Between the Loom and the Ledger: A Critical Assessment of GST-Induced Tax Difficulties Confronting Micro, Small and Medium Enterprises in Ludhiana, Punjab

Abstract

The implementation of the Goods and Services Tax (GST) on July 1, 2017, represented a watershed moment in India's fiscal history, consolidating a fragmented indirect tax regime into a single unified framework. Nevertheless, for the micro, small and medium enterprises (MSMEs) constituting the industrial sinews of Ludhiana-often heralded as the 'Manchester of North India' and the global epicenter of bicycle manufacturing-this structural transition has proven to be less an emancipation from bureaucratic entanglement and more an intricate maze of procedural obligations. The present investigation critically scrutinizes the tax-related adversities encountered by indigenous MSMEs in Ludhiana, encompassing escalating compliance expenditures, blocked input tax credit (ITC) refunds, inverted duty structures, digital literacy deficits, and acute working capital strangulation. Drawing upon primary data from 150 MSME units (stratified as 50 micro, 50 small, and 50 medium enterprises) and supplemented by semistructured interviews with 30 proprietors operating across the hosiery, bicycle parts, and metal fabrication clusters, the empirical findings reveal that GST compliance costs are markedly regressive, disproportionately eroding the already slender profit margins of micro-enterprises. Furthermore, procedural complexities surrounding the reconciliation and refund of accumulated ITC have precipitated severe liquidity constraints, compelling numerous firms to rely on highinterest informal credit channels to sustain operations. Notwithstanding these operational