How GST Has Made an Effect on The Indian Manufacturing Industry?

Following the desire to become a manufacturing hub, the Government of India launched its “Make in India” project. The initiative aims to aid domestic entrepreneurs and international companies with several opportunities and transparency needed to invest and manufacture in India.

The implementation of Goods and Service Tax (GST) on July 1, 2017, was one of the biggest-tax-reforms in India post-independence, in line with Make in India. The new GST return regime triggered a shift from a complicated multi-layered indirect taxation system to a cooperative unified indirect taxation system.

Effects of GST return on the Indian manufacturing industry

This GST scheme is a modern tax reform ushering growth and opportunities for both small-scale and large businesses in India. Its far-reaching impacts on businesses are compelling them to realign their production cost, supply chain, logistics and compliance with the changing tax structure. That’s why it’s necessary for all large-scale organizations to assess the impact of GST on their business.

  • Reduced production cost

The Indian manufacturing industry is a competitive industry and reducing the cost of products and creating additional value for customers is a challenging affair. GST has impacted the manufacturing sector by reducing the tax, which, in turn, will lower the cost of production. The unavailability of the tax credit may be eliminated by allowing credit under GST.

  • Convenient supply of goods

Previously, state-border checkpoints tasked with location-based tax compliance increased the overall production and logistics hours, resulting in unproductive transit hours and reduced manufacturing efficiency. The GST regime aims to unify the market and help in a smoother flow of goods within India.

  • Supply chain restructuring

Additional 1% tax on supply of goods and services to individual manufacturing units and tax credits on inter-state sale has prompted several organizations to restructure their supply chain.

  • Area-based tax exemptions

Since GST return in India is considered a unified regime, area-wise tax exemptions are no longer relevant. Previously, every state had different supply chain tax rates. However, GSTs ‘one nation one tax’ mission has streamlined these supply chains, resulting in business efficiency.

  • Hassle-free registration

Prior to the introduction of GST, manufacturers had to register their businesses within a state. With this new regime, manufacturers can now apply for individual registration through the GST login, irrespective of the number of manufacturing ware-houses within a state. Businesses can register for GST online by submitting only a few essential details.

  • Easy tax assessment

Earlier, manufacturers had to undergo complex tax assessment procedures due to different taxes such as VAT, Sales tax, Central Excise, etc. Moreover, several assessment bodies carried out tax assessments on different levels. Since the implementation of the GST returns scheme, state authorities calculate the State Goods and Services Tax (SGST) and central bodies are concerned with Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST), thereby streamlining the assessment procedure.

Filing GST returns properly can help businesses secure loans from reputed financial institutions. A majority of these loans provided by financial institutions are mainly business loan without collateral and involves a hassle-free and simple application process.

NBFCs like Bajaj Finserv also provide pre-approved offers on business loans to streamline this loan application process further. These offers are valid on various financial products, including personal loans, business loans, etc. Individuals can check their pre-approved offers by providing their name and mobile number.

Industrial production contracted by 3.6% in February 2021 following the poor performance of the manufacturing and mining sectors amid the economic slowdown last year. However, the government is striving to offer loan interest discounts to GST-registered MSMEs (Micro, Small and Medium-sized Enterprises) to accelerate the growth of the Indian manufacturing sector.  GST return is propagating a positive change by reducing this cascading of taxes, aiming to build a manufacturing synergy in India.