Esteemed academics, respected colleagues, and fellow students,

Today, I want to talk about a transformation in India's economic landscape, a reform hailed
as the most significant since the economic restructuring of 1991: the Goods and Services
Tax, or GST1. The motto that encapsulates its ambition is "One Tax, One Market, One
Nation," a powerful statement of intent to unify a complex and fragmented tax system 2.

The Pre-GST Era: A Fragmented System of Cascading Taxes

To truly appreciate the magnitude of the GST reform, we must first understand the indirect
tax system that preceded it. Before July 1, 2017, India's indirect tax structure was a labyrinth
of multi-layered taxes levied by both the Central and State governments3. The Central
government imposed taxes like Central Excise Duty, Service Tax, and various cesses.
Simultaneously, states levied their own taxes, including State VAT, Central Sales Tax, Entry
Tax, Luxury Tax, and Entertainment Tax5.

This system was not only complex but also a significant source of revenue, highlighting its
economic importance. Indirect tax mobilization grew steadily over the years, with total
collections rising from ₹868.36 billion in 1999-2000 to ₹5256.83 billion in 2016-17 6666.
However, this system created a "cascading effect," where taxes were levied on a value that
already included previous taxes, increasing costs and reducing the competitiveness of Indian
products7. The complexity was staggering; there were at least 8-10 different rates for excise
duties and 3-4 rates for State VAT, which could vary across states, creating a bewildering
web of taxation8.

The Dawn of GST: A Unified Approach

The introduction of GST on July 1, 2017, was a paradigm shift9. It is a single, comprehensive
tax levied on the supply of goods and services, aiming to create a unified national market 10.

Key Features of the GST Regime:

● Dual GST Structure: As a federal polity, India adopted a dual GST model11. For intra-
state transactions, both Central GST (CGST) and State GST (SGST) are levied 12. For
inter-state transactions and imports, the Integrated GST (IGST) is applied 13131313.

● Destination-Based Tax: GST is a destination-based tax, where revenue accrues to the

consuming state14141414.

● Tax Slabs and Rates: The GST Council has established a multi-tiered tax structure
with rates of 5%, 12%, 18%, and 28%15151515. To curb inflation, essential items are
taxed at zero percent16. Special rates apply to certain goods, such as a 3% rate on
gold and 0.25% on precious stones17. Crucially, items like alcohol, petroleum
products, stamp duties on real estate, and electricity duties remain outside the GST
regime18.
● Turnover Thresholds: GST Absolutely! Here's a simplified and easy-to-understand
version of that section, without losing any key detail:

● GST’s Impact on Governance, Growth, and Trade – Simplified

● ✅ 1. Governance, Formalization, and Compliance

● GST has made the tax system more organised, wider, and transparent. Here’s how:

● More Businesses in the Tax Net (Wider Tax Base):

After GST was launched, around 9.8 million businesses registered.

● 6.4 million of these came from older tax systems like VAT, Service Tax, and Excise.

● A new 3.4 million joined — including:

● 5.8 million from VAT background

● 0.6 million from Service Tax

● 0.01 million from Excise

● People Paying Taxes Even If They Don’t Have To (Voluntary Compliance):

Surprisingly, 1.7 million small businesses, who didn’t have to register for GST
(because they earned below ₹20 lakh a year), still chose to register. This shows that
more people are willingly following the tax system.

● Simpler Scheme vs. Full GST – What People Chose (Composition Scheme):

● GST has a “Composition Scheme” for small businesses — they can pay a low, fixed
tax (1%, 2%, or 5%) on total sales, with fewer rules.

● 1.6 million businesses signed up for this.

● BUT, 1.9 million small businesses (who could’ve used this easier scheme) chose the
regular GST route instead!

● Why? Because under regular GST, they can get tax credit for the taxes they paid on
purchases — which saves money in the long run.

● This means 54.3% of eligible businesses prefer the full GST system, showing growing
trust in the new tax setup.

● 🏭 2. "Make in India", Investment, and Growth

● GST has also helped Indian businesses grow and encouraged investment. Here’s
how:

● Helping Indian Manufacturers (Fixing Old Problems):

● Earlier, imported goods were taxed less than Indian-made goods due to special
exemptions like CVD and SAD.

● This hurt Indian manufacturers.

● The tax difference caused a ₹40,000 crore loss to the government.

● GST removed this unfair advantage — now, imports are taxed like goods coming
from other Indian states, creating a level playing field.

● Encouraging More Investment (Fixing Blocked Taxes):

● Earlier, companies couldn’t get tax credit on big purchases like machines and
equipment — these taxes were “blocked”.

● In 2014-15, companies invested ₹7.4 lakh crore in equipment, but claimed tax credit
on only ₹1.6 lakh crore.

● That means up to 75% of taxes on investment were wasted!

● GST fixes this by allowing full tax credit, making investments cheaper.

● Capital goods (like machinery) are now 12–14% cheaper.

● This can:

● Increase capital goods investment by 6%

● Raise total investment by 2%

● Boost GDP by 0.5%

● Over time, GST could raise India’s GDP by a full 2%, which is a big deal for the
economy!

● 🚛 3. Logistics and Inter-State Trade

● GST has improved transport and trade between states.

● Faster Truck Movement (Better Logistics):

● Earlier, trucks in India drove only 280 km per day, while U.S. trucks did 800 km/day.

● One-fourth of their time was wasted at checkposts and toll barriers.

 ● After GST removed these barriers, trucks now save 164 km worth of travel time
every day!

● Cheaper Inter-State Trade (Lower Trade Costs):

● Earlier, trading between states was 7 to 16 times costlier than trading within a state.

● Taxes made up 20–30% of this extra cost!

● A World Bank study says that cutting these costs to U.S. levels could improve India’s
national welfare by 15% — meaning people would be better off economically.

● 🎯 In Summary – What Did GST Do?

● More businesses registered and are paying taxes voluntarily.

● Small companies prefer the full GST model to get back taxes they paid.

● Indian manufacturers are now protected from unfair competition from imports.

● Big investments are cheaper and easier to make.

● Transport is faster, and trade between states is cheaper.

● All this helps India move closer to becoming a stronger, more efficient economy.

● Let me know if you'd like a visual version of this (like a flowchart or table) or want
help turning this into a speech or classroom presentation.

💼 4. Sectoral Changes Under GST – In Depth

The introduction of GST was not just a tax reform — it significantly reshaped how various
sectors of the Indian economy operate, especially those with high transaction volumes or
widespread consumer interactions. Two sectors saw major changes:

🏦 A. Banking and Financial Services

Pre-GST Era:

● These services were taxed under the Service Tax regime, with a standard rate of
14.5% (including the Swachh Bharat and Krishi Kalyan cesses).
 ● Banks and financial institutions had complicated transactions involving multiple
services — like loans, deposits, credit cards, brokerage, etc. — often bundled
together.

● Many of these services didn’t follow a value-added structure, and claiming tax
credit was tough, especially when input services were spread across branches.

Post-GST Impact:

● Under GST, banking and financial services are taxed at 18%, and in some cases
even 20%, increasing the effective tax burden.

● This rate hike has direct implications for consumers:

o Higher processing fees

o Increased cost of premium banking services

o More expensive insurance and investment advisory charges

Why this matters:

● Though the intent was to simplify compliance by bringing these services under one
uniform tax, the rate hike added pressure on both service providers and
customers.

● There’s also the challenge of place of supply rules, which affect how IGST is applied
in cases of pan-India services, such as credit card use across states.

Example:

A credit card bill issued in Maharashtra but used in Karnataka for purchases now involves
GST considerations about which state should get the tax, and how it’s to be apportioned.
Earlier, this didn’t matter as much under centralized service tax.

B. Consumer Goods Sector (FMCG, Retail, etc.)

Pre-GST Era:

● Goods were subject to multiple taxes:

o Excise duty: 12.5% on most manufactured goods (collected by the Centre)

o VAT: 5–15% depending on the product and the state

● There were also entry taxes, octroi, purchase tax, and cascading effects, which
inflated retail prices.

● Different states taxed the same product at different rates, causing confusion and
logistical issues for nationwide suppliers.
Post-GST Impact:

● Most consumer goods now fall under standard GST rates, which are more uniform
across the country:

o 18% is the most common rate

o Some products have been brought under lower or zero tax rates to avoid
inflation

● Specifically:

o 55% of consumer goods are tax-exempt (especially essential and unbranded

items)

o 32% are taxed at lower slabs (5% or 12%)

o Only 12% are taxed at the standard rate of 18%

Benefits for the Sector:

1. Elimination of cascading taxes made products cheaper in many cases.

2. Simplified supply chains: No need to create state-wise depots to save on inter-

state tax.

3. Level playing field for companies selling across states.

4. Price reduction or price stability for daily-use goods.

Challenges:

● The complex slab system (0%, 5%, 12%, 18%, 28%) continues to confuse retailers
and increase compliance costs.

● Classification disputes are common — for example, whether a biscuit is luxury

(18%) or essential (5%).

Example:

A branded packaged food item like a ready-to-eat snack may fall in 12% or 18% depending
on its ingredients, packaging, and branding. If wrongly classified, the business may be
fined or lose input credit.

🧾 Cross-Sector Observations:

● GST has generally been more favorable to goods than services.

o Most manufacturers benefitted due to input credit and tax harmonization.

 o Service sectors, especially banking, education (partially exempt), and
healthcare (exempt), face compliance burdens and higher effective taxes.

● Businesses are still adjusting to technical compliance — such as matching invoices

for credit, understanding rate slabs, and interpreting GST notifications.

📌 Key Takeaways from Sectoral Impact:

Pre-GST Tax GST

Sector Impact
Rate Rate

Banking & 18%– Higher service cost, complex place-of-

~14.5%
Financial 20% supply issues

Consumer Goods 12.5% + 5– Mostly Streamlined logistics, lower prices, more

(FMCG) 15% 18% uniformity

Essentials (e.g.,
Varies 0% Exempted to curb inflation
milk)

5%– Lower tax burden than earlier in many

Mid-tier products Varies
12% states

Luxury goods & Higher 28% + High taxation continues (e.g., tobacco,
sin items excise & VAT cess luxury cars, aerated drinks)

🔚 Conclusion

The sectoral changes brought by GST are a mixed bag. Consumer goods industries have
largely benefited, especially through input tax credit and unified markets. Banking and
services, while part of the modern economy, now face higher taxes and technical hurdles
under GST.

Yet, over time, these growing pains may ease as India moves towards fewer tax slabs,
better digital compliance tools, and inclusion of petroleum and alcohol under GST —
which will further stabilize and simplify the tax experience across sectors.

Would you like this broken down further into slides or an infographic summary for
classroom presentation?

Challenges and A Critical Evaluation

Despite its benefits, the journey has been challenging.

 ● State's Concerns & Compensation: States feared a loss of fiscal autonomy45. To
address this, the central government guaranteed compensation for revenue loss, an
amount estimated to be about ₹1,72,000 crores46.

● Complexity and High Rates: The Indian GST system is one of the most complex
globally. Its highest tax rate of 28% is the second-highest among 115 countries with a
VAT/GST system 47 and the highest standard rate in Asia48. India uses four non-zero
rates (5, 12, 18, 28%), whereas 49 countries use a single rate, and only five countries,
including India, use four or more49. This complexity increases compliance costs for
businesses50.

The Path Forward: Revenue and Conclusion

Despite the teething problems, GST is proving to be a robust revenue generator.

● Revenue in the financial year 2018-19 was ₹11,77,369 crores 51.

● It rose to ₹12,22,191 crores in 2019-2052.

● After a dip to ₹11,36,805 crores in 2020-21 during the pandemic, it surged to a

record ₹18.10 lakh crores in 2022-2353.

● The target for 2023-24 has been raised to ₹20 lakh crores54.

In conclusion, the journey towards "One Tax, One Market, One Nation" is a continuous
process of evolution and refinement. The Goods and Services Tax has laid a statistically
verifiable, strong foundation for a more transparent, efficient, and unified indirect tax
system. It is a reform that will be remembered as the biggest in the history of the Indian
economy since 199155. By unlocking investment, formalizing the economy, and enhancing
logistical efficiency, GST is catering to the needs of a modern, growing India and will
undoubtedly play a pivotal role in shaping a more prosperous economic future for our
nation.

Thank you.