NARENDRA MODI likes to make a splash abroad. On December 25th he turned up in Pakistan, the first visit by an Indian prime minister in more than a decade, for an impromptu summit with his counterpart, Nawaz Sharif. At home, though, Mr Modi appears less impressive. Despite his Bharatiya Janata Party (BJP)’s thumping general-election victory in 2014, his promises of business-friendly reforms are stuck.

The passage of an all-embracing value-added tax, known as the goods and services tax (GST), has become the litmus test of his liberalising credentials. It is the one reform that both the BJP and the opposition Congress party ostensibly agree on. Raising funds for both the federal government at the centre and the states, it is meant to replace a monstrous excrescence of taxes, duties, surcharges and cesses levied by the centre, the states and local authorities—a system that fragments the economy and gives huge scope for corruption by officials and politicians. Replacing most taxes with a GST would, for the first time, create a single market in India—of 1.3 billion people.

The latest and perhaps most promising attempt to pass the necessary constitutional amendment failed with the closing of the winter session of parliament in December. Mr Modi will try again in the budget session, which opens in February. But if he is to succeed, he will have to overcome India’s cynical politics.

The economy grew at a pleasing annualised rate of 7.4% from July to September—faster than China’s. Yet many economists cast doubt on the official figures, and Mr Modi’s attempt to boost manufacturing is not making much progress. Indeed, the best chance of turning his slogan of “Make in India” into reality is through a single market—“Make in India by Making One India”, as a recent government report put it.

The existing system, senior officials say, taxes production more than consumption and, in effect, subsidises importers at the expense of domestic producers. Perversely, trade between states is taxed, through a central sales tax of 2%. Some states also impose duties on products entering from elsewhere in India. Lorries are held up at internal checkpoints (see picture).

An executive from a prominent Indian firm explains that, because trade between one state and another is subject to the central sales tax while the transfers of inventory are not, his company has set up warehouses in every state to avoid the tax. And because duties paid on inputs often cannot be claimed back, there is a “cascade” of taxes levied upon previous ones. Among other things, it discourages investment in machinery. “The entire ecosystem”, he says, “works to optimise tax, not productivity.”

One study suggests that a “flawless” GST—with a single rate for all goods and services, and minimal exemptions—could boost Indian growth by anything between 0.9 and 1.7 percentage points a year. Another benefit would be to create a paper trail and an incentive for firms to declare transactions in order to claim tax credits, so reducing overall tax evasion.

Attempts to streamline indirect taxes date back to liberalisations in the 1990s, yet moves towards forms of value-added taxes have been partial at best. A version of a more encompassing GST bill was passed by the lower house in May. Unwisely, it postponed imposing the tax on oil products (a vital input) till an unspecified future date. It exempted alcohol entirely. That these two categories currently account for a large share of states’ revenues (and of illicit party funding) is no coincidence. The bill also still stipulates a temporary central sales tax, of 1%, on interstate trade.

Even this watered-down law has been stuck in Parliament’s upper house, where the BJP lacks a majority. When Congress was in office, its own attempt to introduce a GST was blocked by the BJP. Now it acts as the spoiler. Congress rightly objects to the central sales tax. But its demand that the constitution should enshrine a maximum rate for the GST of 18% makes little sense. (A third demand is for a different mechanism to resolve disputes over the working of the tax.)

For more than a year Mr Modi haughtily ignored the opposition. He no doubt hoped that the momentum from his general-election victory would carry him to wins in subsequent state elections, automatically sending delegates to the upper house and giving him a majority there, too. But lately the BJP has been defeated in key places, most recently in Bihar, the third-most-populous state.

So Mr Modi has become a bit humbler. He belatedly invited Sonia Gandhi, president of Congress, and Manmohan Singh, his predecessor as prime minister, to tea in the hope of finding a deal on a GST. A committee led by the finance ministry’s chief economic adviser, Arvind Subramanian, offered some concessions: scrapping the central sales tax and setting two bands for the GST (a standard rate of 17-18% and a lower 12% rate for certain sensitive goods) which are within Congress’s declared ceiling. The committee also proposed that alcohol as well as property transactions should be subject to the GST; in return, states could levy “sin taxes” on things like alcohol and tobacco of up to 40%.

Taxing times

The committee’s report appeared to bring a much-improved GST bill within reach. But Congress took to disrupting the upper house. The cause of its rowdy outrage at first was the government’s “intolerance” of minorities (especially Muslims); then a minister’s allegedly derogatory remarks about low-caste dalits; then the BJP’s supposed “vendetta” in a court wrangle involving Mrs Gandhi, her son Rahul, and the allegedly corrupt disposal of a failed party newspaper; and lastly the party’s demand that the finance minister, Arun Jaitley, should step down over claims of corruption in cricket.

Congress might have claimed victory in forcing Mr Modi to see sense over the GST, even as it challenged his excesses. Instead it chose obstructionism. If he is to secure any economic legacy, Mr Modi may now have to spend more time on the art of buttering up opponents at home rather than fellow leaders abroad.