‘Double dose for growth’: PM Modi hails GST 2.0, attacks Opposition

The changes in the Goods and Services Tax regime is a double dose of support and growth for the nation and the next-generation reforms have been done to support India's progress in the 21st century, Prime Minister Narendra Modi said on Thursday, a day after the GST Council approved the most sweeping overhaul of the country's consumption tax since its 2017 launch.

Modi's comments came even as experts said the rate cuts will boost domestic demand , offset the impact of US tariffs in businesses such as textiles and leather , and may increase real gross domestic product (GDP) from existing estimates of 6.5% to 6.7% in 2025-26.

“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 said while interacting with the National Awardee Teachers.

Stating that GST has become even simpler, the PM 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)”.

Modi said that the poor, neo middle class, middle class women, students, farmers and young people will particularly benefit from the decision. He further said that these would lead to “ease of doing business”, and boost employment and investments.

The PM said that reforms in GST have added Panchratna (five aspects) to India's economy, “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.”

Modi also targeted the Congress, saying, “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 added that under previous governments, many essentials such as kitchen items, agricultural goods, medicines, and even life insurance, were heavily taxed.

“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,” he said.

Union finance minister Nirmala Sitharaman announced the changes — which affected everything from toothpaste and insurance to tractors and cement — after a marathon meeting of the 56th GST Council. More than 90% of goods across multiple categories will become cheaper as the government whittles down the GST structure from four slabs to essentially two main rates of 5% and 18%, with a special 40% levy reserved for luxury and sin goods.

The changes will have a net revenue implication of ₹48,000 crore based on 2023-24 consumption patterns but represent a gamble on growth by boosting domestic demand at a time when exports face headwinds from punishing US tariffs.

In a relief to e-commerce exporters, the commerce ministry on Thursday said the GST Council approved the ministry's proposal to eliminate the value threshold for refunds on low-value consignments. Laws will be amended to allow refunds for exports made with payment of tax, regardless of value, it added.

“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,” it said. The move will encourage participation of MSMEs and small sellers in international trade, boosting the growth of low-value e-commerce exports, it added.

The commerce secretary Sunil Barthwal described the rationalization exercise as a decisive step in strengthening India's manufacturing base, empowering MSMEs, and enhancing the competitiveness of Indian goods in domestic and international markets. “The reform reinforces the vision of building an Atmanirbhar Bharat while delivering concrete benefits to producers, traders, and exporters across the country,” the ministry said in a statement quoting him.

DK Srivastava, chief policy advisor of EY India, said major sectors benefiting from the exercise include textiles, consumer electronics, automobiles, and foods. “These are employment intensive sectors where the benefits of lower prices would be quite broad based. 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 added.

“Thus, there is a demand and efficiency improving impact which would offset some of the revenue loss,” he added. These positive effects would gather momentum over the medium term and the base broadening effects could eventually overtake the short-term revenue reduction effects, he said.

As far as macro impact in 2025-26 is concerned, there may be some marginal pressure on the centre's budgeted fiscal deficit, Srivastava said. “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,” he said.

Krishan Arora, partner, Tax and India Investment Advisory leader at Grant Thornton Bharat, said that the timing of the GST 2.0 reforms is apt amid the recent 50% US tariff imposition on many Indian goods exported to America. Although the rate rationalisation is not a direct policy response to negate the tariff impact since it was an ongoing effort over the last few years, it will build more confidence in boosting inbound foreign investments, he said. “In an era of shifting trade dynamics and geopolitical uncertainty, India's internal reforms may well prove to be its most potent external defense.”

According to Rumki Majumdar, Economist at Deloitte India, GST 2.0 is a more potent reform compared to recent cuts in income tax announced in this year's Union Budget. “The GST cuts have been targeted to boost the consumption of the poor and middle-income classes. Most of these goods are price-sensitive , such as essential items, small durables, personal care products, and entry-level automobiles and two-wheelers. 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.” One basis point (bps) is one hundredth of a percentage point.

Lowering GST rates would have a deflationary effect, since it brings down prices of intermediate goods and inputs for production. Producers can then pass on the benefits of lower production costs to consumers, thereby easing inflation and opening the way for further monetary policy easing, Majumdar said. “Even if producers do not pass the benefits by reducing final product prices, it helps improve the margins of producers. This will improve investment and lead to job creation. Both of these have a strong multiplier effect on income generation.”

“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,” Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank said.

Source: HindustanTimes
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