Strengthening India’s position through strategic reforms in indirect taxes

Simplified customs processes, rationalised GST structures, and sector-specific tax incentives could amplify the impact of existing initiatives, positioning India as a global economic powerhouse.

As we stride toward the vision of a ‘Viksit Bharat,’ nine strategic priorities outlined in Budget 2024, ranging from agriculture, skilling, and manufacturing to next-generation reforms, offer a roadmap for inclusive and sustainable growth. But are our tax policies truly optimised to achieve these ambitions?

Indirect tax reforms have the potential to act as a transformative catalyst, driving investments, empowering exporters, and bolstering domestic manufacturing. Simplified customs processes, rationalised GST structures, and sector-specific tax incentives could amplify the impact of existing initiatives, positioning India as a global economic powerhouse. Yet, the question remains—are we doing enough to unlock our full potential?

Resilience in Agriculture

Agriculture, the backbone of India’s economy, has witnessed transformative initiatives like PM-KISAN and PM Fasal Bima Yojana. However, the sector’s true potential lies in integrating technology and modern practices. Tax incentives for agri-tech startups can accelerate the adoption of modern practices like precision farming and AI-driven solutions. GST exemptions on the storage and warehousing of agricultural produce have been instrumental in strengthening the supply chain, significantly lowering costs and reducing post-harvest losses. Building on these efforts, reducing GST on critical agricultural inputs could further enhance productivity and sustainability. A resilient agrarian sector can feed the nation and create export opportunities, further bolstered by simplified customs procedures.

Employment and Skilling

India’s demographic dividend hinges on equipping its youth with the skills needed for a dynamic economy. Programmes like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) have laid a strong foundation, but the private sector must also play a critical role. GST exemptions granted to initiatives under the National Skill Development Corporation (NSDC) have enabled the training of over 4 crore individuals, significantly enhancing employability and bridging the skills gap across industries. To sustain and expand these efforts, extending tax credits or categorising these services as zero rated supplies would not only address operational challenges but also accelerate the journey towards creating a future-ready workforce.

Infrastructure and Urban Development

India’s urban landscape is undergoing a metamorphosis with the Smart Cities Mission and massive infrastructure projects. The infrastructure sector is not just a growth engine for urban development but also a critical driver of economic activity, especially during times of recession. Government investments in infrastructure during economic downturns play a pivotal role in stimulating demand across allied sectors such as steel, cement, construction, and technology, creating a ripple effect that boosts employment and consumption. However, high GST rates on construction materials and tax credit disallowance often impede affordable housing and urban development.

For renewable energy projects, these hurdles are compounded by recent notification denying Manufacturing and Other Operations in Warehouse Regulations (MOOWR) scheme benefits for solar power plants. Addressing these issues through reduced GST rates and duty concessions on green technologies can not only bolster sustainable urban growth but also strengthen India’s commitment to a greener, more energy-efficient future. Revisiting such restrictions and aligning tax policies with sustainability objectives is imperative for achieving these ambitious goals.

The Role of Manufacturing and Energy Security

Simplified customs processes, rationalised GST structures, and sector-specific tax incentives could amplify the impact of existing initiatives, positioning India as a global economic powerhouse.

The PLI scheme and Make in India have attracted investments, but challenges persist in specific sectors due to inverted duty structures and high compliance costs. Addressing these anomalies by rationalising GST rates on raw materials and enhancing customs duty incentives for critical imports is necessary. Further, PLI schemes can be expanded to cover sectors such as semiconductors, renewable energy, gems and jewellery, and advanced automotive components, enhancing India’s manufacturing capabilities and creating a more diversified industrial base. Introducing PLI schemes for services could support sectors like healthcare, hospitality, and telecommunications, which require substantial capital investments.

Moreover, as India transitions toward clean energy, reducing GST on renewable energy components and electric vehicles can accelerate our green revolution.

Next-Generation Reforms: The Need for Bold Steps

Tax reforms are about revenue generation, trust, predictability, and global alignment. Introducing faceless assessments in direct taxes was a bold step towards promoting transparency. Extending similar measures to GST compliances, like AI-driven reconciliations and integrated customs-GST data systems, could significantly reduce complexities for taxpayers.

The Road ahead

Budget 2025 presents a critical opportunity to harmonise India’s ambitious growth targets with the aspirations of its people. If executed strategically, indirect tax reforms can unlock the true potential of India’s economy, making it more competitive, innovative, and inclusive.

This article first appeared in The New Indian Express on 24 January 2025.