It may be pure chance that the next round of big-bang reforms directed towards India’s internal economy has come at a time of turbulence on the external front. But it’s a happy coincidence all the same that GST is getting pruned and simplified, offering a new impetus to consumption, at a time of very erratic weather for exports.
The vexed Goods and Services Tax, which has completed eight years with a complex ziggurat-like architecture, is finally getting rationalised into a slimmer, neater structure. Three Groups of Ministers will be meeting next week, on Wednesday and Thursday, to finalise its blueprint. That will be submitted to the GST Council for a final round of consultations.
If all goes well, come Diwali, our domestic bazaars will have an extra bounce to their step, freed from the knotted mass of reins imposed by multiple rates of taxation, which were often seen to be irrational in their very design. The new plan is to account for most items under two slabs — a lightweight 5% for mass goods and the higher one capped at 18%. Only ‘sin goods’ like tobacco etc will cop the special rate of 40%.
The benefits are intended to devolve to all sides of the base of India’s pyramid. Compliance should become much easier for businesses. Farmers can hope for input costs to be reduced on vital items like fertilisers and seeds, which should create a vital surplus for millions of small Indians. That will enable them to join the class of ordinary consumers all around who can look forward to items of mass consumption getting cheaper.
On both sides, hopefully, small will get more beautiful. On one side, small and medium-sized businesses, the muscles that keep the economic backbone straight and help the body stay bouncy. On the other, the non-premium, budget segment of goods that crores of Indians buy.
The best-case scenario will see volumes offsetting revenue loss on account of lower taxes, which is the core doubt that states like Kerala may bring up at the GST Council deliberations. If that happens, it would be an echo of what happened in previous instances of global turbulence, like in 2008, when the buoyancy of our domestic market created a healthy shock absorber.