When the Modi government launched the Goods and Services Tax (GST) in 2017, it was hailed as a “good and simple tax” that would unify India’s fractured tax system. Instead, what unfolded was a convoluted four-slab structure that trapped businesses, traders, and consumers in endless confusion. Seven years later, after chaos, litigation, and disillusionment, the government has finally admitted what critics argued from the very beginning: GST in its original form was a failure. The much-publicised rationalisation into two slabs- 5% and 18%-is being projected as reform, but it is in truth a belated correction forced by ground realities. Scrapping the 12% and 28% rates is a move that should have been the starting point, not the end result after years of damage. Instead of clarity, India lost seven years to arbitrary classifications, compliance burdens, and disputes that drained both businesses and consumer trust. Earlier, industry bodies had repeatedly flagged the burden of compliance, where small businesses spent more time grappling with filing returns than running operations. Economists had repeatedly warned that the four-tier GST defeated the very purpose of “one nation, one tax.” Ordinary consumers, meanwhile, found themselves paying taxes that fluctuated wildly depending on arbitrary categories. Was a packaged snack “food” or “luxury”? Was a household item “essential” or “non-essential”? Such absurdities, born from political compromises and revenue paranoia, turned GST into a symbol of bureaucratic overreach rather than reform. Now the government is packaging this rollback as relief for the common man. Exemptions on individual life and health insurance policies, including family floater and senior citizen plans, are significant. Likewise, GST removal on 33 life-saving drugs and a reduction on medicines and medical devices is welcome, offering some respite to patients battling cancer, rare diseases, and chronic conditions. The reductions will indeed ease burdens for ordinary families and the working poor. Similarly, rationalisation in consumer goods-such as lowering GST on air-conditioners, televisions, dishwashers, small cars, and motorcycles from 28% to 18%-will bring relief to middle-income households. Yet, this begs the question: why were these everyday goods taxed as “luxuries” for so long, when they form part of normal household consumption in an aspirational India? Meanwhile, the government has kept “sin goods” like cigarettes, gutkha, pan masala, and bidis under the same heavy GST and cess regime until compensation cess liabilities are cleared. That may be fiscally sound, but it also reflects the government’s chronic dependence on high-yield taxation to balance its books, rather than comprehensive reform. This overhaul comes just weeks after Prime Minister Narendra Modi promised a “Diwali gift” during his Independence Day speech. But the timing reveals much. The announcement is less about visionary reform than about political expediency. With a restless middle class, struggling farmers, and squeezed small traders, the government could no longer ignore the economic and political cost of its missteps. What is being sold as a historic breakthrough is, in reality, an overdue correction of a deeply flawed system. The lesson is stark: reforms of such magnitude demand humility, consultation, and foresight-not hubris. India deserved a simpler GST from the very beginning. Instead, it got seven wasted years. The government’s task now is not to take a victory lap but to prove that it can finally put sound policy above political optics.
Tuesday, October 7, 2025