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- Economists see the cuts as a direct push to lift consumption among the poor and middle-income groups.
- Questions remain about transition headaches, revenue implications, and long-term stability after the GST overhaul.
- Whether it can balance revenue stability with economic stimulus will determine if GST 2.0 is remembered as a turning point or just another course correction.
India’s revamp of the Goods and Services Tax (GST) are being hailed as both a growth driver and a challenge in the making. By collapsing the earlier four slabs into two main rates of 5% and 18%, with a steep 40% on luxury and sin goods, the reform promises to simplify compliance and boost consumption ahead of the festive season.
But questions remain about transition headaches, revenue implications, and long-term stability after the GST overhaul.
Some Optimism
Economists see the cuts as a direct push to lift consumption among the poor and middle-income groups. Essentials, small appliances, personal care items, and entry-level automobiles are now cheaper, while life and health insurance have been made GST-free. Dr. Rumki Majumdar of Deloitte India said these changes could “stimulate demand more effectively than income tax or corporate tax cuts” and even boost GDP growth by nearly a full percentage point.
Analysts also point out that lower GST on intermediate goods may reduce production costs, creating a deflationary effect and giving the Reserve Bank of India more room for monetary easing. As Devarsh Vakil of HDFC Securities noted, “Combined with income tax rebates and moderating inflation, these reforms provide multiple stimuli for consumption and growth.”
Concerns
Yet, not everyone is convinced that the benefits will be seamless. Experts warn that:
Revenue risks are real. Lower GST collections from mass-consumption goods could strain government finances, especially at a time of global headwinds and trade frictions. Majumdar argued that higher corporate profits may offset this, but that outcome depends on businesses passing benefits efficiently into the economy.
Implementation hurdles loom large. Amit Baid of BTG Advaya cautioned that migration of product classifications, treatment of input tax credits, and transition provisions could become “practical hurdles in the short term.” Smaller firms, in particular, may struggle with the changeover.
Compliance still a burden. While rates have been rationalised, MSMEs and e-commerce players continue to face challenges in registration, refunds, and TCS/TDS rules. The GST Appellate Tribunal is finally set to begin functioning, but its effectiveness in reducing disputes remains to be tested.
Sin goods burdened, but demand may persist. The 40% slab on cigarettes, pan masala, and sugary drinks is designed to curb consumption, but given the inelastic nature of these products, experts warn that black-market risks and revenue leakage could rise.
A Watershed Or A Work In Progress?
The reforms have been described as a “watershed moment” in India’s indirect tax regime. The hope is that cheaper essentials will boost household spending and set off a virtuous cycle of demand, investment, and job creation. But with state governments dependent on GST revenues, and businesses adjusting to new compliance requirements, the transition may prove bumpy.
As Karthik Mani of BDO India pointed out, “The changes go beyond rate rationalisation. But smooth execution, from registrations to refunds, will decide whether GST 2.0 lives up to its promise.”
For now, the overhaul signals intent: a push for simplicity, inclusivity, and growth. Whether it can balance revenue stability with economic stimulus will determine if GST 2.0 is remembered as a turning point or just another course correction.
