GST Cuts, Flip-Flops, and the Politics of Masterstrokes

 

The government and its cheerleaders are in high spirits again, beating drums for their favourite emperor’s latest “masterstroke.” This time, it’s the modest reduction in GST rates. TV Panels and Tweets buzzing with self-congratulatory chatter. Analysts calling it a historic, and even P. Chidambaram grudgingly called it a “reform”—with the delicious aftertaste of his caveat, “eight years late.”

But let us pause. Let us ask the questions that Delhi’s television studios won’t: is tinkering with GST rates a reform? Does lowering a tax slab address the structural bottlenecks that suffocate Indian industry? Or is it another aspirin for a fever whose cause lies deeper in the bones of our political economy? The uncomfortable answer: this is not reform. This is a quick-fix, stitched together to meet political needs in Bihar and to respond to Trump’s tariffs across the ocean.

Washington’s second wave of tariffs—punitive and linked to India’s oil flirtations with Russia—landed like a thunderclap on Raisina Hill. Indian mandarins were caught flat-footed, with no Plan B. In panic, the political high command shifted into optics mode. The Prime Minister took to the skies: Tokyo, Tianjin, photo-ops with global leaders, waves from tarmacs. The usual NRI drama in Tokyo with a crisp salute (coy endorsement for military action against Pakistan). But absent were the usual cheerleading NRIs in China, where the local authorities had no appetite for such political theatre.

Back home, the government needed to appear decisive. The GST reduction became that visible, consumable act. According to the loyal State Bank of India’s research, rationalisation might add nearly ₹2 trillion in annual household consumption, about 8% of demand. Given that consumption makes up 60% of GDP, the short-term boost is real. But the keyword here is short-term.

As Ajay Srivastava of the Global Trade Research Initiative (GTRI) put it recently, “India does not suffer from lack of demand alone. Our challenge is credibility. Investors, traders, and manufacturers look for stability. What they get from us is unpredictability dressed up as policy innovation.”

Nowhere is this clearer than in the government’s track record of flip-flops. The steel ministry’s diktat of June 13, 2025, remains the prime example: overnight, all raw materials and semi-finished steel imports were forced under the Bureau of Indian Standards’ certification regime. With one working day’s notice, supply chains froze, ships got stuck at ports, contracts collapsed, and companies scrambled to courts. The Madras High Court had to step in with a stay.

Ajay Srivastava minced no words: “Earlier, import was simple—you paid duties, you brought goods in. Now, BIS decides which factory abroad can send us material, and the rules change like weather in Delhi. This is not regulation, this is strangulation.”

In 2024, tariffs on electronic components were suddenly hiked to promote local assembly under the “Atmanirbhar Bharat” banner. The intended signal was bold: make in India or pay higher duties. But suppliers from Taiwan, South Korea, and Japan balked. Without large-scale investment in India’s underdeveloped component ecosystem, their global value chains could not bend overnight to Delhi’s dictates. By mid-2025, the government quietly rolled back several duties. The damage was done: India’s reputation as an “unreliable partner” was reinforced in East Asia.

As trade economist Biswajit Dhar observed, “Tariff policy is not a toy. When you alter rates abruptly, you do not encourage manufacturing; you encourage mistrust.” If steel being a complex industry, and forced such re-think, lets turn to food.

In 2025, the government fiddled yet again with onions. First a ban, then duties, then minimum export prices, and finally a grand announcement scrapping the 20% duty. Farmers sulked, traders cursed, and foreign buyers learnt a familiar lesson—India’s word is as reliable as a drunk’s promise. As one exporter quipped, “They want to be the world’s mandi but act like a moody shopkeeper.” Onions may bring tears, but it is our policies that cause the real weeping.

But perhaps the most emblematic example of this government’s policy schizophrenia comes from the electric vehicle (EV) sector. In 2023, New Delhi rolled out a lavish subsidy scheme under FAME-II, sweetened further by state-level incentives. The message was loud and clear: India will leapfrog into the EV revolution. Manufacturers ramped up assembly capacity. Start-ups mushroomed. Consumers, lured by generous discounts, began to consider EVs seriously.

The global auto industry took notice. Companies like Tesla and BYD intensified their conversations with Indian policymakers. Domestic players like Ola Electric, Tata Motors, and Ather doubled down on capacity. Venture capital poured into battery-swapping technologies and charging infrastructure. For once, there was genuine momentum.

And then, in 2024, the axe fell. Faced with widening fiscal deficits, the government abruptly slashed subsidies. Overnight, the economics of EV manufacturing collapsed. Units that had banked on policy continuity were stranded. Consumers who had planned purchases postponed them. Dealers reported inventories piling up.

The fallout was brutal. Ola Electric, once the poster child of India’s EV dream, slowed down hiring. Tata Motors complained openly about “uncertainty in the incentive regime.” Smaller start-ups simply shut shop. Global investors, who had begun to see India as a serious EV hub, redirected capital to Indonesia and Vietnam, where policies remained consistent.

Public policy scholar Yamini Aiyar summed it up sharply: “Policy signals in India are fireworks—loud, bright, dazzling, and gone in minutes. Investors do not build factories on fireworks.”

The deeper issue here is not any single flip-flop. It is the governing philosophy: a preference for optics over structure, for gestures over grounded reform.

A recent opinion in a leading publication said “India vacillates between being a fortress and a marketplace. One day we are wooing supply chains, the next day we are shutting ports. This unpredictability is the single biggest deterrent to India’s rise as a global manufacturing hub.” Arvind Subramanian, former Chief Economic Adviser, warned in a lecture at Ashoka University: “For India to break into the global value chain, credibility is currency.

Of course, the GST cut will have an effect. Consumption may indeed rise by 8%. Manufacturers may see a bump. Services may benefit. But this is sugar, not nutrition. Once the high wears off, the structural anaemia of the economy will return: supply chains throttled by bureaucrats, exports sabotaged by knee-jerk bans, investors spooked by fiscal flip-flops.

https://www.business-standard.com/opinion/columns/india-s-double-certification-trap-how-qcos-are-hurting-fair-trade-125082801673_1.html