GST IMPACT

Finally Modi government is able to get Rajya Sabha nod for GST Bill, the most awaited economic reform. India is a large market of 1.25 billion people with rising middle class but this market is divided by borders of 29 states and 7 union territories with each of them having its own set of laws regulating trade in its territory. Any legal entity with operations in India has to deal with these local laws in order to survive its business operations in India. Multiplicity of taxes under multiple authorities made operations of business a cumbersome affair. Same goods or services attract different rates of tax under different jurisdictions leading to interstate smuggling. A business entity with presence in multiple jurisdictions has to register itself with each authority in every jurisdiction to run its operations. Businesses are required to maintain multiple warehouses and unnecessary transshipment in each of the jurisdiction to satisfy local laws. 

GST will subsume state taxes like VAT, Entry tax, entertainment tax and central taxes like CST, Excise duty and service tax. It will open up state borders for every business whether small or large and integrate country into one national open market. GST is good for large firms operating at national level but small firms with local focus will face added competition from rivals in other states leading to competitive efficiency. Its like trade agreement for free movement of goods and services among the states with federal supervision. 

Corruption at border checkpoints will reduce substantially as open borders will disincentivize smuggling of goods to avoid taxes. 

Supply Chains will change dramatically. Middle men will be weeded out and direct supply of goods from manufacturers to consumers will eventually happen. This will lead to reduction in prices of many commodities and country may experience reduced inflation rate in short run. However, favoured industries like textiles might have some impact due to change in tax regime.

 It is implied that GST will lead to ease of doing business and result in more FDI. It will be a booster for economy as GDP growth rate is also expected to jump by 1-2 percent. 

GST rates are not finalised yet and tussle between political parties whether to cap rates or not will continue. Whatever will be the outcome, milestone has been achieved to complement growth of India.