The BRICS TimesPrime Minister Modi highlighted that the GST overhaul will accelerate growth, while experts believe the tax cuts will stimulate domestic demand, counter US tariffs, and raise India’s GDP outlook.
Prime Minister Narendra Modi on Thursday described the sweeping reforms in the Goods and Services Tax framework as a “double dose of growth and support” for India, emphasizing that the next-generation changes have been crafted to push the country’s advancement in the 21st century. His remarks came a day after the GST Council cleared the most comprehensive restructuring of the indirect tax system since its inception in 2017.
Even as Modi hailed the reform, experts pointed out that the reduction in tax rates is likely to strengthen domestic demand, provide relief to sectors affected by heightened US tariffs such as textiles and leather, and potentially lift India’s real GDP growth forecast for 2025-26 from 6.5% to 6.7%.
“Without timely reforms, our country cannot claim its rightful place in today’s global landscape. As I had said from the ramparts of Red Fort on August 15, it is essential to implement next-generation reforms to make India truly self-reliant. I had also assured the nation that there would be a double blast of happiness for citizens ahead of this Diwali and Chhath Puja..This time, the festivity of Dhanteras will also be even more vibrant as the tax on dozens of items has now been reduced significantly,” Modi told National Award-winning teachers during an interaction.
Highlighting that the indirect tax system has been made simpler than before, the Prime Minister said, “On 22 September, which is the first day of Navratri, the next generation reform will be implemented as all these things are related to the ‘Matrishakti’ (maternal strength).”
According to him, the benefits will be most visible for the poor, neo middle class, women, students, farmers, and youth. He noted that the move would not only enhance ease of doing business but also drive fresh investments and employment opportunities.
The Prime Minister further explained that the restructured GST adds “Panchratna” to India’s economy. He listed them as: “First, the tax system has become much simpler. Second, the quality of life of the citizens of India will improve further. Third, both consumption and growth will get a new boost. Fourth, ease of doing business will boost investment and employment. Fifth, cooperative federalism will become stronger for a developed India.”
In a sharp political attack, Modi took aim at the Congress, remarking, “No one can forget how the Congress government has increased your monthly budget… They used to levy a 21% tax even on toffees for children. If Modi had done this, they would have pulled my hair out.” He reminded people that during earlier governments, basic household goods, medicines, agricultural products, and even life insurance were burdened with heavy taxation.
“Had it been the same era, you would have to pay ₹20-25 as tax on things priced at ₹100. But the aim of our government is to maximise the savings in the lives of common people and make people’s lives better,” Modi asserted.
Finance minister Nirmala Sitharaman announced the wide-ranging GST changes after the 56th Council meeting that lasted several hours. The revised framework touches products from toothpaste and insurance to tractors and cement. Nearly 90% of goods across segments will now become cheaper as the government narrows down the GST structure from four slabs to essentially two principal rates of 5% and 18%, along with a 40% levy on luxury and sin goods.
The reform is expected to create a net revenue loss of ₹48,000 crore, based on the 2023-24 consumption trend, but is being positioned as a growth-centric measure to lift domestic demand, especially when Indian exports face pressure from US tariff hikes.
In a major relief to small e-commerce exporters, the commerce ministry confirmed that the GST Council accepted its proposal to scrap the value threshold for refund eligibility on low-value consignments. Necessary amendments will be made in the law to allow tax refunds on all exports with tax payment, irrespective of their value.
“This long-awaited reform addresses the concerns of small exporters, particularly those shipping through courier or postal services, and is expected to greatly simplify procedures and facilitate low-value e-commerce exports,” the ministry noted. It added that the change would boost MSMEs and small traders’ participation in overseas markets, thereby giving further momentum to e-commerce exports.
Commerce secretary Sunil Barthwal called the exercise a crucial move toward reinforcing India’s industrial ecosystem, empowering MSMEs, and enhancing competitiveness both domestically and internationally. “The reform reinforces the vision of building an Atmanirbhar Bharat while delivering concrete benefits to producers, traders, and exporters across the country,” he said.
DK Srivastava, chief policy advisor at EY India, explained that industries such as textiles, consumer electronics, automobiles, and foods will reap the biggest advantages, since they are labour-intensive and directly influence broader consumer affordability. “On the production side, sectors that would benefit include fertilisers, agricultural machineries and renewable energy. In these sectors farmers would benefit through lower input costs,” he observed. He further noted that the efficiency gains and demand boost could balance the short-term revenue dip and, over time, expand the tax base.
Srivastava cautioned that in 2025-26, there could be some strain on the Centre’s fiscal deficit but expressed confidence that “on the whole, even with some slippage in the fiscal deficit to GDP ratio, we expect the real GDP growth to actually increase from existing estimates of 6.5% to 6.7% in 2025-26. This is likely to happen in spite of the US tariff hikes. Most of the tariff affected sectors such as textiles would recover relevant ground with the increase in domestic demand and export diversification to countries where new free trade agreements would become effective later in the year.”
Krishan Arora, partner at Grant Thornton Bharat, said the GST 2.0 rollout was timely given the steep 50% tariffs imposed by the US on several Indian products. Although the rationalisation wasn’t crafted specifically as a countermeasure, he said it would bolster investor sentiment. “In an era of shifting trade dynamics and geopolitical uncertainty, India’s internal reforms may well prove to be its most potent external defense.”
Deloitte India economist Rumki Majumdar described GST 2.0 as a stronger policy push compared to the recent income tax cuts announced in the Union Budget. She stressed that the reduction focuses on consumption-driven goods such as essentials, small durables, personal care products, and entry-level automobiles, which are highly price sensitive. “The GST cuts have been targeted to boost the consumption of the poor and middle-income classes… This would be more powerful in stimulating consumption than personal income tax or corporate tax cuts since the GST multiplier on elastic consumer goods is higher,” she said. “This, along with tax exemptions announced earlier in the year and aggressive monetary policy, can boost GDP by over 90 bps.”
Majumdar further added that lower GST rates will exert a deflationary effect as they reduce input costs, enabling producers to either lower retail prices or improve margins. In both cases, she said, the outcome would be positive for investment and job creation, which carries strong income-multiplying effects.
Echoing this, Kotak Mahindra Bank’s chief economist Upasna Bhardwaj stated, “The GST rationalisation goes a long way in supporting the consumer demand and cushioning the downside risk to growth emanating from the tariff related uncertainties. The income tax cuts and GST rate cuts if fully passed through could potentially provide a stimulus of 0.6% of GDP on a pro rata basis in FY26 itself. Furthermore, the full pass through of GST cut could create a disinflationary impact of atleast 100 bps.”
