The River, the Dam, and the Loom of Destiny
Any country, any civilisation, is an incomplete poem. Its lines are written not just in its monuments or revolutions, but in its day-to-day and utilitarian buildings that line its economy, its markets, its taxes, and its laws. For India, a country whose existence is composed of contradictions and reconciliations, economic reforms are like the weaving of a great loom: some strands glimmer with golden promise, others fray with strain, and some are pulled so tight that the fabric is soon to rip itself asunder. Among them was the 2017 Goods and Services Tax, which was introduced as little short of a fiscal revolution, a centripetal force that would sweep the muddled tributaries of indirect taxation away and in their place install one grand, magnificent river of revenue. Politicians hailed it as a "tryst with fiscal destiny," a reference to Nehru's midnight speech at independence, as if the country was being reborn through its tax system.
And yet the river soon turned turbid. The ideal of simplicity became the reality of complexity, the promise of unity, the squabble of centre and states, and the dream of frictionless commerce, the nightmare of digital compliance for most small traders. In 2025, the Modi government thus introduced GST 2.0, an avowed "Diwali gift" to the country, wrapped in the shining finery of simplification, jobs, and national progress. But as all students of politics are aware, a gift in the idiom of power never comes unconditionally. Behind the ritualistic wrapping is a concealed set of questions: Is this reform itself the light of Diwali, or the shadow of centralisation? Does it signify renewal, or merely rebranded burdens? And can it restore the centuries-old balance in India's democracy between efficiency and equity, central authority and state autonomy, symbolism and substance?
The Reasons Why GST 2.0: When Reform Generates Reform
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The initial GST was a response to the patchwork quilt of taxes that was choking business, state to state. A goods truck from Tamil Nadu to Uttar Pradesh had to pay octroi at one border, excise duty at another, VAT in one state, service tax in another, so the whole journey was a paper pilgrimage. GST tried to bring all this together under one tax. But on the ground, rather than one river, India was given a delta, multiple rate slabs, constant changes, technical issues, and compliance burdens so huge that small businesses were suffocated. Thus, while mega companies with tax experts managed to transition fairly smoothly, a weaver in Murshidabad or a Surat textile trader was faced with portals insisting not just on literacy but on computer literacy. Filing monthly returns, matching bills, and maintaining accounts was work as complex as hand-weaving a silk Sari, long, laborious, and merciless of error. And even the promise that GST would put an end to extortion of traders by taxmen was also broken when men in uniform merely replicated their extortion methods.
States are also restive. They had consented to forego their right of independent taxation in return for payment for the loss of revenue. But when the Centre was slow or challenged these payments, the silence of trust was converted into the noise of confrontation. Kerala's Finance Minister once characterised the GST Council as "a forum where states are invited to speak, but not necessarily to be heard." So by 2025, the argument in favour of reforming the reform itself became inexorable. International pressures mounted. In an international economy where international investors have weeks to decide whether to invest in factories in India, Vietnam, or Indonesia, the complexity of India's tax code was a barrier. Being able to do business easily is not some World Bank metric; it is a real determinant of whether or not an auto factory gets built in Pune or Bangkok. If India were to invest, it could not afford to appear Byzantine bureaucratically. And then, naturally, there was politics. General elections of 2026 were around the corner, and the Modi government had to reimagine the persona of a reformer, a bringer of prosperity, a bringer of order out of disorder. GST 2.0, therefore, came not only as an economic imperative, but as a political spectacle, as a Diwali gift, a symbolic lamp in the darkness of discontent.
The Fault Lines and Challenges: A Temple Built on Shaky Ground
All reform temples are constructed on foundations, and all foundations are cracked. GST 2.0, although a temple of simplicity in design, is constructed on ground that trembles with fault lines. The first fault line is federalism. India is not a unitary state but a federation of 28 states and 8 Union Territories with their own economic base, linguistic culture, and political will. With the centralisation of taxing powers in a national GST regime, the Centre necessarily restricts the fiscal autonomy of states. Although this was accepted in 2017 as a necessary compromise, in 2025, state patience has thinned. Bengal, Kerala, and Punjab leaders openly contend that GST 2.0 is set to turn the states into municipalities—dependent on the Centre's largesse for their revenues. Federalism, in their view, is being eroded by the stealthy whittling away of fiscal sovereignty. The second fault line is digital disparity. GST 2.0 relies heavily on a computerised, streamlined filing system, which will be wonderful in cities like Bengaluru or Gurugram, where the internet penetration is high and the technological literacy is high. But for rural Bihar's small merchants or the Northeast's, the online portal is an extraterrestrial text. The digital divide then risks making GST an instrument of exclusion. Rather than level the playing field, it can push further into inequality, creating a tax regime where the urban oligarchs glide and the rural underclass stumbles.
The third fault line is interstate economic inequality. GST revenues are much higher in industrial states like Maharashtra, Gujarat, or Tamil Nadu and lower in agrarian or less industrial states. Unless GST 2.0 has well-thought-out revenue-sharing provisions, it could widen the gap between rich and poor states and dilute the very integration it seeks to achieve. Finally, there is the political contest. Congress and the regional parties have seized on GST 2.0 as evidence of Modi's centralising tendencies. They characterise it as not a simplification but a crafty disguise for hegemony. The BJP, on the other hand, frames the opposition as obstacles to progress. The tax infrastructure is thus not merely a fiscal instrument but a political terrain of legitimacy.
The Impacts: Ripples of the Present, Waves of the Future
They don't occur in a vacuum. They're like a pebble in a lake, creating short-term waves and long-term ripples. In the short term, GST 2.0 will cut the number of slabs, ease compliance, and give a new fillip to industries such as defence and technology. By tying GST reform to an employment generation programme at a cost of ₹1 lakh crore, the government is trying to placate the jobless youth too, making tax a badge of opportunity.
But in the long term, the consequences are more uncertain. If it succeeds, GST 2.0 will help solidify India's status as an investment destination, draw foreign funds, and join the domestic market more irrevocably with the global economy than ever before. It could be the pillar of India's journey towards a $10 trillion economy. But if it fails, it can potentially make small traders obsolete, ghettoise states, and ignite bitterness. The pond may not provide ripples of wealth but waves of bitterness. Politically, GST 2.0 will emerge as the 2026 elections' top issue. Just as the Mandal Commission realigned Indian politics along caste, or the Ram Janmabhoomi movement along communal lines, so GST 2.0 might redistribute politics along fiscal centralisation versus state autonomy lines. It is not a tax—it is a metaphor for the allocation of power in Indian democracy.
The Supreme Court: Defender of the Balance
In this battle of power, the Supreme Court of India stands as a silent but effective referee. In its historic Mohit Minerals judgment (2022), the Court held that GST Council recommendations are not binding, thus reaffirming the constitutional tenet that states are not passive observers in the fiscal sphere. This judgment resonates louder today, as GST 2.0 raises new questions regarding the scope of central authority. If the states are pushed into a corner, petitions are sure to land in the lap of the Court, and the Court would then need to determine whether GST 2.0 upholds cooperative federalism or leans in favour of coercive federalism. The Court's own words of wisdom earlier, "federalism in India is not about competition but about trust," will come back as a yardstick. If GST 2.0 erodes that trust, the judiciary might intervene once again to re-engineer the balance. So the future of GST 2.0 is not just a question of parliament maths but also of judicial philosophy.
Evidence and Ground Realities: Numbers Behind Narratives
Every modification is attempted not with words but with numbers. Economic surveys have shown that although GST has improved government revenue buoyancy in industrial cities, it continues to put enormous compliance demands on MSMEs. Research has shown that almost 62% of small traders continue to depend on third-party tax specialists, cutting into their margins. Penetration of the Internet, though growing, continues to exclude millions from effective digital compliance. Public opinion reflects this paradox. Manufacturing in factories, especially exporters and IT companies, embraces simplification as it brings India in line with international practices. Rural retailers are wary of greater monitoring and less bargaining power. Political responses are a reflection of such realities. BJP hails GST 2.0 as a move towards modernisation, terming it the vision of "New India". Congress calls for a white paper for transparency, and regional parties call for assurances of compensation. The evidence thus betrays a higher truth: GST 2.0 is as much an economic reform worth its value as a polarised tale, battled as much in the court of public opinion as in Parliament's corridors.
The Modi Government: The Master of Political Storytelling
All governments make policies, but not all governments are adept at translating policy into myth. Modi's government has repeatedly demonstrated its acumen in political storytelling. From the Swachh Bharat mission conceived in the frames of Gandhi's glasses, to the Ujjwala scheme symbolised in the form of a gas cylinder, to GST 2.0 as a "Diwali gift," The government frames reforms not in the language of administration but in the imagery of culture that resonates with ordinary Indians. By linking GST 2.0 to Diwali, the government marries the technical to the emotional. Diwali is the festival of rebirth, of light over darkness, of prosperity and wealth. To describe a tax reform as a "Diwali gift" is to convert a dry administrative change into a moral and cultural triumph. It's not merely an economic adjustment but a spiritual promise.
Strategically, this story enables the government to position itself as the harbinger of progress and the opposition as a roadblock to development. It aligns GST 2.0 with the overall vision of Atmanirbhar Bharat (self-reliant India) and places taxation in the context of national resurgence. So the Modi government not only enacts laws, it tells a story. And in a democracy, stories are as significant as figures are.
Solutions: From Rhetoric to Reality
For GST 2.0 to move beyond rhetoric and into reality, a series of events must unfold.
The first is that federalism should be honoured. States should be treated, not as junior partners but as co-equals. This involves open formulae for compensation, regular consultation, and perhaps constitutional revision to ensure revenue-sharing. Second, digital inclusivity first. Training initiatives, subsidised internet usage, and offline filing practices need to be put in place so that rural merchants are not left behind. Third, small traders require protection. Simplified compliance, lowered filing frequencies, and support to MSMEs can enable them to compete rather than be run over by bureaucracy. Fourth, there has to be independent oversight. An Ombudsman Council for GST to resolve conflicts fairly, so that political conflict does not wreck economic stability. Lastly, phased implementation needs to be embraced. Shocks to the system destabilise markets. Phased implementation with pilot testing and feedback loops will enable adaptation and adjustment. With the addition of equity to efficiency, GST 2.0 can only thrive.
What the Indian Constitution States
As we speak of GST 2.0, the Centre vs States game of wits and promises, and risks of reform, we must not keep quiet on the soul of India's governance, the Constitution itself. It is not a law book; it is a covenant, a moral anchor defining the limits of ambition and the rhythm of power.
- Federal Spirit and Division of Powers
The Constitution had envisioned India as a "Union of States" (Article 1), but not a loose confederation. Instead, it leaned towards a strong Centre. The Seventh Schedule divided power in the form of the Union List, the State List, and the Concurrent List. Taxation had been one of the most contentious issues in the past. To illustrate, Article 246 clearly outlined that Parliament pre-empts subjects in the Union List, and the State Legislatures pre-empt subjects in the State List. Before GST, States survived on sales tax, entry tax, and VAT, and the Centre governed excise and service tax. GST ended all these variations and brought a common tax scenario, a concept in conformity with Article 246A (enacted by the 101st Constitutional Amendment, 2016) that conferred the Centre and States concurrent powers on GST. - Article 370 and the Issue of Autonomy
Although GST is an economic reform, it is not possible to delink it from the larger debate on **state autonomy. Before its removal in 2019, Article 370 granted Jammu & Kashmir special status, which included an unparalleled voice in taxation and finance. Removal of Article 370 was the Centre's act of centralising power. Opponents now question: Is GST 2.0 yet another stealthy consolidation of that centralising trend, where States are reduced from sovereign voices to mere stakeholders? - Article 280 and the Finance Commission
The Constitution anticipated disagreement over revenue. To this end, Article 280 created the Finance Commission, which has the responsibility to suggest how revenues are to be allocated between the Centre and the States. During the GST era, this intention has continued in the GST Council (Article 279A). Union and State members sit on the Council side by side. But the issue here is that even though the Council was intended to symbolise cooperative federalism, in practice, most States complain that the Centre's voice overpowers their own, dominating the balance. - Article 265 – No Tax Without Law
At its core is a straightforward constitutional principle: "No tax shall be levied or collected except by authority of law." (Article 265). It is a shield and a sword simultaneously—it safeguards citizens against capricious burdens, but it also empowers the State to act as a whole. GST 2.0, being constitutional, also poses the philosophical question: are we misusing this power to choke States and small merchants? - Directive Principles of State Policy (DPSP)
Though not enforceable, Articles 38 and 39 place a moral burden on the State to deliver economic justice and fair distribution of wealth. Any reform—jobs schemes or GST—must be tested against this moral benchmark. Does GST 2.0 make life easier for the poorest of the poor, or is it greasing the wheels of giants? If the goal is justice, then the Directive Principles are a benchmark against which reforms must be tested. - Supreme Court's Position
The judiciary has always stepped in when federal balances have been disturbed. In the Mohit Minerals Case (2022), the Supreme Court ruled that the recommendations of the GST Council are not binding but only persuasive. It was a landmark reminder that States have residual powers that continue to exist, and that cooperative federalism cannot ever be permitted to turn into coercive federalism. It is a warning bell that rings into GST 2.0: reforms cannot be diktats from Delhi; they must be designed in genuine dialogue.
India and the World: A Comparative Perspective
Gazing upward from the Indian horizon to other nations, we see a captivating pattern. All democracies struggle with the same old dilemma: how much power to give to the Centre, and how much to the States or provinces? The history of taxation is really the history of power.
- Canada: The Mirror of Federalism
Canada, like India, is a federal country with powerful provinces. Its Goods and Services Tax (GST) exists alongside provincial sales taxes. Here, provinces such as Quebec even have their own GST variant, bearing witness to robust autonomy, while India's Centre still retains considerable influence on GST rates. In contrast to India, where a single GST Council under Article 279A has been created, Canada allows provinces greater leeway for experiments. The Canadian Supreme Court has also been inclined to uphold provincial voices, reminding Ottawa that federalism will never be arithmetic majorities. For India, the contrast is instructive: while our GST Council has been charged with being too Delhi-centric, Canada shows how provinces can go their own way and be part of a national tax tapestry. - Australia: A Centralised Lesson
Australia took a different route. Its GST, initiated in 2000, is levied by the Centre but passed on to States on a formula recommended by the Commonwealth Grants Commission. Unlike in India, where States sometimes grudge delayed reimbursement by New Delhi, in Australia, it is more convenient, if politically charged. The argument is simple: central collection can work, but only where trust never falters and machinery is transparent. In India, States complain that late compensation violates the spirit of cooperation enshrined under Article 279A. - European Union: Laboratories of Sovereignty
The European Union is another example. Not a federation, yet tried doing something similar to GST with Value Added Tax (VAT) harmonisation. Sovereignty is maintained in each member state, but under a common VAT system. The EU has national sovereignty with inter-border uniformity. Compare and contrast with India: our GST abolished inter-state tax borders and brought in "One Nation, One Tax," but unlike the EU model, States had very little choice in "opting in" or "opting out." The European model, therefore, shows voluntary union, while India's shows constitutional necessity. 4. United States: The Example of Absence. Interestingly, in one of the world's oldest federations, the United States, there is no federal GST or VAT. States impose their own sales taxes, while the central government collects revenue from income and company taxes. This is a patchwork system: a consumer pays varying sales tax in New York compared to Texas. In India, it is the reverse model, where homogeneity comes at the cost of local control. New Delhi's GST dream was born to put an end to such fragmentation. But critics aver that with our love for homogeneity, we might have killed the very diversity our Constitution pledged to protect. 5. Middle East and Gulf States: Federalism Without Uniformity. Others, like the UAE and Saudi Arabia, joined the VAT/GST club much, much later (2018 and onwards), but with a different model of governance. Being central monarchies, they do not have a Centre-State issue. The single rate of VAT is levied across the board, much faster throughout the country. India's case is different: it is not that diversity is absent, but that there is so much of it, which makes the reform vulnerable. What the Gulf countries do by decree, India has to do by consensus, and that is where our challenge is, and also our democratic charm. Where India stands in the Global Table, Canada shows the strength of state autonomy. Australia demonstrates the success of central collection with equitable redistribution. The EU shows us the power of voluntary participation in unity. The USA demonstrates what can go wrong when national uniformity is substituted for local autonomy. Gulf states remind us how much easier reform is when federalism and democracy do not complicate the table. India is in between such models, neither as centralised as Australia nor as decentralised as the US, but somewhere in between. Our Articles 246A and 279A created a new hybrid: a national tax on the principles of cooperative federalism. But the cooperation is reluctant compliance, and federalism is more show than substance.
A Call for Balanced Reform
In a nutshell, it has been proven that, standing at the cusp of GST 2.0, we are reminded of the grand promise and threat that reforms bring. The trajectory, from the ambitious dream of one system to many ways of compliance, state grudges, and digital cleavages, is a reflection of the very nature of our democracy, conflicted, pluralistic, and constantly evolving. Around the world, countries such as Australia, Canada, and the European Union have all sailed through similar waters, with partial success using tax systems. But their models demonstrate that a balance between efficiency and autonomy, central authority and local diversity, is the formula for long-term success.
India, with its long tradition of federalism, needs to adopt a solution that respects the Centre-State trust, promotes inclusive digital growth, and streamlines compliance for small traders. GST 2.0 can be the engine of India's economic revival, but only if it is founded on equity as well as efficiency. It has to make it possible so that no citizen, no state, gets left behind in the quest for a prosperous, self-reliant India. The hour has come for a reformed GST that captures the spirit of cooperation, where the Centre and States collaborate to strike a balance between the need for uniformity and the heterogeneous needs of our expansive republic. This is not merely about tax; it's about the future of India's democratic and fiscal identity. Let us make sure GST 2.0 is not just a centralising tendency, but a bridge that binds India's strengths together into a common fabric, knitted in trust and fairness.