PolicyWTF: Learning Everyday From GST
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
- RSJ
Many years ago, I went out for dinner with a client in Paris. It was a nice restaurant. Soon, the wines started flowing, escargots were polished off and I was educated on the mother sauces of French cuisine. The lark was on the wing, the snail was on the thorn plate, the client was footing the bill, God was in his heaven, and all was right with the world etc. You get the picture. Then late (very late) into the evening, desserts were served.
And I was served pain perdu. It looked like French toast. It tasted like French toast. But here it sat staring at me as a dessert. For a moment I thought we had dined for so long that we had crossed over to breakfast. But no. This was still dinner time. And here was pain perdu. It was then I added French toast to my list of food items that are difficult to categorise. The Bombay falooda tops the list. For good reasons. After all, what is a falooda? Sevai ki kheer? Icecream? Basil seeds or sago pudding? Jelly with milk and syrup? There’s no answer. There cannot be any.
Except, maybe it is 42.
However, things have changed in the past few years. I have gotten the answer to such existential food queries of mine from an unlikely source.
GST.
The GST appellate authority for advance ruling (AAR) of various states has been a steady source of insights on this topic. I have learnt the difference between barfi and chocolate barfi – one is a sweet, the other a chocolate; what’s the essence of falooda – it is icecream, everything else is incidental; is paratha different from parotta – yes, big time; is 100% wheat paratha different from roti and khakra – of course, it is; are basundi and badam milk sweets or are they beverages – they are beverages; is a biscuit with chocolate coating a biscuit; is a chocolate with wafer coating a chocolate – well, the jury is still out on this one.
I could go on. AAAR has always come to the rescue. See here and here (section 2).
Adding to this long list of nuggets of wisdom was the Haryana AAAR last week. Here’s the ET reporting on pizza and pizza toppings:
“A pizza topping is not a pizza and hence should be classified differently and levied a higher 18% goods and services tax (GST), the Haryana appellate authority for advance ruling (AAAR) has ruled. This could complicate taxation for several pizza brands, especially when the pizzas are sold within a hotel or restaurant, said tax experts.
GST rates on pizzas differ on the basis of how they are prepared and sold. A pizza sold and eaten within a restaurant attracts 5% GST, the pizza base bought separately attracts 12% while a pizza delivered at home attracts 18% GST.
The AAAR ruled on March 10 that pizza topping should face 18% GST as its preparation method is different from that of a pizza. It considered all the ingredients used in a topping and concluded that while a pizza topping is sold as a "cheese topping" it's not really cheese and hence should attract higher taxes.
The authority ruled that pizza topping contains "vegetable fat" as a substantial portion, being 22% of the ingredients, and hence, it does not qualify to be categorised as 'processed cheese' or a type of cheese. Pizza topping would merit classification as 'food preparation', it said.
Tax experts said GST rates could depend on three tests - common parlance test, end use test or ingredients test - and that often tax rates could differ how a product is categorised. Cheese, for example, is taxed at a lower rate if it is called "fat" or processed food preparation.”
This is the kind of clarity I always wanted in life.
The unintended benefits of GST through the AAAR clarifications on food items have been tremendous. Those who ask ‘show me an example of a good public policy’, should take note of this.
PS: Check out how the inverted duty structure of GST creates professional refund cheaters in edition #50.
India Policy Watch: The Kashmir Files
Insights on burning policy issues in India
- RSJ
There’s a new film in town. The Kashmir Files (TKF). It is so good that even the super busy PM has recommended it. Ministers have tweeted about it in glowing terms. State governments have given their staff a holiday to watch it. I have seen news anchors comparing it favourably with Schindler’s List. I guess a new wave of cinema is upon us. What a time to be alive. Let me admit I haven’t watched it yet, the philistine that I am. So, I cannot say much about the merits of the film. Not that it has made much of a difference to the prospects of the film. The film is a huge commercial success without my patronage. And that merits a discussion.
From what I have read about the film, it is a semi-fictional account of the exodus of the Kashmiri Pandits (KPs) from the valley in the early 90s. It traces the events leading to the exodus, the hardship faced by the community during those days and the tragedy of being uprooted from your homeland with the prospect of never going back. Like most displaced communities around the world, the KPs have shown remarkable resilience in building back their lives since. They have gone about doing it in a manner that reflects the ethos of a gentle and graceful community. The many KPs I have met (we all have had them in our colleges) always spoke of those days with a sense of loss and anguish. But never rancour. It is what always struck me about them.
The director, it appears, has taken this rich screenplay material and mounted a film that has drawn unqualified praise from the partisans of the BJP. The reaction from the opposite camp has been on expected lines too. That it is a propaganda film weaponising the tragedy of a community to sustain the ongoing campaign to vilify Muslims in India. Like many debates in contemporary India, I suspect this debate will be settled with the film earning billions at the box office in the shortest time. Or another vanity metric of this kind. The majority will have then spoken. Everybody will have to calm down.
The Right Reason To Make The Film
I have written in earlier editions about the value of encouraging contesting narratives about our history in the public domain. One of the mistakes in the early years of our independence was that we didn’t let this happen as much. An ‘establishment’ was created that dominated academics, culture and arts which swore by liberty and free speech but muzzled other voices than their own. The state often supported this overtly. There might have been compulsions of the moment then for the state to have propped up a narrative. But this continued far too long and over time turned into a cabal. This meant alternative narratives festered on the fringes with limited academic rigour or challenge. And when their moment came, as it always does, these loose and phantasmagoric versions have taken over social media. You can challenge a book that’s published based on some research. But how do you counter millions of fake WhatsApp messages that are sent out every day to create new history? The eventual outcome of suppressing alternative voices is always worse.
John Stuart Mill, while laying down his three arguments in favour of free speech in Chapter 2 of On Liberty, had warned about this. We now see the impact of this around us. This is the reason I believe we should welcome other voices. Our revulsion to them means nothing in the long run. For instance, I read the couple of well documented biographies of Savarkar that have come out of late. I’m no fan of the man. But there are many who are and it is worth having a full account of his life to understand the present moment. The books about him have been challenged both on their content and their message. There are debates about plagiarism of passages, poor research, and reproducing right-wing bile directly from his autobiography into the books. But they are out there for others to read and to criticise. You get a somewhat complete picture of a complex man like Savarkar; warts and all. The criticism of the books makes you more aware of the issues involved and hopefully, you will have fewer WhatsApp messages in family groups about the unproven myth of Savarkar. This should be seen as a net positive social outcome. Better than no books on him.
So, my starting position on a film like The Kashmir Files emerges from there. For long there’s the argument made that if you don’t like the left-wing slant in arts and cinema, why don’t you write your own books and make your own films? So, why should anyone complain if these books and films are being made? They may have dubious artistic merits and they may even be unvarnished propaganda but let that be debated in public. It is not that left-wing art didn’t have these faults. History has shown this works out better than suppressing them.
And The Wrong Reasons
With that point on principle out of the way, let’s move on. What interests me more is the question of the role of art in society and what does the phenomenon of TKF reveal about India today.
There’s the question of truth here. A lot of discussion about the film has been about its thinly fictionalised storyline that plays fast and loose with facts. Importantly, the partisans of the film have promoted it as a work that tells the ‘truth’ about what happened to the KPs of the valley. There are two problems here.
One, all art is a pursuit of a truth of some kind. But it is just that. A pursuit. TKF is a film, regardless of its merit, that pursues a version of truth its makers believe in. That cannot ever be absolute. Art must make what’s invisible, visible. In that limited way only, it serves the truth. So, this relentless campaign to posit this as the only truth about what happened in the valley is dangerous. The exodus of the KPs didn’t spontaneously emerge out of a vacuum. There was half-a-century history to it that’s riddled with wars, false promises and a sense of alienation. And there’s a timeline to Kashmir history after the exodus too that includes the highest military presence in any piece of land in the world, killing of the innocents and upending of lives. TKF will contribute to this composite truth. It cannot replace it. History is always ambiguous. What really happened and why are shape-shifting monsters. We all are in the Proustian search for lost time. Even personal memory gets addled over the years. So what will you make of collective memory? You can only have versions of it.
Two, I have an instinctive suspicion of the state promoting a work of art on an ideological basis. The state can be a patron as it has been for ages. It must create an environment for art to thrive. But when it weighs in on what’s good art and what’s not, understand that things have gone wrong. I’m not inclined to draw lazy parallels while writing here. But the experience of Soviet and Nazi attempts in using arts for the political end is too recent to be forgotten. Like Adorno wrote, “all art is an uncommitted crime.” It breathes because it challenges power and dominant narratives. Once it moves in lockstep with the state, it loses its vitality. Because soon works of art will be created to retrofit what pleases the state. Then there’s no pursuit of any truth. It all becomes in service of the state. What remains is propaganda.
As Camus wrote in his famous essay on art, Create Dangerously (1957):
“To create today is to create dangerously. Any publication is an act, and that act exposes one to the passions of an age that forgives nothing. Hence the question is not to find out if this is or is not prejudicial to art. The question, for all those who cannot live without art and what it signifies, is merely to find out how, among the police force of so many ideologies, the strange liberty of creation is possible. It is not enough to say in this regard that art is threatened by the powers of the State. If that were true, the problem would be simple: the artist fights or capitulates. The problem is more complex, more serious too as soon as it becomes apparent that the battle is waged within the artist himself.
…Of what could art speak, indeed? If it adapts itself to what the majority of our society wants, art will be a meaningless recreation. If it blindly rejects that society, if the artist makes up his mind to take refuge in his dream, art will express nothing but a negation. In this way we shall have the production of entertainers or of formal grammarians, and in both cases, this leads to an art cut off from living reality.
…Consequently, its (art’s) only aim is to give another form to a reality that it is nevertheless forced to preserve as the source of its emotion. In this regard, we are all realistic and no one is. Art is neither complete rejection nor complete acceptance of what is. It is simultaneously rejection and acceptance, and this why it must be a perpetually renewed wrenching apart.”
The question of TKF as a work of art therefore cannot be separated from what purpose is it serving in today’s India. Is it being used to learn lessons from the past? What does the story of the exodus of a minority community at midnight with a handful of valuables and a heart full of memories teach us? I think the only lesson Kant (Immanuel) would have asked us to take is that which can be applied universally. And that is a society must protect its minorities. The majority shouldn’t turn their heads away when something similar happens again.
The moral question then is simple. Is that the lesson that’s being learnt from TKF? Is that why it is a runaway hit? You know the answer as well as I do. Maybe these are big goals for a mere film. So, let’s narrow it. Is the film helping KPs in anyway? Or is it driving a wedge that makes a return to their homelands more distant? Some see the mere act of telling the story of KPs in the way it has been shown as a salve for their wounds. Maybe it is a salve. Maybe it is reopening of old wounds. Maybe it is both. That’s for the KPs to decide. What is the rest of India being asked to learn from it? There are only uncomfortable answers here. Its success tells us something about the times it has been made. Cinematically, I can bet TKF is no Schindler’s List. I don’t need to watch it to state that. We don’t need to declare holidays for people to watch it. If we want to watch a great film about India on a holiday, “uska prabandh kiya ja chuka hai.” It has been arranged. We show that great film every year across TV channels on October 2. Watch it. There’s always something new to learn for anyone who holds humanity dear.
The instrumental use of art for political ends is a frontier. When you cross that, you are in strange territory. The success of TKF at the box office points us only in one direction.
It is called an ‘andha kuan’ in Hindi.
PolicyWTF: Pension Troubles are Back
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
- Pranay Kotasthane
Long-time readers of this newsletter know that I have cited the civil services pension reform in 2004 as an example of a policy success because the government was able to align cognitive maps in a manner that generated little backlash and protests.
Until 2004, Indian governments promised to pay their employees’ pensions from the money collected from future taxpayers. Unlike in the private sector, where employees and the employer together contribute towards an employee’s pension fund, government employees bore no such responsibility.
As a result, the burgeoning pension bill led the government to change its stance in 2004. Through the reform, any employee joining the union government from April 1, 2004, contributed a part of their salary to their pension fund and the contribution was to be matched by the government. Over time, state governments (except West Bengal) implemented this reform.
To ensure that this doesn’t mean going back on past promises, this reform was applied only to new recruits, which immediately disarmed powerful unions of existing employees. Secondly, new employees effectively received a salary hike of 10 per cent, which was the government’s contribution to their pension fund. Finally, armed forces personnel were kept out of this reform given the short service term of non-officers.
Quite a fair proposition, one would think. Good economics intersects with good politics; all bases covered; cognitive maps aligned.
Well, not quite. Good economics needs a sustained cover of good politics throughout the policy life-cycle. Without the latter, the former has no chance. Having implemented the reform, governments forgot the need for good politics. The result is that in the last couple of weeks, two states—Rajasthan and Chattisgarh—have gone back to the old pension system. Some others are contemplating a similar move.
I don’t need to explain why this rollback is terrible. But just to drive the point home, Rajasthan today spends more than half of all the revenue it raises, on pensions and salaries of state government employees. As Mehrishi & Sane write, this implies six per cent of families in Rajasthan corner 56 per cent of all the state taxes and state fees paid by Rajasthan’s residents. By rolling back the reform, the Rajasthan government is going one step further in increasing this unfair redistribution. Future generations will be left holding the can of these ballooning pensions of today’s government employees.
The important question is: why the need for this rollback? The cynical reason is electoral politics. Both Rajasthan and Chattisgarh are due for elections next year and the state government is wooing the powerful lobby of government employees at the expense of faceless, dispersed citizens.
However, there is another structural reason emanating from poor politics, like in the case of the now-abandoned farm laws. The employees under the reformed pension scheme, who are starting to retire now, have received much smaller pensions than their older counterparts. This has led to protests to overturn the pension reform completely. State governments are responding to these protests. And hence, it’s important to take this concern seriously.
We can understand this phenomenon better using a framework from the 1970 book Why Men Rebel? by American political scientist Ted Gurr. Gurr claimed that one of the reasons why people rebel is relative deprivation. The greater the difference between their perception of “what we deserve” and “what we are getting”, the higher their propensity to protest or rebel.
In the case of pensions, the reference point for “what we deserve” is the inflation-linked and unsustainable pensions that the older retirees were getting. The perceived levels of “what we are getting” is already quite low because of implementation issues. Employee and government contributions to the funds have been delayed many times over, a concern the CAG has repeatedly raised. The gap between these two perceptions—the relative deprivation—is quite high, and hence the protests.
While this model is descriptive, it can also be extended to offer some lessons in politics. According to this framework, the government’s aim should be to reduce the sense of relative deprivation. This can be theoretically achieved in two ways.
One, by making it clear that “what the pensioners are getting” is not that bad a deal. This can be achieved by resolving the implementation issues and modifying the scheme to allow the pensioners to opt for higher market-linked exposure. The same effect can also be achieved by communicating how government employees are already much better placed in comparison to the people employed outside the government, in an economy marred by the COVID-19 shock.
Two, by adopting a realist strategy that lowers the pensioners’ perception of “what they deserve”. This is a difficult political strategy as it can backfire: who likes to hear that they don’t deserve the absolute best? But this narrative can be created by highlighting the unsustainable current pension burden and its impact on the economy and future generations.
In the current scheme of things, neither of these two strategies has been tried. Governments thought that the pension game-set-match had been done in 2004. 18 years later, they are realising that a lot still needs to be done. The Union government is masterful in creating and shaping narratives. That skill, for once, is much-desired here, lest a promising policy success turns into a grave policy error.
*The title of the edition is from L.P. Hartley’s 1953 novel “The Go-Between”
Advertisement: If you enjoy the themes we discuss in this newsletter, consider taking up the Graduate Certificate in Public Policy course. Intake for the next cohort is open. 12-weeks, fully online, designed with working professionals in mind, and most importantly, guaranteed fun and learning. Do not miss.
HomeWork
Reading and listening recommendations on public policy matters
[Paper & Podcast] This Ideas of India conversation is not to be missed. The linked paper on why economic growth is a necessary and sufficient requirement for developing countries to meet their citizens’ basic needs is a must-read for all public policy students.
[Podcast] The ‘One Nation, One Election’ idea is back in the public discourse. We discuss the problems with this idea in the latest Puliyabaazi.
[Note] A work-in-progress compilation of opinions in Indian media about the India-Russia relationship.
#163 The Past Is A Foreign Country*