Is GST, the India’s Usain Bolt in the Race for Manufacturing Superpower?

Global manufacturing superpower is in the making. The much awaited GST reform has the potential to transform India into a global manufacturing hub. The tax reform can augment the pace of ‘make in India’ initiative. You can think of GST as the India’s Usain Bolt in the race for global manufacturing Supremacy. Obviously, the road to becoming a manufacturing hub is not a short one like a hundred meters track. The path is a long one with many obstacles given the federal structure and the specific demands by the states. The first steps are being taken at the time of writing this short news post on October 18th. The Parliament is set to discuss the tax slabs and the role of States on the GST for on short and long term basis.

How can GST help India in the long run?
If you had been a close observer of the Brexit campaign, you could think of GST as the exact opposite of it. Some popular newspapers even called GST as reverse-Brexit. The only difference is that we have states instead of countries. The chances of future trouble from the states are minimal. The reason is that the complaints by a state over another state are not going to that strong compared to the voicing of issues between countries that happened during Brexit.

Long-running problems that are dragging the Indian economy are the tax evasion and noncompliance. The diverse tax structure along with a lot of indirect taxes gave rise to loopholes to the evaders. To a great extent, GST can fix these income leaks for the government.

Another key aspect of the GST is that it makes India a more conducive place to do business. Given the incomparable market size of India over most other countries of the world, this is the reform that global investors are eying for quite some time. With GST, India can become a magnet for global investments. These investments are the need of the hour to promote employment to millions of youth in the coming years.

GST also has the potential to boost local businesses that are spending significant time and resources on paperwork while paying taxes at different sources and entry points. Due to a single point taxation, the paperwork becomes minimal and hence the associated headache. In some cases, there have been even complaints of double taxation that can be eliminated.

Another argument that favors a single tax scheme for the entire nation is that several levels of indirect taxes can be avoided. In such cases, the final tax can become lesser than the sum of taxes (direct and indirect) being paid now.

Companies that are in the process of expanding to other states consider the taxes specific to states as a key factor. However, with GST, the tax disparities between states will be eradicated. The companies can start choosing locations based on other key functional factors like the availability of skilled workforce and the cost of resources.

The steps are being taken in the right direction. GST is going to be one of the most important reforms the India has witnessed since Independence. However, the introduction of the tax is not the end of the game. A lot of obstacles have to be overcome, and a lot of stakeholders have to be brought into consensus. Moreover, the implementation in a diverse country is going to be cumbersome. India is all set and ready to participate in the race for manufacturing superpower, but it is going to take time to see the results.

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