Answer

Introduction

The recent simplification of the Goods and Services Tax (GST) regime marks a major reform aimed at easing compliance and boosting efficiency. Introduced in 2017 as a unified indirect tax, GST decisions are guided by the GST Council under Article 279A. The latest reforms, including slab rationalisation hold potential to strengthen growth while raising concerns of fiscal balance and federal harmony.

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How GST Reforms Can Strengthen the Indian Economy

• Boosting Domestic Consumption: Simplified rates and reduced GST slabs can increase disposable income and revive demand.
• Enhancing Ease of Doing Business: Streamlined compliance and removal of complex classifications lower transaction costs for enterprises.
• Encouraging Formalisation of Economy: Unified tax structure incentivises formal sector registration, broadening the tax base.
• Improving Fiscal Federalism: Revised compensation mechanism balances state revenue concerns with central fiscal goals.
• Facilitating Export Competitiveness: Rationalised refund processes and inversion correction lower input costs for exporters.
• Stimulating Infrastructure Investment: Lower indirect taxes enhance affordability of construction materials and boost infrastructure growth.
  

Limitations of Current GST Reforms

• Revenue Shortfall Risks: Rate cuts risk widening fiscal deficit without parallel resource mobilisation.
  Eg: Estimated Rs 48,000 crore revenue loss from latest cuts strains the 4.4% deficit target.
• Persistence of Cesses and Surcharges: Multiple cesses create distortion and hinder a true one-nation-one-tax system.
• Compliance Burden on MSMEs: Despite simplification, frequent amendments and penalties deter smaller enterprises.
  Eg: Over 800 business laws still have imprisonment clauses, adding regulatory cholesterol.
• Slow Disbursal of R&D Incentives: GST relief alone cannot address low innovation; promised R&D funds remain underutilised.
• Export Tariff Vulnerability: GST rationalisation insufficient without strategic trade reforms in key markets.
  Eg: Indian exports worth $48–60 billion still face 50% US tariffs compared to Vietnam’s preferential access.

Measures to Enhance India’s Economic Growth

• Asset Monetisation and Disinvestment: Unlocking government holdings can fund infrastructure and GST revenue gaps.
  Eg: NITI Aayog targets Rs 6 lakh crore through new monetisation programme, in Union Budget 2025 government announced Rs 10 lakh crore estimate. 
• Sovereign Wealth Fund for Development: Pooling excess PSU stakes can raise capital for long-term reforms.
• Labour and Skilling Reforms: Reorienting unutilised labour welfare funds towards reskilling for global competitiveness.
  Eg: Rs 70,000 crore lying idle for labour welfare could drive skilling programmes.
• Decriminalisation of Business Laws: Removing punitive clauses will reduce fear-driven compliance and spur entrepreneurship.
  Eg: Economic Survey 2024 called for amending over 800 laws with imprisonment clauses.
• Incentivising R&D and Manufacturing Scale: Targeted fiscal support for research-intensive industries to build global brands.
  

Conclusion 

The Kelkar Task Force, Fifteenth Finance Commission, and others recommend a stable GST, wider tax base, and fewer exemptions for revenue buoyancy. Coupled with NITI Aayog’s asset monetisation plan and the Economic Survey 2024’s deregulation push, GST can become a catalyst for consumption-led growth with fiscal prudence.

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