Too late for Laffer?

"Prime Minister Narendra Modi while delivering his Independence Day speech,..announced the next-generation GST (Goods and Services Tax) reforms will be implemented by Diawali, aiming to reduce taxes on everyday use items." ET. This year, Diwali is on Monday, 20 October. india.gov.in. According to Morgan Stanley, "India's consumption story could receive a major boost," as the "overhaul in GST rate slabs, along with support from personal income tax cuts, monetary policy easing, signs of pickup in job growth and improving real wages, will brighten the outlook for consumption in the country." TOI. Proposed by Arthur Laffer in 1974, "The Laffer curve showcases the intricate relationship between tax rates and government revenue," and "posits that both excessively high and low tax rates result in reduced tax revenues, suggesting that tax cuts can potentially enhance revenue collection." Investopedia. If the theory has been common knowledge for 51 years, why weren't the GST rates lowered all these years? Because GST collections have been growing almost exponentially. Starting in July 2017 with a total collection of Rs 215.72 billion (wikipedia) it soared to Rs 2.37 trillion in April 2025, falling to Rs 1.96 trillion in July 2025 (blog.tatanexarc.com). This extraordinary rise in collections was facilitated by rising inflation, from 2.4% in July 2017 to a crushing 7.6% in January and October 2020, with average inflation rate staying over 5% from 2020 to 2023, and 4.9% in 2024. RI. Since GST is a percentage of the price paid by the consumer, the higher the price the higher the GST collected. However, "India's retail inflation eased to an over 8-year low of 1.55% in July, aided by government food prices, according to government data." ET. Maybe now is the time to bring in Mr Laffer. If consumption increases, it may result in new investment, more jobs, and greater tax collections. Trouble is, the festival season, which is the period for the highest consumer spending in India (upstox,com), will be over by the time the new rates are available. But taxes are not the only thing holding Indian business back. "India's business sector is being 'strangled by a bureaucratic system'," as "shipping a single container requires generating 17 to 18 different documents, ranging from commercial invoices and e-way bills to insurance papers and declarations." BT. Marcellus Investments Manager Saurabh Mukherjea "notes that since Diwali 2023, earnings growth in Indian companies has slowed sharply, driven by a consumption slump. The cause: middle class Indians are running out of money. RBI data shows household savings as a share of GDP fell in FY24 to a 50-year low, levels last seen in 1977." BT. The National Council for Applied Economic Research (NCAER) "classifies middle-class households as those earning between Rs 500,000 and Rs 3 million annually." And, "Once considered a key engine of economic growth this class is now increasingly burdened by loans and financial stress. The average income for middle-class earners has stagnated at around Rs 1.05 million per year for over a decade. When adjusted for inflation, the real value of income has declined." DH. Mr Modi first came to power 11 years ago in 2014. wikipedia. Stagnant wages and soaring prices have hurt the middle class, while high taxes on fuel raised about Rs 66 trillion from 2014-15 to 2024-25 for central and state governments combined (ppac.gov.in). Toll collections contributed another Rs 2.4 trillion. The Hindu. Transport costs add to the prices of all goods and services. The reduction of GST rates is a panicked reaction to US President Donald Trump's 25% tariffs on Indian exports which may result in mass unemployment (NYT). So, will the Laffer curve work? Or, is it too late?