Measuring GST’s success

Last week, GST crossed the final hurdle with states arriving at a consensus on the classification of goods and services and their rate structure. The move came days before Modi sarkar’s third birthday bash. This is also Finance Minister Arun Jaitley’s shot at history, not because GST is the single-most powerful economic reform India has seen, but because it’s a classic case of cooperative federalism with the Centre and states having an equal dialogue. GST’s implementation will be watched with an eagle eye for any sign of flakiness and observers will jump the gun to criticise it even at the slightest variation in any of the data points.

It's important to remember that GST’s success can be measured based on its impact on consumption, production, inflation, tax revenue and compliance, not in the first, second or third quarter, but beyond that. Enough care has been taken on both goods and services to ensure inflationary pressure can be contained. Whether effective rates and pricing on end products and services smacks of socialism, or is a gift to the wealthiest will be known later, what’s critical is how these rates will be passed on and how exactly it influences consumption and thereby production. For instance, though economy class airfare is taxed lower, that in itself may not add more passengers.

GST is also a gamble on economic growth. In a sense, it's the fairy dust that can make all the bad stuff, like poverty, vanish. It’s a potent tool that can inject perennial economic growth making tax revenue robust. But first, tax compliance is an area that needs work, as a large part of the informal sector fly under the tax radar. Eliminating under-reporting will also be a challenge. GST’s success will be evident from the increase in tax-to-GDP ratio, but for more tax invoices, businesses need sufficient information and time to realign their reporting systems. In the short term, success can be measured based on the chaos, confusion and failures and their effective rectification, not the lack of them.

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