The art of consensus: How a divided India came together for GST

The Goods and Services Tax (GST) Council has begun its two-day meeting today in New Delhi to discuss the centre's proposal of a two-slab GST rate, continuing with a tax slab of 5% and 18% and a special tax slab of 40% for luxury items. The proposal is endorsed unanimously by all the states, however few opposition ruled states want the council to consider compensating the states for revenue loss to states, which will be discussed along with compensation cess, which centre aims to do away with by October. The council will also consider structural changes, easy GST registration and refund process and pre-filled return forms to make compliance easier.

As GST is about to get a big makeover and states assert to defend their turf, it's instructive to look at how GST was forged in a rare political consensus.

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GST is seen as the single biggest tax reform since India’s Independence in 1947. When it came into effect on July 1, 2017, it united India in a rare political moment. When former Prime Minister Dr. Manmohan Singh rose in Parliament to congratulate then Finance Minister Arun Jaitley on the passage of the Goods and Services Tax (GST) Bill on April 6, 2017, the moment carried deep symbolic and political weight. It was not just a gesture of statesmanship but the culmination of years of political negotiation, intergovernmental coordination and bipartisan cooperation. In a country where legislative consensus is often elusive, the rollout of GST stood out as a rare instance of national unity, cutting across party lines and federal divides.

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How deft political dialogue shaped the GST

GST was not a sudden innovation. The idea had been in the making for over a decade, with successive governments contributing to its conceptual and structural framework. Under the UPA government, Manmohan Singh and P. Chidambaram laid much of the groundwork. However, successive governments could not bring in the GST due to the complexity of creating a wide consensus among various stakeholders. It was during the tenure of the Narendra Modi-led NDA government that the reform finally took legislative shape and was implemented.

What made GST politically complex was its technical scope as it sought to subsume a myriad of central and state-level indirect taxes. .Taxation in India has traditionally been a shared domain between the Centre and the states, and any reform altering this balance required not only a constitutional amendment but also the political will and consensus of a federal democracy as diverse and decentralised as India.

From the outset, the Modi government recognised that GST could not be imposed through unilateral efforts. With the BJP lacking a majority in the Rajya Sabha and many key states governed by opposition parties, the government adopted a consultative approach rather than a confrontational one. This was most visibly embodied in the formation and functioning of the GST Council, a federal decision-making body comprising the Union finance minister and finance ministers from all states.

The GST Council became a platform for real-time federal negotiation. Decisions within the Council were taken by consensus, ensuring that both politically aligned and opposition-ruled states had a voice and a stake in the process. This structure served two key functions. It built trust across party lines and reinforced the constitutional spirit of cooperative federalism.

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The Modi government also made strategic overtures to the opposition, particularly the Congress party. Despite political rivalry, efforts were made to involve senior Congress leaders in discussions and address concerns raised by them in parliamentary committees. Behind the scenes, veteran politicians such as Dr. Manmohan Singh played a key role in facilitating a dialogue between the two national parties.

Several officials had told ET in April 2017 on the condition of anonymity how some deft political and administrative negotiations smoothed over many divisions of a fractious federal system.

A defining example of the Modi government’s political maturity, the commitment to GST came when the PM reached out to Congress leadership just a month after BJP’s loss in Bihar. The PM, the FM and then parliamentary affairs minister Venkaiah Naidu had a meeting with former PM Manmohan Singh and then Congress President Sonia Gandhi. This was totally different from politics as usual approach, officials had told ET, and that meeting set the tone for further progress. The PM’s message was that the country needs the reform and the FM explained to the Congress leadership why some of the latter’s positions, like capping tax rate at 18% in the GST statute, had to be reconsidered. The FM had told Singh and Gandhi that a poor GST was not an option but that Congress’ other demands will be addressed.

From then on, there were many knots to untangle and questions to answer, but the government leadership’s message remained consistent– GST was too big a reform to fail, it was uniting the country in a fundamental way, every stakeholder would be listened to, never mind his or her politics, and that there is a deadline for its rollout but it won’t be rushed through without clearing the doubts. At Cabinet meetings, the PM kept on saying GST was more than a tax reform and exemplified India’s “unity in diversity”, officials had told ET, and he had asked that communications on GST be kept a top priority throughout. Jaitley, on his part, made sure political rivalries didn’t come in the way of smart negotiations. When Delhi finance minister and Aam Aadmi Party leader Manish Sisodia made a suggestion on real estate under GST, the FM led efforts in the GST Council that decided that it can be under the new tax regime after it’s rolled out for some time. That AAP had harangued BJP or targeted both the PM and the FM personally didn’t matter.

There was also some deft political footwork involved. Just as the PM reached out to Congress after BJP’s Bihar loss, despite Congress leadership’s displays of aggression, the leadership also kept channels open with Bihar chief minister Nitish Kumar. After BJP’s win in Assam over Congress, further efforts were made to reach out to key Opposition leaders. Jaitley reached out to CPM's Sitaram Yechury, SP's Ram Gopal Yadav, TMC's Derek O'Brien, BJD's Dilip Turkey and NCP's Praful Patel, alongside engaging afresh with Congress point-persons. At one GST meeting, an Opposition state-level minister wanted to include a note of dissent. The FM later agreed to this, understanding the minister’s political compulsion.

GST was a rare consensus

In a political culture often marked by point-scoring and blame games, what stood out during the GST process was the mutual acknowledgment of each other’s roles. Prime Minister Modi publicly stated that GST was not the achievement of one government or party alone, but a national reform shaped by the collective will of all stakeholders. The ruling party’s leadership frequently emphasised that all political parties were part of the decision-making process and shared ownership of the reform.

This inclusive political messaging served a dual purpose. First, it preempted opposition narratives that could portray the reform as unilateral. Second, it made it politically costly for any party to backtrack from the reform once it had been passed, given their own public endorsement and participation in its framing. States, especially those ruled by non-BJP parties, were not just passive recipients of central legislation; they were active participants in shaping the contours of GST. This approach ensured that regional interests were not steamrolled by national priorities. For instance, states were assured compensation for revenue losses arising from the transition to GST, a demand that was critical in securing their support.

The judiciary, too, recognised the uniqueness of the GST framework. Last year, then Chief Justice of India DY Chandrachud described GST as a classical example of cooperative federalism. This endorsement from the highest judicial authority not only validated the political process that led to GST but also underscored the constitutional harmony that the reform embodied.

The passage and implementation of GST represent more than a fiscal milestone. It offered a template for achieving consensus on contentious national issues. In an era marked by increasing political polarization, GST stands out as a case where electoral competition gave way to legislative cooperation. The image of Manmohan Singh congratulating Jaitley in Parliament, two political adversaries acknowledging each other’s contributions, symbolised the best of India’s democratic ethos.