GST: An Idea Whose Time Has Come

We are now just days away from the rollout of the goods and services tax (GST) on 1 July—the most ambitious indirect tax reform ever attempted in modern India.

Yes, the design is far from perfect (given the multiplicity of rates), yet it is a visionary idea on which, amazingly, there is political consensus—something so rare, given that, like the rest of the world, India too has transitioned to a binary discourse. This game changing moment is best summed up in the immortal lines of Victor Hugo: “Nothing is more powerful than an idea whose time has come.”

Why so?

First, it will economically unify the country. At the moment, politically India is united but operates as 32 independent economic territories, imposing a range of taxes and levies as the goods move through the country causing a cascading of taxes. Not only will this end the diseconomy induced by dealing with sovereign republics to conduct business, making the country more competitive, it will also reinforce the political unity of India—something that has always been threatened by external influences.

Second, flowing from the above, the implementation of GST will reorder the existing federal polity. The formation of the GST Council, described as India’s first federal institution by Jammu and Kashmir finance minister Haseeb Drabu, was the first step. For most of Independent India’s history, the country has come to accept a strong Union government dictating economic governance to the states. All this has changed. Ever since the creation of the GST Council, the federal economic relationship has begun to alter. This is largely because GST would not have been possible without a pooling of sovereignties—the Union and state governments have compromised on their individual taxation powers for the larger global good of India. It has sown the seeds of genuine cooperative federalism. The new template is akin to a three-legged race: united they stand, divided they fall.