Why is Subramanian Swami against Sonia Gandhi

India's VAT reform threatens to fail again. The Congress party blocks parliamentary operations in protest against a court summons from its president.

There are many reasons why Narendra Modi's government's economic reforms are not advancing as quickly as hoped. One of the more weighty of these is the opposition's blocking stance. It is not always just a matter of content-related disputes. Power politics and personal interests are just as crucial, as the latest episode in efforts to reform VAT in the emerging market shows.

Necessary reform

Basically, hardly anyone doubts that the standardization of the “goods and services tax” would only bring advantages. So far, each member state has levied different sales taxes that have to be offset when trading with another subject of the Indian Union. For domestic consumption, the mainstay of the Indian economy, this represents a significant obstacle. Economists hope that standardization will bring about an increase in GDP of 1.5% to 2%.

After long negotiations, before the winter session of the Indian parliament, which began the week before last, it looked as if the reform could be passed. With an admittedly quite high proposed rate of 17% to 18%, a compromise had been found, which the ruling party Modis, BJP, and the opposition Congress Party can agree to. The BJP has had an absolute majority in the lower house of the Indian parliament since the spring elections. In the upper house, which is made up of representatives from the member states and has to approve many changes in the law, it is dependent on the Congress Party.

The latter has now announced that it will not deal with the bill on the Value Added Tax Act until further notice. The reason for this is a court summons to leading figures of the party, among them the president and the vice-president, Sonia Gandhi and her son Rahul. The Nehru Gandhi family has shaped the party that once supported the state for five generations. The legal dispute is about the legality of the takeover of a media company, financed with funds from the Congress Party, by a company owned by a majority of the Gandhis. In 2012, the former BJP party leader Subramanian Swamy brought charges on the matter. The Congress Party speaks of a politically motivated vendetta. In these circumstances, a compromise is not possible. The BJP countered that the government could not influence a court. Indeed, the judiciary in India is relatively independent.

Tit for tat

The VAT reform is the latest but not the only victim of the power struggle between the BJP and the Congress Party. The adjustments in labor and land acquisition law demanded by entrepreneurs have so far failed due to resistance from the opposition. Critics of the BJP rightly point out that the current ruling party in the past legislature blocked reforms of the then congressional government for opportunistic reasons.

In order to escape this constellation and also to gain a majority in the upper house, Prime Minister Modi has been personally involved in all regional elections in the country since he took office. However, its charisma has faded. His party suffered painful defeats in Delhi and most recently in Bihar. The economic reforms will remain a hostage of Indian party politics.

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