Making GST 2.0 work for states, citizens

If the rate reduction fails to translate into declining prices, neither the demand base nor the GDP growth would result in any desired outcomes

- KJ JOSEPH & KIRAN KUMAR KAKARLAPUDI

WITH THE GOODS and services tax reforms (GST 2.0) having been rolled out as a Diwali gift, the moot question is, how does it affect the tax revenue, especially of the states? It is generally understood that our tax base is at least 7% below its potential. While the reforms cannot be delinked from the plausible adverse effect of Donald Trump’s tariffs, their effect on consumer prices and the stimulatory effect on domestic demand and GDP growth also deserve careful scrutiny.

It was with great expectations, including those of an expanded tax base and enhanced GDP growth, that the India-specific GST paradigm was implemented. Even after discounting the price paid for its hasty implementation, much has been accomplished—India is now a common market and taxpaying is not too taxing for businesses.

Following the economic recovery after the Covid-19 pandemic, average monthly revenues touched ₹1.7-1.8 lakh crore in 2024-25, marking a considerable improvement compared to the pre-GST era. But growth has been driven more by cyclical recovery and compliance improvements than by a widening tax base. A comparative analysis shows that while the collection improved in absolute terms, the tax-GDP ratio is yet to cross the pre-GST levels.