Modi's Renewed Mandate: Understanding GST's Role and Its Implications for India's Economy

Over the years, the debate around economic policies has seen one prominent question persist: why is Narendra Modi still in power despite the high rate of GST at 18%? While this question may seem misguided, it is a testament to the complex interplay of taxation and public perception in democratic India.

Let's break down the taxation landscape and explore the nuances of GST and how it impacts voting patterns and public sentiment.

Combining Taxes: The GST Transition

The concept of multiple taxes has always been a part of India's economic framework. Before the implementation of GST (Goods and Services Tax), various indirect taxes such as excise duties, sales taxes (CST, VAT), and excise surcharges were levied on different stages of production and consumption.

For instance, pre-GST, excise duties on manufactured items could be as high as up to 18%, leaving little room for price reduction. VAT and CST were applied on the cumulative excise price, further inflating the final price. However, since only the excise component could be credited in further manufacturing, the overall tax burden was obscured from the end consumer.

Now, 18% under GST is one of the five rates (0%, 5%, 12%, 18%, 28%). Items that do not pass through further manufacturing are typically kept below the 18% rate to make them more competitive in the market. In essence, GST, with its single pane of glass philosophy, aims to simplify the tax structure, making it more transparent and efficient.

Effect on Voting Patterns

The higher GST rate does not necessarily correlate with public dissatisfaction towards Modi's government. Here are a few reasons why:

1. Economic Literacy: According to economic data, only a small fraction of the Indian population pays direct taxes like Income Tax. As of 2021, this number is estimated to be around 4-5 crores (approximately 37 million people). The broader base of voters, including the poor, uneducated, and rural population, form a significant portion of the electorate. These voters are more concerned with access to essential services, job creation, and overall economic stability.

2. Influencing Demographics: Farmers, who form a substantial part of the rural population, are largely in support of the current government. Farmers in India are predominantly uneducated and form a significant voting bloc. This demographic factor plays a crucial role in sustaining the government's mandate. Additionally, rural regions, which often retain their traditional socio-economic structures, support the BJP due to their historical support for rural development initiatives.

3. Government Perception: The belief that India is an agriculture-based country with a high rural population is deeply ingrained in the psyche of the ruling party. They argue that their policies benefit the majority, thereby securing their long-term political stability. Despite ongoing debates, the government's approach is rooted in the idea that by addressing the needs of the poor and rural communities, they can maintain their electoral base.

Conclusion

Understanding the multifaceted nature of taxation in India is key to appreciating the dynamics of political stability. While higher rates of GST may seem burdensome, they are part of a broader, more transparent tax regime that aims to benefit the economy as a whole. The continued support for Narendra Modi is also influenced by the government's ability to connect with the voter base through tangible policies that address rural development, job creation, and economic growth.

The debate around taxation and its impact on political power in India is ongoing, but it is essential to recognize the role of transparency, economic stability, and social demographics in shaping public opinion and electoral outcomes.