India is the only large country in the world that is experiencing subnational income divergence
“A historic day for all of us" is how Union finance minister Arun Jaitley described the passage of the goods and services tax (GST) Bill in the Lok Sabha on 29 March. “One nation, one tax" is the Union government’s slogan for GST. The implication is that uniform tax rates across all states of India will serve as a unifying force of efficiency. Replacing several hundreds of different tax rates across the 29 states of India with just five tax slabs for all goods and services will reduce friction in the movement of goods and services across state borders. This can boost economic activity and contribute substantially to gross domestic product (GDP) growth. For these reasons, the GST initiative has been justifiably acclaimed as a milestone economic reform in independent India. But there are reasons to be cautious.
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