GST Council Delays Compound Reform Issues

The extended delay in Goods and Services Tax (GST) Council meetings is raising serious questions about the effectiveness of recent GST 2.0 reforms. While designed to simplify tax rates, these changes have unintentionally caused or worsened tax imbalances. The main issue is the 'inverted duty structure,' where taxes on business inputs are higher than on finished goods. This tax mismatch is now directly hurting businesses' cash flow and delaying needed policy changes, impacting India's industrial sector.

GST 2.0 Reforms Fuel Tax Imbalances

The Goods and Services Tax (GST) Council has been in an extended break, with its last meeting on September 3, 2025, and no new sessions scheduled despite a requirement for quarterly meetings. This inaction is particularly concerning following the GST 2.0 reforms, which simplified tax rates but simultaneously worsened the inverted duty structure in key industries. Sectors such as food processing, FMCG, pharmaceuticals, textiles, and electric vehicles report a growing difference between input taxes (often 18%) and final product taxes (frequently 5% or 0%). This disparity forces businesses to hold large amounts of unrefunded tax credits, effectively blocking billions in working capital needed for operations and expansion.

Policy Drift Slows Key Reforms

These delays in GST Council meetings are not only postponing solutions for current tax problems but also slowing down important digital reforms like the Invoice Management System (IMS). IMS is intended to improve tax credit accuracy by letting buyers verify invoices. However, its full benefits are limited by unclear policies and potential setup issues, especially for companies with many transactions. This lack of official action comes as India's economy is projected to grow strongly in FY26, with GDP forecasts between 6.7-8.2% and inflation under control. Yet, global factors like rising oil prices and money leaving the country mean India needs stable policies to keep investor trust. Experts from EY India, AMRG Global, and Khaitan & Co note that lasting policy uncertainty can reduce investor interest and delay needed business changes. The pharmaceutical export promotion council, Pharmexcil, has warned that drug manufacturing could shrink and supply chains could be disrupted by these tax issues. The GST Council typically met every 45 days to build agreement, making the current long gap unusual and a cause for concern.

Tax Imbalances Block Working Capital, Harm Businesses

The main problem isn't just the timing of GST Council meetings, but a key flaw in the GST 2.0 design itself. It seems to favor stimulating consumption through rate cuts over fixing the resulting working capital blockages for manufacturers. The inverted duty structure is causing a widespread cash crunch, especially for small and medium-sized businesses (MSMEs), who face an estimated ₹30 lakh crore credit gap due to trapped tax credits. These companies are effectively lending money to the government through unrefunded taxes, severely limiting their ability to operate, buy materials, or pay suppliers. The slow and complicated refund system makes this worse, turning tax credits into an 'unusable asset.' Ongoing policy inaction on these matters increases the risk of legal disputes and puts domestic makers at a disadvantage. The overall economic growth could suffer if investor confidence declines due to these persistent tax policy uncertainties.

Urgent Policy Action Needed Amidst Growth

Although India's economic outlook is strong, with positive GDP forecasts and stable inflation, the current tax policy situation presents a major challenge. The ongoing delays in GST Council meetings are preventing solutions for critical issues such as the inverted duty structure and complicated refund processes. For businesses to succeed and for India to remain an attractive place for investment, timely policy updates and corrections are essential. Regular council meetings are vital for clearing up industry-specific uncertainties, providing tax certainty, and strengthening the narrative of 'ease of doing business,' which is crucial for attracting and keeping both domestic and foreign investment.