Editorial: GST rate cut as political gambit

The Prime Minister’s address to the nation is being dubbed as yet another political gambit, given the party’s singular focus on winning elections — in the present instance, the upcoming and crucial Bihar assembly elections. Though Narendra Modi is an astute political strategist and communicator, his ability to sway the voters could be dwindling after being in power for a decade. Likewise, the party’s seemingly invincible capability to push its narrative through the “management” of media and social media could be facing diminishing returns. As more people become aware of the pattern inherent in putting a political spin on everything, the less effective they will be. This was the case with the GST rate revision, too.

After years of implementing a mind-boggling and complicated GST system with multiple, higher rates, the government decided to simplify and cut some rates, and then to brag about it for political gain may not be working as easily or as much as it did a few years ago. Be that as it may, the Prime Minister, however, used the speech to drum up support for another of his pet themes — self-reliance or Atma Nirbharata. He made a strong case for reducing dependence on goods produced in foreign countries. It might have a nice touch of shallowness, ideal for a political slogan, but translating it into reality is not only an arduous task, but also a difficult proposition.

In his Independence Day speech a few days ago, Modi listed a number of things that are either being done or need to be done to make India a self-reliant country. Besides next-generation GST reforms, he also highlighted simplifying laws and compliance, and empowering entrepreneurs and MSMEs, or Micro, Small, and Medium Enterprises, in India. Exhorting people to switch to ’swadeshi’ out of commitment to patriotism may not really work. The two issues on the top of the mind of consumers are price and quality. Though discernible progress has been made in improving the quality of Indian goods, it is often not on par with foreign goods. Regarding price, again, China will have a clear edge over India. On top of it, economists argue that to reduce import dependence, India needs to expand its manufacturing base, and the progress has been quite slow and tardy due to systemic issues. Thus, the government has chosen a targeted intervention for better results – that is, identified about 100 products that are at present imported even while there is capacity to manufacture them locally.

The government is confident about the MSMEs getting a fillip due to GST reforms and that they will play their due role in the government’s mission of self-reliance. The demonetization and subsequently the pandemic had dealt crippling blows to the MSME sector in India. As they are getting on their feet, the compounding problems arising out of global uncertainty and tariff wars are pulling them down. The provisions relating to MSMEs in the Union Budget 2025-26 are likely to have some positive impact, but for a perceptible impact on the ground, the government needs to fix access to credit and markets. On both counts, the policies and schemes are in place and work has been going on, but the pace and scale leave much to be desired, given the magnitude of the challenge.