bills, including a short special session of parliament, the Indian Express reported without saying where it got the information.

Budget Session

Parliament is expected to next meet in the last week of January for its budget session. But unless the government garners consensus on the issue of the distribution of administrative powers for the collection of taxes on goods and services and passes the supporting legislation in next few weeks, it will be difficult to roll out measures on April 1 as planned.

The finance ministry on Wednesday said it had lost no time in implementing the goods and services tax and that all efforts were being made to meet the deadline. Issues relating to the draft law would be considered by the GST Council, which is scheduled to meet on Dec. 22 and Dec. 23. the ministry said in a statement.

“Modi is trying to regain political momentum, the opposition is sensing a political opportunity, and their relations have reached a breaking point,” said Ajoy Bose, a Delhi-based author and political analyst. “The casualty is the GST and country’s economy. It’s a difficult time for India.”

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