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Is GST helping the Indian economy for the better?
August, 09th 2018

The Goods and Services Tax is a reform designed to create an ecosystem where free and fair competition can thrive. The state and centre in unison decided to pool in their resource and sovereignty to create this fiscal consolidation for the common goal of economic prosperity. India’s first federal institution, the GST reform does away with the old multilayer arbitrary tax scheme, making it easier to administer taxes while making revenue collection more efficient.

When state and centre have the autonomy to levy charges based on their preferences, the entire system is distorted and the movement of goods also becomes difficult. Therefore, rooting out redundancy in a tax regime is important to escape the tax on tax effect. GST has put in place simple and homogeneous tax, the spoils of which can be utilized by the state and the centre equally.

A wide price drop across the spectrum is noticeable, something that was absent in the previous tax regime. The creation of a unified national market across the country -under the banner of GST-has increased manufacturing activities. In the recent GST council meet, the key area of focus was the cottage industry. The rates for a number of raw materials were rationalized in a bid to boost the country’s small-scale industry. In these aspects, it resonates with the Make in India Programme which which aims at making India a manufacturing hub.

While India’s GDP did slip to 6.1 in the first quarter of the year 2017 it has bounced back to 6.3 and continues to progress. The Reserve Bank of India (RBI) ruled out any significant inflationary impact due to an increase in taxes. The reason being that a large number of items in the CPI were exempted from GST, and the effect of a rise in the tax rate on some items was compensated by a dip in the rates on other items. A notable rise is visible in the indices, it reflects the recovery of the economy against the recent slowdown. The Index of Industrial production (IIP) has seen an average rise of 1.1% since July 2017.

GST has pushed the economy one step closer to a common market i.e free movement of capital and services. Doing business now has become easier and the hassle-free movement of the goods enables smoother transport thereby plugging in the logistical inefficiencies. The introduction of a GST Network andE-Way bills has solidified the country's supply chain and put in place a structure that facilitates transparency. Now a dealer can track their shipments whether it is intrastate or interstate.

Under GST the efficacy of Input Tax Credit has significantly increased. It eliminates the cascading taxes and also incentivises the dealer to avail more benefits upon revealing his transactions. This adds transparency and acts as a self-policing mechanism, as the economic incentive for avoiding tax has come down.

This uniquely ambitious implementation is still in its nascent stages and to evaluate its performance at this stage would be presumptive. The mechanism is still being tweaked to perfection as the amendments keep rolling in. The recent 28th GST council meet saw a range of changes implemented across the spectrum.

Despite the heavy criticism, the economy seems to be picking up pace and hopefully the benefits of GST will become even more prominent. A proper analysis of GST’s impact on the economy can only be done once the policy has fully taken shape. There are lot more changes yet to come, but we as a nation must take pride in where we stand today with GST. Implementing such a large scale rollout is a daunting task, one that the government has done with much dexterity.

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