Everyone loves a good GST
by Arbind Modi and Ajay Shah
Business Standard, 13 April 2026
The problem
The present design of the GST is a drag on Indian success. The way the GST works today hinders investment, exports, and productivity. Faced with a fresh wave of economic stress through US protectionism and the war in Iran, there is a crying need for a better functioning Indian economic policy machinery. The time has come to complete the GST reform.
The long journey to the GST began when some of us built the Vijay Kelkar report on FRBM implementation in 2004, which showed a fully articulated design of the GST and its importance for Indian economic strategy. As with all important ideas, this began as novel ideas, gained acceptance in the expert community, and then got broadly accepted in the policy community [EiE Ep36, The long road to change]. Once the policy consensus shifted, the idea was ripe for implementation.
However, in the effort to build consensus, early design compromises diluted the core principles of a value added tax. All political parties signed off on these compromises, so there is plenty of blame to go around. The nice thing about standing in 2026 is that everyone see these mistakes with crystal clarity.
The solution
Everyone now sees the value of a good and simple tax: A single low rate, a comprehensive base, complete input tax credit, removal of all traditional indirect taxes such as cesses, zero rating of exports, GST on imports at the border. There is now broad agreement in Indian politics that the GST needs to be reformed in these directions.
BJP
Prime Minister Narendra Modi on 1 July 2017 in the Central Hall of Parliament described GST as `a Good and Simple Tax.' Multiple rates, cesses, GST exemptions, and cholesterol in input tax credit have fragmented the base and reintroduced cascading, undermining both simplicity and efficiency.
Finance Minister Nirmala Sitharaman in recent GST Council briefings has emphasised that `GST revenues are strong and the system is stabilising.' Revenue buoyancy, however, is not a measure of design quality. The real adverse impact, that should worry the Ministry of Finance, is on economic growth.
INC
Former Finance Minister P. Chidambaram has argued that `GST is too complex and should move to fewer rates.' This diagnosis is directionally correct but incomplete. The weaknesses of the Indian GST Run beyondrate multiplicity. E.g. a simplified rate structure cannot deliver efficiency if the credit chain remains broken.
Rahul Gandhi has repeatedly described GST as `a Gabbar Singh Tax' in the context of micro, small and medium enterprises, during campaign speeches between 2017 and 2019. The burden on small businesses is real, but it reflects the weaknesses of the present Indian GST design and not the GST when done right. Threshold effects, compliance complexity, and broken credit chains increase informality instead of reducing it.
DMK
M. K. Stalin (DMK) has argued that `GST undermines the fiscal autonomy of states.' The concern is overstated. States receive a substantial share (71%) of GST revenues and retain full control over major non GST tax bases such as alcohol, fuel, and property. A key difficulty lies in how states have utilised their role in the GST Council to reflect their interests.
AAP
Raghav Chadha (AAP) criticized `multiple GST rates on everyday items like popcorn' in the Rajya Sabha in 2024. Such anomalies are symptoms of a fragmented system. These structures are approved within the GST Council. The gap between endorsement in policy forums and criticism in public reflects a deeper accountability deficit.
TMC
Mamata Banerjee (TMC) has argued that `GST has eroded state fiscal autonomy.' States collectively hold two thirds of the voting power in the GST Council and have endorsed all major decisions. They also retain significant non GST tax powers. The issue is therefore not loss of autonomy, but the public finance policy sophistication in states, and their exercise of their powers in the GST Council.
Abhishek Banerjee (TMC) has argued that `GST has hurt state finances and burdened consumers.' The burden on consumers, however, stems largely from cascading caused by exemptions and restrictions on input tax credit. Fiscal stress is linked to the flaws of the GST as implemented.
SP
Akhilesh Yadav (SP) has stated that `GST has complicated compliance and hurt traders.' Compliance challenges arise from structural design rather than from GST itself. Multiple rates, threshold discontinuities, and credit restrictions increase complexity. Simplification requires restoring a clean credit chain rather than merely lowering rates.
YSR-Cong
Y. S. Jagan Mohan Reddy (YSR-Cong) has stated that `GST has increased dependence on the Centre.' Revenue uncertainty reflects fragmented base design and exemptions. Strengthening the integrity of the tax by restoring input tax credit would improve both stability and fiscal capacity.
TDP and BJD
The Telugu Desam Party and the Biju Janata Dal have both raised concerns that `GST has created revenue uncertainty for states.' Yet states governed by these parties have participated in and endorsed GST Council decisions that fragmented the base through exemptions and rate dispersion. The resulting pressures therefore reflect collective policy choices as much as institutional constraints.
Left Front
The Left Front in Kerala has characterized GST as `regressive.' Regressivity arises primarily from hidden cascading caused by exemptions and denial of credit. A clean GST with full input tax credit, a broad base, and targeted direct cash transfer would be more progressive than the current structure.
Translating the universal angst into a program of change
All parts of the Indian political system want the rational GST which constitutes six elements:
- A single low rate such as 8-12 per cent,
- a comprehensive base,
- complete input tax credit (Modi & Shah 2025),
- removal of all traditional indirect taxes such as cesses,
- zero rating of exports, and
- GST on imports at the border.
What is needed is not another round of incremental adjustments, but a fresh political discussion. A dedicated, full-day discussion in Parliament -- focused exclusively on GST design, its structural distortions, and the role of the GST Council -- would help all political formations to translate their angst into a shared agreement on reforms.
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