Simpler taxes, stronger growth: Why GST 2.0 is a game changer

The Modi government’s sweeping indirect tax overhaul signals accountability to citizens and commitment to inclusive growth

Navneet Sehgal

(Chairman, Prasar Bharati)

A Courageous Step in Tax Reform

After providing significant relief in income tax, the Modi government has taken another bold leap with GST 2.0, the most comprehensive reform in the indirect tax system since its inception. For any democratic government, cutting taxes is a politically and fiscally risky move, as it directly impacts revenue collection. Yet, by implementing two major tax reforms in quick succession, first in direct tax and now in indirect tax, the government has demonstrated that the interests of the people remain central to its governance model.

Opposition’s Claims

vs. Ground Reality

Predictably, opposition leaders have attempted to downplay the reform, alleging that GST 2.0 is merely a reshuffling of rates with no real impact on affordability. However, market trends tell a different story. Pharmaceutical companies have already announced lower prices, insurers are offering reduced-premium policies and FMCG brands have begun cutting MRPs. Contrary to the opposition’s claims, the evidence shows this reform was crafted to make daily life easier, while the government assures that any revenue shortfall will be offset by growth in demand and expansion in developmental sectors.

Relief for Households

and Healthcare

The most visible impact of GST 2.0 is on household budgets. Goods that earlier attracted 12–18 per cent tax are now placed under the 5 per cent or zero tax category. From kitchens to pharmacies, the relief is evident. Life-saving medicines, including drugs for cancer and heart diseases, have been exempted altogether. Health insurance premiums are no longer taxable. Even consumer durables like televisions and air conditioners have shifted from the 28 per cent slab down to 18 per cent. These steps reflect a broader vision where ‘savings in people’s pockets’ are seen as a cornerstone of economic growth.

Boost to Consumption

and Demand

Economists agree that lowering taxes inevitably spurs demand. The reform is already reviving market sentiment, with traders and manufacturers reporting rising activity. Ahead of the festive season, early signs of renewed consumer confidence are visible, an indicator that GST 2.0 is beginning to achieve its objective of stimulating growth from the ground up.

Empowering India’s Youth

GST 2.0 is not just about tax rates; it is a structural reform that empowers India’s youth. Simplified compliance, exemptions on essential services like insurance and zero tax on educational materials increase purchasing power and reduce barriers for young learners and professionals. For a generation driving Digital India and Atmanirbhar Bharat, this reform provides both economic relief and opportunity.

A Boost for Startups

and Small Businesses

Startups and MSMEs stand to gain significantly. With reduced tax burdens, streamlined rules and easier credit flows, small enterprises can focus on innovation rather than compliance. The reform creates a more conducive environment for entrepreneurship, encouraging young innovators to convert ideas into enterprises while enjoying greater financial and health security.

Investor Confidence

and Industrial Relief

The benefits extend beyond households and small businesses to large industries and investors. Complex classification systems and invoice matching have been simplified, making the business environment more predictable. Global investors view the reform as a strong signal of India’s economic resilience. With a friendlier tax regime, India’s framework now positions itself as a potential global model fuelling fresh investment and job creation.

Tackling Inflation Head-On

Inflation remains a critical challenge for any government. By making essential goods cheaper, GST 2.0 directly eases pressure on households and indirectly lowers inflation rates. International analysts estimate the reform could bring down inflation by 0.5 to 1 per cent, strengthening the foundation for sustained growth.

Positive Impact on

GDP and Markets

Economists project that GST 2.0 could add 0.5 to 1.2 percentage points to India’s GDP growth in the coming financial year. The consumption-driven push will particularly benefit automobiles, FMCG, and electronics. The stock market has already responded positively, with Sensex rising over 300 points and Nifty gaining 0.5 per cent immediately after the announcement. Shares of auto and consumer goods companies surged between 4 and 6 per cent, reflecting strong investor confidence.

Balancing Fiscal

Impact with Growth

The government acknowledges that tax cuts will temporarily cost the exchequer an estimated Rs 48,000 crore. However, both policymakers and experts believe this shortfall will be balanced within two years through accelerated consumption and economic activity. As Finance Minister Nirmala Sitharaman affirmed at the 56th GST Council meeting, ‘If we must absorb immediate losses for the sake of public interest, then this investment will only strengthen the economy of the future.’

A Decisive Reform

for a Self-Reliant India

GST 2.0 consolidates four tax slabs into two main categories: 5 per cent (or zero) for essentials and 18 per cent for general goods, while luxury and harmful products face a 40 per cent ‘demerit slab’. This structural clarity strengthens transparency, simplifies compliance and aligns with the vision of Atmanirbhar Bharat.

People-Centric Governance, Not Just Policy

Beyond its technical details, GST 2.0 sends a clear political message: this government is accountable to the people. At a time when many nations are raising taxes, India has chosen to reduce them, signalling that prosperity of the people is the true driver of national development.

A Historic Chapter in India’s Economic Journey

GST 2.0 is not merely a reorganization of tax rates; it is a landmark chapter in India’s economic story. By reducing costs for households, simplifying business operations and boosting investor confidence, it lays the groundwork for long-term, inclusive growth. While critics may dismiss it as cosmetic, the evidence points to a deeper truth: this reform will make everyday life simpler, strengthen the economy and reaffirm that tax policy can be an instrument of social progress.

GST 2.0 will be remembered not just as an economic reform but as a symbol of accountability to citizens and a commitment to building a stronger, more inclusive India.