The Interplay Between GST and Demonetization: Understanding the Political and Economic Realities

There has been significant discussion and debate regarding the order of implementation of GST (Goods and Services Tax) and the demonetization of currency notes. The reasons for the current scenario, especially the postponement of GST implementation, are multifaceted and touch upon both political and economic considerations. In this article, we will explore the plausible reasons behind the decision to implement demonetization before GST and address related myths and facts.

Political Interests Prevailing Over National Interests

One of the most significant reasons for the postponement of GST is the strategic political maneuvering. It is well-documented that political interests often take precedence over the national interests in any political system. The upcoming state-level elections in Punjab and Uttar Pradesh (UP) made it imperative for the government to act swiftly to curb the opposition's momentum. By implementing demonetization, the government aimed to weaken the opposition parties, which were likely to capitalize on the financial troubles caused by this economic measure.

The GST Bill's Political Validity

The GST Bill was passed with the support of a highly divided opposition. Notably, Nitish Kumar, the leader of the Janata Dal (United) Party, surprisingly supported demonetization, which further complicated the opposition's efforts to challenge the implementation of GST. Given the divided opposition, the ruling party had a stronger hand to pass the GST Bill without significant hurdles. The refusal of the opposition to delay GST implementation until April 2017 underscores the government's political strategy.

Justified Planning and Precedence

It is crucial to understand that demonetization was a meticulously planned and communicated action. The government had been laying the groundwork for months, starting with the announcement of Jan Dhan accounts and the Income Declaration Scheme. This preparatory phase ensured that the public was gradually prepared for such a significant economic change. In contrast, the implementation of GST had been well-planned by the Revenue Department, covering the nuances of new taxation methods in the service and manufacturing sectors.

The Implementation of GST was not immediately preceded by demonetization; in fact, the GST Bill was already approved and had received the President's assent before the demonetization announcements. The government wisely chose to get the GST approval before implementing demonetization, ensuring a smoother transition and higher compliance rates among businesses.

Effectiveness of Demonetization and GST Implementation

While demonetization aimed to combat black money and reduce inflation rates, its true impact remains under scrutiny. The debate over the success or failure of demonetization continues, highlighting the complex nature of economic policies. Despite these doubts, the political and economic landscape has shifted significantly, and the opposition finds it challenging to oppose the implementation of GST.

Now, with the GST Bill already in place and approved by both houses of parliament and the President, the opposition cannot realistically oppose its implementation. The government's approach to first secure GST implementation and then proceed with demonetization has proved strategic, paving the way for more cohesive economic reforms.

Conclusion

The order in which GST and demonetization were implemented reflects a blend of political strategy and economic pragmatism. While demonetization was a planned and communicated action, GST implementation is now a matter of national importance. The current scenario underscores the need for a balanced approach in handling such significant economic changes, ensuring that both national and political interests are aligned.