The multi-slab design of GST in India complicated the anti-profiteering mechanism unlike other countries which had such a mechanism in place

The knowledge that the setting up of an anti-profiteering mechanism under the Goods and Services Tax (GST) regime was inevitable does nothing at all to mitigate the dread one feels at the cabinet giving the formal nod to the National Anti-profiteering Authority (NAA) on Thursday.

That’s because of how the idea of setting up this authority came up. The following anecdote was told to this writer by a very reliable non-government source who attended the meeting where this happened.

At one of the meetings of the empowered committee of state finance ministers (before it became the GST Council) last year, representatives of the chambers of commerce had also been invited. One of the state finance ministers asked whether businesses will pass on the benefits of lower rates to the consumers. The attention now turned to the chambers. The representative of one chamber said glibly: Competition and market forces will take care of it.

The uttering of that M word that unites all manners of socialists – red, pink, saffron – that our politicians basically are, sealed it. A communist finance minister exploded and asked for some institutional mechanism and the anti-competitive mechanism was conceived right then. The bureaucrats who can put any socialist to shame then came up with a set of rules that mock at the assurances given by finance minister Arun Jaitley and revenue secretary Hasmukh Adhia that this was not a tool for harassment.

At a television panel discussion which this writer was also part of just before the launch of GST, Adhia said this would not be used against small businesses, especially retailers. So, one cannot go to the NAA that a neighbourhood department store was not reducing prices. This was, he said, to serve only as a warning to large companies which were not passing on tax cut benefits – We are watching you.

But there is nothing in the rules (indeed, there cannot be) that distinguish between big and small players. It says an interested party can write to the Standing Committee and Screening Committee with a complaint about prices not being reduced. And `interested party’ is defined merely as suppliers/recipients of goods and services.

Now look at indignation over restaurant bills since 15 November, when the GST on restaurants was reduced to 5 percent from 18 percent. Bills showing that restaurants have only jacked up prices so that the post-15 November bill amount is either the same or higher than the pre-15 November ones have gone viral. What is to stop an outraged customer or two from dashing off a written complaint about a restaurant in the neighbourhood? That could well apply to large department stores and white goods retailers. The possibility of the anti-profiteering mechanism being used by business rivals is not as improbable as those who dreamed up this idea would like people to believe.

True, a complainant cannot directly approach the NAA. The complaint has to go to a standing committee/screening committee which, after satisfying itself that there could be a prima facie case, will pass the complaint on to the Director General of Safeguards who will then investigate the matter and give its report to the NAA, which will then look into the findings and then arrive at a decision.

This multi-level process has often been cited to show that there are inbuilt checks and balances to prevent arbitrary action by the NAA.

But the Standing Committee and Screening Committees are all staffed by bureaucrats, whose instinct to interfere and control is more than that of the politicians. It is quite possible that the multi-level checks and balances later become multi-level avenues for harassment.

As this writer had pointed out in an earlier article, the multi-slab design of GST in India complicated the anti-profiteering mechanism unlike other countries which had such a mechanism in place – those economies had a one or two slab structure. So, in India, the entire manufacturing chain will have to be examined to determine whether a price cut not being passed on or a price increase was justified or not. This does, therefore, have the potential to increase meddling.

Jaitley, Adhia and state finance minister have been assuring that India will eventually move to a two-slab structure. But they have also indicated that this may take one or two years. So the scope for harassment by anti-profiteering investigations can continue.

Accepting our politician’s reflexive distrust of Market Forces, the issue could have been left to existing institutions like the Competition Commission and/or the Director General of Safeguards. Unfortunately that was not done and there are very draconian provisions for penalty, including de-registration of defaulting companies.

The only saving grace in this is that the NAA will be around for only two years – that’s around the time prices are generally seen to rise post-GST. All that is left is to hope that a flood of complaints don’t ensue. Unfortunate, but that is the reality.