Nirmala Sitharaman flags GST 2.0 as final piece in big tax reforms, says overhaul was driven by affordability & Aatmanirbharta

Finance minister Nirmala Sitharaman told Deepshikha Sikarwar, Vinay Pandey & Sruthijith KK in an interview that the big-ticket taxation reforms on her agenda have been achieved with the revamp of the goods and services tax (GST). Edited excerpts:India had a very good June quarter but the economy faces multiple headwinds due to US tariffs and other challenges. Can GST reform provide enough cushion for the Indian economy?This reform was not intended to address tariff-related challenges. As a collateral or unintended consequence, it will help those impacted by tariffs in facing this challenge. The intention with which we brought this reform is not narrowed to the tariff issue but this is the next-generation approach towards dealing with indirect taxation.The finance ministry, particularly the department of revenue, in the last six-eight months has undertaken rigorous work, and I thank every one of the officers. Normally, the perception is bureaucracy doesn't work to the speed of the political dispensation. But here is a case of a department and its bureaucrats working at a phenomenal speed that, within the last eight months, we have seen a new income tax code drafted and passed in Parliament after going through a select committee, you have had a budget which has given ₹12 lakh direct tax relief and now have a comprehensive revamp of the GST. All within a matter of eight months.What's your assessment of the upside of this exercise, both in terms of an uptick in consumption and overall economic activity?It will have a very positive impact on the Indian economy, its growth numbers and so on because this affects every one of (India's) 1.4 billion people. Anything you do, anything you purchase for the kitchen or household, or vehicle... everything is touched by GST. So it will certainly have an impact.How GST cuts will change what you pay from Sept 22The revenue secretary said revenue impact will be around ₹48,000 crore, and that the gap is going to be manageable. You expect buoyancy and the tax collection from that to exceed ₹48,000 crore. Any quantitative indicators you're able to give?Even the number, ₹48,000 crore, which was given was more on the basis of 2023-24 data. But nothing will hold good when you're looking at realtime impact until the time is past and you make an assessment looking back. From September 22 (when GST 2.0 takes effect), if people are going to come back, like the way they came back after Covid... political commentators said this was revenge buying, this is not going to be sustainable and so on. So, if because of the rate cut, people are going to come out in big numbers and buy, that itself can tell us a story.Will India have to live with 50% US tariffs or is there still the possibility of a deal? And, if these tariffs are here to stay, then how do you brace the economy to deal with it?It's a bit difficult and speculative to say how long this will last... are we having a deal? The commerce ministry's negotiating team hopes to have the trade negotiations carried forward. So, whether that will get completed... If it gets completed, very well, and then what happens to the tariff, the additional which was put on the original 25%-all these questions are very much speculative. It may not be possible to reach a particular number and say that I'm working to get some kind of a model and then get some packages ready. That's very speculative and I don't think we are doing that.But is there any discussion to provide support to the export sector? Will these measures be in addition to the export mission announced in the budget?The export mission is more to look at the reforms, steps that have to be undertaken. But for the tariff-hit sectors, something is being worked out. We will have to see what shape and size it has. Many departments are working to put it together.Can we expect that in the next few weeks?Hopefully. I don't want to give a time and build an expectation.But the package for exporting sectors, that's more immediate.That's right, we hope to come out soon.Is it fair to say that would specifically address the textile sector?Sectors which are hit by tariffs, those sectors would have approached their respective ministries. The respective ministries, in turn, are working to come up with the package. So, it'll be for those sectors which are getting affected.Could you talk about the guiding principles behind the GST changes? Protein has been made a little cheaper.The guiding principles are-those items which are of daily use for the poor, the middle class, and those items which are of importance for farmers. And then those items which are important for the Indian economy at large, some of them are important for the sake of India achieving Aatmanirbharta... MSMEs (micro, small and medium enterprises) for their raw products or for their processes. We've kept all these in mind and only then looked at the rates. That was the root of priority making.Roti, kapda aur makan- The firepower India's common man got as Diwali giftAt the end of the GST Council meeting, you thanked all the members for a unanimous decision. Were you surprised by the consensus?No, but one always has this respect about the GST Council. Despite all the arguments and positioning and also putting forth a particular state's challenges, however forcefully and several times, not one round, several rounds and so on. Eventually, people come around to agree for something which will be applicable for everybody. This time too, that's a sense I got. Yes, everyone was obsessed to the extent of making sure that their cases were heard not once, but more than once, twice, three times, and that sense of, you know, my viewpoint should not be missed out played out very well and fully. But ultimately, even if they did have very strong second thoughts about supporting, they came along.And the meeting was quite amicable?It's always been amicable. Arguments are strong, people put forth their arguments forcefully, but it's always amicable.In the eight years since the GST rollout, most changes emanated from the council itself. This time the Centre took the lead? What led to this shift?It is not a change but it hadn't happened before. So, is it the first time? Yes, it is the first time because, since the time the council was formed, any issue which had to be studied and any issue which had to get a solution, went through a group of ministers (GoM). The group of ministers invariably had only ministers from states and the Centre did not have a role in it. GoMs have always had state finance ministers as members. This time, for the first time, on the issue of compensation cess, the GoM was headed by a Union minister. But on the issue of rate rationalisation there was a GoM again headed by a state finance minister and with members from the states. So, in the rate rationalisation team or the GoM, there wasn't a central representative. The GoM had looked at some aspects of rate rationalisation, but it was still patchy. And, that's not to fault them, they wanted to look at it from where the correction is needed, where the rates have to come down.But, it was after the Jaisalmer meet (in December) that I decided to see if the whole thing can be reviewed. It's almost like dredging the current GST, dredging out the soil and seeing (if) fresh soil can be put in. Looking at it in a completely new fashion, the thought came to us that this itself can be a package.Have you received many 'thank you' messages on GST?Every day, associations, individuals, families, known, unknown, there are letters. This morning I woke up to have this much bundle of papers (gesturing).How has industry's response been? Have you had some interaction and are they ready to pass on the tax cuts?They have volunteered to say they will. Many industries have said. First quote I will give is of public sector insurance companies, who have said they will pass on the cuts. Just a few minutes back, Tata Motors wrote saying they have listed out the cars and passenger vehicles (on which) they will pass on the tax cuts. Like that, companies are making statements, if not coming to us, they are announcing that they will pass on.There is a concern industry might find it difficult to adjust to the September 22 timeline and some have been asking if it can be delayed. Do you think there is enough time to make that adjustment quickly?There will be periodically some kind of a clarification issued on the transition but yes, it is possible. We have spoken to almost all sectors. They are willing to go along because it is for the people.The auto industry particularly has raised the issue of cess. Government officials have said there will be no transition or carry forward allowed and industry will have to absorb it. Is that the final view?We will see. I am not sure where we are as yet. These are initial days after the decision-making.Large geopolitical alignments that have a very big impact on our economy seem to be in a phase where things are changing almost every day, every other day. Is there a case to take another look at Press Note 3?I think there is some flexibility in using Press Note 3, particularly when it comes to the question of domain exports needed for projects which are already on the ground, renewables sector and so on.On investments, I think the discussions are going on. I am not sure we have arrived at anything else. But discussions are taking place.But you are of the view that it is prudent to review this?It depends on the sectors. I cannot be across the board commenting on it.But this review is going on. You are saying that...There are departments who are talking about it because it is important for them to take a call.We have seen in the case of rare earth magnets where supply sources were not diversified and we faced issue. Is there a review being undertaken to ensure that such situations do not arise in future?I am not sure if there is any formal discussion happening. But we are seized of this problem of diversification, absence of diversification and the need to diversify. As I said, that's where we are.Indian markets have seen continuous capital outflows. Is this a matter of concern?No, the trend is continuing all right...We will have to see how the investment cycle works. And given the global uncertainties, I am not sure investments are going in that volume anywhere at all. Are they rushing back to the US? We are not able to say that. Are they going to Japan? We are not saying that. Are the Southeast Asian nations receiving them? We don't know. We will have to see the trend and then take a call, rather than me saying, yes, I am concerned, I am not concerned, I am anxious, I am not anxious. I think it's important to watch it and assess it.But you don't think there has been any change in India's relative attractiveness as an investment destination?On the contrary, we have improved indicators now.The rupee has hit another low. Does that bother you?It's only against the dollar. Fluctuations are always disruptive. And you start wondering whether it is helping the industry or is it causing anything else. And in this case, it's so unique with the dollar rather than with any other currency. The (central) bank is acting on it.When the GDP numbers came out, one piece of commentary was on the role of the deflator. Is that a fair observation to your mind?Yes. This has been said in the Rajya Sabha several times. Your nominal growth is closer to the GDP growth numbers that you speak of, real GDP growth. They get closer because the inflationary number, the deflator, is rather small now. Because inflation is very low.But that doesn't mean the impressive GDP number is not real or that it's not as impressive as it sounds...No, but the nominal coming down to 8 (percent) is a question which we have to analyse.Regarding the purchase of Russian oil, very little is absorbed by the Indian economy to the extent of having an impact on oil prices domestically. If it is attracting a penal levy from an important trade partner, is there a case to revisit our purchase of Russian oil?I am surprised you are reducing it to this. Is there a sovereign right to decide what you want to do, where you want to purchase, what you want to purchase or not? An important partner tells you, sorry, you don't buy from here, there, you have to buy here or you have to buy from me. An important partner, yes, we value every partner with whom we have a trade relationship or strategic relationship. But on a matter which is important to me from a national interest (point of view), it is I who should take the call rather than be nudged to take a call opposite. So, I think the answer lies in that. Do you want our strategic autonomy or not?So far there was no resistance to it. Yes, it was cheaper oil, but now there is some resistance to it. No, but that I think is unfair. Even when we imported from Russia after the war, after the western sanctions, what we were importing was very clearly known to most of these countries. And that is why they themselves took some refined products from us.So, tell us where we were wrong. Tell us where as an independent country I am doing anything stealthily. I have imported it because it is cost-effective. You knew I was importing. And my refined products were also going to you and to your partners, your friends, your associates. So, why suddenly I should be told to do differently? I have not done anything stealthily. At this point, is there a case for reviewing that?Review or no review. This point or no point. At some point... National sovereign decision-making is important for us.Some commentators have said India should treat this as a 1991 moment and unleash reforms. A big-ticket reform in the form of GST 2.0 has been undertaken. Are there more such policy interventions or reforms on the cards?In my ministry, I have done this. There is, I'm sure, work going on in other ministries also. PM Modi has been relentless about reforms. Even during Covid, he undertook reforms. So reforms as an agenda is never off the table.Can we say that the big-ticket taxation reforms at least, the big things that were on your agenda, are now completed?Yes, because linking it with the system and process reform, we've done this one (GST), we've done income tax.