Harder than it looks
Modi Hits Another Tax Reform Snag

Narendra Modi’s landslide victory in the Indian race for prime minister a year ago handed him the strongest mandate any Indian leader has had in a generation. But his top agenda item, liberalizing India’s tangled, inefficient economic policies, is proving to be harder than expected. One of his biggest campaign promises was to simplify the tax codes by creating a single, national goods and services tax. But his party has failed to get it past a parliamentary vote in the face of opposition from the previously, long-ruling Congress Party, who actually proposed the measure in the first place. The FT has more:

The prime minister’s Bharatiya Janata party was forced to refer the legislation to create a unified national goods and services tax, or GST, to parliamentary committee, after failing to muster the numbers to pass it through the upper house of parliament, where the opposition Congress party raised numerous obstacles to the passage of a bill they once championed.

The development raises serious doubts about the BJP government’s ability to fulfil its promise to have the GST in place by the start of the next financial year in April, something that will come as a big disappointment to business groups.

Sonal Varma, chief India economist at Nomura, said the setback was a “reality check” that has highlighted the difficulties Mr Modi faces in trying to overhaul and modernise India’s economy and administrative framework.

“Post Mr Modi’s election victory, there was much more optimism with respect to the speed with which reforms would happen,” Ms Varma said. “This is a reality check against that. Of all the reforms, if there is one which is non-controversial, it is the GST.”

This isn’t the only recent setback Modi has suffered in his quest to reform India’s famously onerous tax environment. Recently, he stirred up trouble in the international business community by suggesting that a heavy domestic tax may be applied to foreign firms, rekindling worries about doing big business in India that previously had flared when New Delhi called for a company to pay a new tax retroactively. We also recently saw Modi floundering in another key reform effort, a push to pass a bill that would make it easier for industrial interests to buy up rural land.

The political process is proving to be much more of an obstacle to Modi’s reform agenda than many people, possibly including candidate Modi, had imagined. He’s now tasked with the incredibly difficult job of shepherding in liberalizing economic reforms against massive political opposition, tradition, and all sorts of vested interests.

Modi is being tested. Will he pass?

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