The 10×Illusion: A Critical Review of GST 2.0’s Self-Eulogies
Prime Minister Narendra Modi in the Lok Sabha on Tuesday! (Image Sansad TV)
Would the CAG muster courage and plan a comprehensive and holistic evaluation of GST 2.0 rather than doing it 5 years down the line?
By P SESH KUMAR
New Delhi, October 11, 2025 — The rollout of GST 2.0 was heralded by spectacular headlines: digital payments soaring tenfold to ₹11.31 lakh crore on Day 1, sustained volumes on Day 2, and sweeping tax cuts on autos and appliances. But beneath that gloss lies the risk of a triumphalist narrative that conflates wholesale rails with retail relief, ignores weak pass-through enforcement, and underestimates the scale and ingenuity of ITC/refund abuse.
The glittering claim that digital payments leapt from around ₹1.18 lakh crore to around ₹11.31 lakh crore overnight was widely reported and held aloft as proof of consumer euphoria under the new regime. But the composition of that jump is far from benign: a dominant share came via RTGS, the large-value rail used heavily for treasury settlements, interbank transfers, institutional flows and corporate payments, not everyday retail spending.
On the very first morning, RTGS reportedly accounted for ₹8.14 lakh crore of that total-an order of magnitude shift that owes more to financial plumbing and calendar effects than to households suddenly buying cars en masse. In other words, the “10×” headline is at least partly an arithmetic artefact, magnified by a thin Sunday base and the inclusion of wholesale rails.
That is not to say there was no genuine retail response. Credit-card spending in e-commerce apparently rose around 6× (to ₹814 crore) in the first 24 hours, suggesting real discretionary demand responding to price signals (especially given festive timing). But those are islands of real consumer action in a sea of wholesale flows. To treat them as interchangeable is a category error-and one convenient to political narratives.
Turning to the structural reforms themselves: the move to a compressed slab architecture (5%, 18%, 40%) and the rationalisation of cesses, plus rate cuts on small cars and appliances, are genuine and arguably long overdue (indeed, many analysts see meaningful welfare potential). But the crux lies in pass-through.
For consumers to benefit, the tax cut must show up in shelf prices, net of mark-ups, logistics, dealer margins, and downstream margins-and here the historical track record is thin. In FMCG, for instance, small pack price or grammage adjustments often blunt consumer gain.
In durables and autos, dealer mark-ups and inventory cycles can swallow much of the relief. Compounding this is the weakening of the older anti-profiteering regime: the government has been quite clear it will not revive the prior draconian structure, instead relying on monitoring, appeals, and sectoral price tracking-not strong preventive authority.
That shift weakens the bargaining position of consumers to demand adjustment. Field reports from early days already show patchy transmission in essential goods and small packs (even while durables saw sharper cuts)—a red flag for differential benefit distribution.
The issue of input tax credit (ITC) and refund abuse is where the narrative risks encountering a trapdoor. The more generous the regime (zero-rating, faster refunds, inverted duty streamlining), the broader the surface for fraud, fake registrations, carousel trades, shell invoicing and refund claims without real supply.
The press and enforcement agencies have already flagged rising exposure: enforcement agencies report multi-state raids uncovering ₹650 crore fake ITC frauds via bogus invoices; probes reveal that large MNCs have benefited from fake ITC linked to bogus invoices and layering transfers; Gujarat’s SGST wing busted a ₹560 crore bogus billing network involving non-genuine firms enabled to claim ITC on no actual supplies; and Infosys itself was understood to have been issued a show-cause notice of around ₹415 crore over allegedly ineligible refund claims on their export operations. The Enforcement Directorate has provisionally attached assets worth ₹15.4 crore in a GST fraud scheme touching 135 shell firms across states.
These episodes signal that fraudsters are already testing the boundary between legitimate reform and loophole exploitation. The risk is that wholesale diversion of tax relief (via taxed entities upstream) outpaces the modest consumer gains at the margins. In short, a regime built to reward compliance must anticipate a clever adversary and embed defensive controls from day one.
A further dimension is fiscal sustainability. States depend heavily on their share of SGST revenue, and the loss from rate cuts can strain state finances-especially as the compensation cess mechanism, originally designed to cushion states, is scheduled to expire by March 2026. Some independent estimates peg the foregone revenue from the overhaul at over ₹1.1 trillion annually (though the Centre argues offset via growth).
The question then becomes: who bears the strain? States may respond with higher state duties, stamp taxes, or indirect duties, which in turn can blunt the consumer impact of GST relief-or worse, trigger intergovernmental tensions.
Which brings us to the question: Did the tax cuts truly reach the “common man,” or were they gobbled by wholesalers and large businesses? The truth is, in the initial burst, they mostly enriched distribution chains that are vertical, upstream, and well-capitalised.
Where control over textbook MRPs, fast inventory cycles, and discounting machinery exists, much of the tax savings can be repackaged into “festival offers” rather than genuine price cuts. In niches with weak competitive pressure (especially beyond metros), local distributors or dealers may resist passing the cut fully to retailers.
The common man’s kitchen-staples, small packs, local kirana-sees slower trickle, smaller margins, and often delayed updates. Big-ticket purchases in these early days likely show the clearest consumer gains; in everyday goods, the proof must lie in systematic tracking, not rhetorical flourish.
Nonetheless, GST 2.0 has real potential. A cleaner slab design, reduced complexity, and rationalised tax incidence can yield permanent gains if transmitted. But to realize them, three pillars must be fortified:
- Transparent pass-through monitoring: Publish weekly or even daily price-transmission dashboards for a core basket (FMCG, durables, mobility, appliances) in rural/urban/district towns, with pre- and post-cut effective per-unit prices and pack sizes. Name firms or sectors that lag conspicuously. Is this feasible?
- Smarter refund controls and risk filtering: Retain provisional payout (e.g. 90%) for inverted or stressed claims but gate the balance to automated, real-time risk flags (Aadhaar-PAN-bank triangulation, e-invoice/e-way bill network checks, escrow or staging accounts for high-risk sectors, and strong post-refund audits and claw backs).
- Maintain credible deterrence: While harsh blanket anti-profiteering may be politically unattractive, a calibrated mix of show cause, penalty, naming/shaming and fast appellate action (with shorter timelines) is essential. The worst offenders should not see cases dragged for years.
- State-Centre fiscal dialogue and buffer design: Before March 2026 arrives, design a transition framework to cushion fiscally sensitive states-either via a tapering support pool, dedicated revenue transfers, or revenue-sharing from newer base.
If the government’s ambition is to claim a “consumer-first GST,” then the narrative must shift: from celebrating RTGS drills to measuring what actually amuses or alarms a household buying soap, rice, a motorbike, or a refrigerator. The real audit of success will lie in shrinking the gap between statutory relief and realized benefit-and ensuring it cannot be quietly distilled away by leverage in the supply chain.
In the meantime, would the CAG muster courage and plan a comprehensive and holistic evaluation of GST 2.0 from now itself rather than doing a ‘postmortem’ 5 years down the line-which would be of not much use for mid-course correction? A trillion-rupee question!
(This is an opinion piece, and views expressed are those of the author only)
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