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By Rama Lakshmi
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| Trucks line up outside the Khanauri border between Haryana and More than 1,500 trucks stop here every day for several hours, waiting at check posts to pay state government levies and deal with regulatory bureaucracies. (Rama Lakshmi/ |
“The factory managers keep
calling us anxiously with the same questions: “Where have you reached, where
are you stuck?” said Dinesh Kumar, 35, a truck driver carrying yarn from a
factory in the western state of Gujarat to a blanket-making
factory in Punjab .
Two-thirds of India ’s
freight travels by road. But only 40 percent of the travel time is spent
driving, according to the World Bank. The rest is waiting at state border
checkpoints, paying state government levies and dealing with regulatory
bureaucracies that vary from state to state.
Aiming to break this crippling
business barrier, India’s finance minister Arun Jaitley last week introduced
new legislation in Parliament for a single goods and services tax that will
subsume the complex maze of nearly 20 different taxes and levies imposed on
commodities by different states. The G.S.T., as it is known, is one of the most
ambitious economic reform measures of the past decade and a dramatic step
toward making it easier to do business in India ,
a top priority for the current government, officials say.
Prime Minister Narendra Modi, who
came to power in May promising to revive Asia’s third largest economy, recently
launched an ambitious “Make in India” campaign to boost manufacturing and exports
similar to the growth of manufacturing in China
in the past two to three decades.
Yet challenges remain. Despite
the arrival of a new, business-friendly government, India
slipped to 142 among 189 countries on the ease of doing business index, this
year, according to the World Bank. Last year, India
was ranked 134.
And the logistical cost of
manufacturing in India
is seven times higher than international benchmarks, says the World Bank.
Dennis Medvedev, senior country
economist of the World Bank in India ,
called the unified goods and services tax a “game-changing economic reform”
that can reduce freight time by 30 to 40 percent and add about 2 percent to the
nation’s economic output in the next five years.
“It removes the element of
uncertainty in the business cycle for Indian manufacturing,” Medvedev said.
At checkpoints like Khanauri, the
need for reform is all too visible. Anxious drivers stand in long lines while
their assistants guard the trucks and pass the time by keeping themselves warm
over fires and drinking endless cups of milky tea.
“I have been waiting for six
hours here already,” said Lakshman Singh, 38, a truck driver carrying chemicals.
“There is only one counter, and the line is too long. They say they have not
received the information from the previous checkpost about the passage of my
truck. That’s not my fault. Two weeks ago their Internet connection was down
for 36 hours. Imagine how it affected business.”
The frequent truck stops for
regulatory checks also create “more opportunities for harassment and bribe-taking
by corrupt officials on some pretext or the other," said Rajev N. Gupta, co-founder
of Caravan Roadways, a transportation company.
Last year, the automobile
manufacturer Maruti Suzuki told its vendors to buy plots closer to the factory
to cut logistics time and cost.
But, if a single, rationalized
tax system becomes a reality, “businesses can hope to maintain lighter
inventories and adopt efficient Japanese-style just-in-time manufacturing
methods in India ,
too,” said Devesh Kapur, director of the Center for the Advanced Study of India
at University of Pennsylvania
This is not the first time the G.S.T.
bill has been introduced in Parliament. The proposal got stuck several times in
the past and missed several deadlines because the state governments feared
losing their freedom to impose levies and raise revenue.
The industrially prosperous
southern state of Tamil Nadu and the eastern state of West Bengal
have cautioned Jaitley, the finance minister, against rushing the reform
measure.
In a letter to Modi, the chief
minister of Tamil Nadu, O. Panneerselvam, said the measure will have far-reaching
implication for the fiscal autonomy of states. “The center must ensure that the
states’ fears are allayed and true consensus is achieved before such a far-reaching
reform is attempted,” he said.
To make the implementation more
palatable, Jaitley assured the states that the national government will “compensate
them for any loss” for five years.
But one business analyst said, on
the condition of anonymity, “if the implementation is handled badly and the
states suffer loss, it could break the country’s unity.”
The bill, which requires an
amendment to the nation’s constitution, will likely be taken up for discussion
and voting in the next Parliament session in February and has to be passed by
two-thirds of lawmakers. Then it must be approved by at least half of the state
legislatures. Jaitley said he expects the implementation to begin in 2016.
At Khanauri, the word is out that
business-as-usual will soon come to an end.
“Once the new law comes, long
lines will be history,” said Sanjeev Puri, the excise and tax inspector at
Khanauri. “State borders and checkpoints may melt away and become irrelevant. India
will be one seamless market. It will be a very different world then.”
Rama Lakshmi has been with The
Post's India
bureau since 1990. She is a staff writer and India
social media editor for Post World.
