IASbhai Daily Editorial Hunt | 1st SEP 2020

There is only one thing that makes a dream impossible to achieve: the fear of failure.– Paulo Coelho

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020.

EDITORIAL HUNT #118 :“Must Needed GST Reforms | UPSC

Must Needed GST Reforms | UPSCMust Needed GST Reforms | UPSC

Vijay Kelkar and Ajit Ranade
Must Needed GST Reforms | UPSC

Vijay Kelkar and Ajit Ranade are, respectively, Vice-President and Member, Pune International Centre


GST reform needs a new grand bargain


The GST compensation issue strengthens the necessity for a new system between sovereign and sub-sovereign entities



The GST design needs a radical overhaul in midst of the pandemic . Substantiate -(GS 3)


  • GST Reforms
  • Comparison With Australian GST
  • A Comprehensive Structure Of GST


Three years ago, the Centre and the States of the Union of India struck the launch of the unified Goods and Services Tax (GST) era.

  • DEFINITION : The States gave up their right to collect sales tax and sundry taxes, and the Centre gave up excise and services tax.
  • INTRA STATE : The nationwide GST promised frictionless commerce across State borders .
  • CASCADING EFFECT : The focus was on buoyant and leakproof tax compliance, and removal of inefficiencies like the cascade of “tax on tax”.

This historic grand bargain was the result of painstaking consensus building, which inter alia involved addressing the apprehension of States, of revenue loss due to the GST.



  • STATES CONCERN : Their consent was secured by a promise of reimbursing any shortfall in tax revenues for a period of five years.
  • GST CESS : This reimbursement was to be funded by a special cess called the GST compensation cess.
  • FILLING GAPS : The promised reimbursement was to fill the gap for an assured 14% year on year tax growth for five years, and it was generous to a fault.

Neither the national aggregate nor any of the major States had this record for the previous five years. 

  • HARMONISING TAXATION : But that was not the only fault with the design, which had also failed to learn from the successful design of harmonising Value Added Tax (VAT) rates across the nation, implemented just a decade ago.
  • MAKING ROOM : But that tapered over the years, making room for incentives for tax effort from the States, sort of “skin in the game”.
  • HIGH EXPENDITURE : As the economy battles a pandemic and recession, the tax collection has dropped significantly, while expenditure needs are sharply higher.
  • MEETING SHORTFALLS : But it seems that the States have been told that they are on their own to meet the shortfall in revenues.


  • FEW OPTIONS : The States do not have recourse to multiple options that the Centre has, such as issue of a sovereign bond (in dollars or rupees) or a loan against public sector unit shares from the Reserve Bank of India.
  • BORROWING RATES : The Centre can anyway command much lower rates of borrowing from the markets as compared to the States.
  • INDEBTEDNESS : In terms of aggregate public sector borrowing, it does not matter for the debt markets, nor the rating agencies, whether it is the States or the Centre that is increasing their indebtedness.
  • MACROECONOMIC STABILITY : Fighting this recession through increased fiscal stimulus is basically the job of macroeconomic stabilisation, which is the Centre’s domain.
  • TRUST DEFICIT : COVID-19 pandemic causes a serious dent in the trust built up between the Centre and States.

Kautilya too would have advised the sovereign against reneging on the promised bailout, as fulfilling the obligation helps build trust with sub-sovereigns.



  • COMPENSATION : Just tinkering with the compensation mechanism, or frequently changing rate slabs, or to earn revenue that is not shareable with the States, is not the way forward.
  • COMPACT DESIGN : What we instead need is a Grand Bargain 2.0 between the sovereign and the sub-sovereign entities.

GST is a destination-based consumption tax, which must include all goods and services with very few exceptions, such as food and medicine.

  • STANDARDISED RATES : That widening of the tax base itself will allow us to go back to the original recommendation of a standard rate of 12%, to be fixed for at least a five-year period.

A comparison with Australia which also coincidentally shares its GST anniversary with India, is apt.

  • AUSTRALIAN SLAB : For the past two decades their GST rate has been constant at 10%.
  • INDIAN SLAB : Of course India’s single rate of 12% has to cover petrol, diesel, electricity, transport and real estate as well.
  • EXTRA ROOM : Some extra elbow room for the States’ revenue autonomy is obtained by allowing the States non VATable surcharges on a small list of “sin” goods such as liquor, tobacco etc.
  • AVOIDING RNR : Incidentally this redesign will scrupulously avoid the bogey of a “revenue neutral rate” (RNR) which needlessly occupied the attention of lawmakers and officials.

Of course the compensation-cum-reimbursement incentive can remain, but more in the nature of what was done for VAT harmonisation.


  • UNDERSTANDING DECENTRALISATION : This new grand bargain must recognise the increasing importance of the third tier of government.
  • LOCAL GOVERNANCE : Even after 28 years of the 73rd and 74th Amendments, the local governments do not have the promised transfer of funds, functions and functionaries.
  • STRESSED STRUCTURE : These local bodies face increased responsibility of providing government services especially in view of increased urbanisation and decentralisation.

EQUAL SHARING : Of the 12% GST, 10% should be equally shared between the States and the Centre, and 2% must be earmarked exclusively for the urban and rural local bodies, which ensures some basic revenue autonomy to them.

  • IMPROVED GOVERNANCE : The quality of governance improves as also, the tax base is better aligned with responsibilities of various tiers of government.

      IASbhai Windup: 

  • The current system is too complex and burdensome.
  • We also need to zero rate exports.

GST is a crucial and long-term structural reform which can address the fiscal needs of the future

  • We need to strike the right and desired balance to achieve co-operative federalism and also lead to enhanced economic growth.

A new grand bargain is needed.


Must Read Articles : Must Read Articles :


If you liked this article, then please subscribe to our YouTube Channel for Daily Current Affairs , Editorial Analysis & Answer writing video tutorials. You can also find us on Twitter and Facebook.

You May Also Like