One year of GST: Why it remains historic for India

The Goods and Services Tax (GST) was implemented in India exactly one year ago. A year later, the euphoria is far more muted, as multiple challenges in implementation appeared. It is yet unknown whether these can be resolved soon enough. But that does not take away from the fact that it was a historic step for India. Sharing my post from last year.

Make no mistake, GST is a rabbit pulled out of a hat

When the idea of GST was first mooted in 2000 under the Vajpayee government, I was still studying, and knew very little of it. Over the years, following every heartbeat of the Indian macro-economy, the idea of GST started becoming an increasingly discussed concept. Especially after the then FM, P. Chidambaram announced a target date of April 2010 for the initiation of the tax in 2008, it came even more into focus. But for the longest time, more was said than done about its implementation, purely on the basis of the ambitious scale of the reform. As the years rolled on, it became customary to analyse any updates on GST implementation around the budget time and reams were written on what the GST means, how it will impact India and whether or not it is even a real possibility.

Overtime, commentary got weary and analysis got insipid. No one had anything really significant to say about the GST that had not been said before. And by early last year, despite progressive measures being undertaken to implement it, it seemed like a pipe dream. States were not in agreement with what the centre was proposing, industry was not happy with what might happen and economists were unsure if it could be implemented in a manner that would impact Indian macros positively.

And then it happened. Just like that.

The Rajya Sabha passed the GST bill mid last year, states gave their buy in, new rates were decided, and sceptics got converted. For India, this has been nothing short of pulling a rabbit out of a magician’s hat. For anyone who tracks India’s policy making, in other words, it is evident that this is nothing short of a miracle.

But where there is a miracle, there are doubters.

So in the past few days, there has been much buzz about the difficulty faced by small business in application of the GST to their wares. While all countries should protect small and medium sized businesses to the extent that they can, how big the impact is still a wait and watch. No matter how long the country had waited for it, there would have been adjustment difficulties at the very beginning. Undoubtedly there should be checks and balances in place for any untoward effects, but the first step needs to be taken.

And indeed, it is likely that details will have to be tweaked, rates will have to be adjusted and unforeseen circumstances will arrive with clockwork precision. But every decision that gets taken on the GST hereon, will likely be a step forward, not backward, in integrating the Indian market. Every issue raised will give feedback on how to implement better, not go back to where we were before. And even if the progress is not what was initially hoped, it is still a better idea to give a worthwhile policy reform a good shot, than not.

India is a country that mobilises itself into a collective relatively easily in fighting a common enemy. From the time of India’s independence, the idea of standing up to a force bigger than itself, is nothing new to the country. And all battles fought since, have been geographically limited or diluted. But the spirit is very much prevalent – whether it is fighting scams, corruption or more recently, religiously driven attacks.

It is harder for the country, to come together without a common enemy in sight. To that extent, the fact that the GST has gone through, is a reflection of a coming together of the India as a whole to strive for a positive that will impact each and every stakeholder in the economy, something relatively rare. To put it in other words, the GST becomes, not just another policy reform, but an exercise in nation building carried out collectively by the centre, the opposition and the states.

So just for a moment, as the GST is at its launch, can we just put all our cynicism and doubts aside, stand back and marvel at what has just happened?