Finally, GST rates have been collapsed and bulk of goods and services have been pushed to lower slabs. Opposition to reform has dissipated, and it has been relatively easy to collapse rates. But consensus-building is still required to widen coverage. The true potential of a VAT derives from having a single rate, which makes it easier to implement and police. India now has 4 rates, including exempted items and a demerit rate, but effectively GST is now a 2-trick pony. That is close to the textbook version of GST.

The development dovetails into a policy-induced push for consumption. Mass migration of items to lower rates is expected to complement I-T and interest-rate cuts announced earlier this year. The switch is designed to set right the consumption pattern with a bigger reduction in tax incidence for items of mass consumption. Since this coincides with a spell of low and stable inflation, revenue impact may be softened. The move is also timed to offset recent trade friction with the US, India's biggest export destination. Uncertainty over trade fragmentation places special emphasis on reviving domestic consumption.

Revenue implications are yet to be evident. They're unlikely to be of an order that should require any special dispensation for shortfalls in collections by states. With every layer of rationalisation, GST should increase the economy's potential growth rate. Incrementally, reforming the system becomes easier as benefits manifest themselves to stakeholders. GST also becomes easier to administer with rate rationalisation and shrinkage of exemptions. This sets off a virtuous cycle, which progressively allows for lower rates of taxation. The heavy lifting is largely done. But the tax regime needs further streamlining.