Will GST Reforms Alone Revive the Economy?

The media is full of advertisements hailing Prime Minister Narendra Modi, and social media is once again a divided house — with one side praising everything the government does and another exposing gaps in its policies. Amidst the noise, one truth stands out: the government has finally admitted that the economy is in distress.

GST: From Promise to Complexity

The Goods and Services Tax (GST) was rolled out on July 1, 2017. Ironically, when the Congress-led government first proposed it, then Gujarat Chief Minister Narendra Modi had opposed it.

Since its launch, 56 GST Council meetings have taken place, but the voices of opposition-ruled states are rarely heeded. The promise of “one nation, one tax” has turned into a maze of slabs: 0%, 0.25%, 3%, 5%, 12%, 18%, and 28% — with “sin” taxes even higher. Clearly, calling this a “two-slab system” is misleading.

The Welcome Steps

• Removal of 18% GST on insurance policies.

• Reduction of tax on certain eatables.

• Tax cuts on some medicines and exemptions for 33 others.

The Missed Opportunities

• Yet contradictions remain. Paneer, khakra, roti, and paratha are exempt, but idli, dosa, vada, and puttu still attract tax. Frozen meat, tea, coffee, grains, and flour are taxed at 5%. Insulin at 12%. Bread, pastries, and chocolates at 18%. Even group insurance for senior citizens is taxed at 18%.

• At the same time, GST on “luxury” items such as air conditioners, TVs above 32 inches, and dishwashers has been cut from 28% to 18%. If rates can fall for these, why not for daily food consumed by the poor?

The Larger Problem: Tax Collection

• Only 2.2% of India’s population pays income tax, and half of them are salaried employees whose taxes are deducted at source. The rich escape through rebates and clever accounting.

• Demonetisation failed to curb black money. Corporate tax was slashed from 32% to 20% to spur jobs and investment, but neither materialised. Meanwhile, wealth and inheritance taxes remain absent, though even capitalist countries impose them.

What Should Be Done?

• Exempt essentials: All agricultural produce, dairy, meat, fruits, and non-alcoholic drinks should be tax-free.

• Support MSMEs: Raise GST exemption limits from ₹40 lakh (goods) and ₹20 lakh (services) to at least ₹1 crore. These small businesses are India’s largest employers.

• Cut fuel taxes: Petrol and diesel remain outside GST, but heavy excise duties raise costs across the economy. These must come down.

• Progressive taxation: Reintroduce wealth and inheritance taxes, and enforce stricter collection from the super-rich.

Taxes Must Serve People, Not Corporates

Taxes are meant to fund public services. Why then are education and healthcare still not free in India, unlike in Nordic countries? Why does India employ only 3.2% of its population in government and public services, compared to 30–40% elsewhere?

The benefits of lower GST on cement and other sectors flow mostly to corporates. There is no mechanism to ensure that companies pass on these benefits to citizens. At best, the government “hopes” they will.

The Bottom Line

GST reform alone will not revive the economy. A fairer, more progressive tax system, reduced fuel costs, stronger public services, and accountability for corporates are essential.

We need a government of the people, by the people, and for the people — not one run by and for corporates. Only then can the Indian economy truly revive.

Opinion expressed in this column is that of Thomas Franco, Former General Secretary, AIBOC / Steering Committee member, Global Labour University/ Joint Convenor of Peoples commission on Public Sector and Public Services.