DC Edit | Next-Gen GST Rollout A Watershed Moment

The rollout of the restructured two-tier Goods and Services Tax (GST) on September 22 marks yet another watershed moment in the history of India’s tax administration. From multiple tax administrations and a plethora of indirect taxes, the country transitioned in 2017 to a unified tax administration under the GST Council — excluding a few products, such as petrol and liquor — with a four-rate system.

The current restructured tax regime simplifies this further by introducing just two principal rates: Five per cent and 18 per cent. Ultra-luxury items will attract a 40 per cent levy, while tobacco and related products will remain under the 28 per cent plus cess category.

Addressing the nation on September 21, on the eve of India’s month-long festive season, Prime Minister Narendra Modi described the initiative as the ‘GST Bachat Utsav’ or ‘GST Savings Festival’, highlighting its potential to ease the burden on households.

The new rates are expected to lower tax incidence on popular commodities, enabling people to save five to 10 per cent of their monthly expenditure on groceries and household items. The reforms are projected to give a major boost to job-creating sectors such as FMCG, consumer durables, automobiles, and construction. Estimates suggest that people could collectively save up to Rs 2.5 lakh crore from the twin decisions.

Nevertheless, the caveat is that Indians should buy local goods, which will set off a virtuous cycle in the economy encompassing consumption, investment, production, and job creation. In an attempt to channel the savings generated by lower GST and income tax rates to support industrial growth in the country, the Prime Minister urged Indians to embrace Swadeshi, or local products.

Despite the availability of Indian substitutes, imports remain high. In the last financial year, India purchased over $500 million worth of toys and games, $900 million worth of fruits, about $600 million each of apparel and footwear, and more than $600 million in miscellaneous manufactured goods.

Many of these items are well within the capability of domestic producers. Yet, demand for foreign brands continues to rise among affluent consumers. In this context, Modi’s appeal was an endorsement of local industry. However, he also urged Indian manufacturers to restore glory to made-in-India products. As most people cite product quality as one of the reasons for buying imported goods, enhancing the quality of India-made products is of utmost importance.

Reflecting on India’s pre-colonial dominance in world trade, Modi exhorted entrepreneurs to work towards regaining it. In earlier times, however, one must note that Indian manufacturers demonstrated exceptional entrepreneurial flair and risk-taking ability, supported by robust family and community networks that acted as informal safety nets. Today’s entrepreneurs, however, face liabilities alone, risking both financial security and social standing. If India is to reclaim its past glory, the government must help recreate support systems that mitigate risk and encourage enterprise.