A decade after GST started, experts Arbind Modi and Ajay Shah said the system needs a major overhaul. Current rules on input-tax credit and refunds burden production instead of taxing final consumption. They argued that fixing these core issues is key to boosting manufacturing, investment, and overall economic growth today.
A decade after GST was introduced, reforming input-tax credit and refund rules remains key to reducing the tax burden on production and investment, improving manufacturing competitiveness and supporting economic growth, argue Arbind Modi and Ajay Shah. | Illustration: Ajaya Kumar Mohanty
In a recent paper (Arbind Modi & Ajay Shah 2026, https://bit.ly/ModiShah2026), we identified a conceptual failure in India's goods and services tax (GST). Restrictions on input-tax credit (ITC) and cash refunds compromise its character as a consumption-based value-added tax (VAT). These restrictions take Indian GST closer to the old-style turnover-based tax, burdening production and investment rather than taxing final consumption alone. The GST Council's decisions of October represent small parametric reforms in the correct direction. What is required is the economic logic of GST. In India, this is one of the most important feasible reforms that would boost manufacturing, investment, exports and economic growth.