Prices going down, goods getting cheaper, and consumption going up! That’s the people’s side of looking at the GST reforms Prime Minister Narendra Modi announced on Independence Day 2025.
“We have discussed with the states and we are bringing next-generation GST reforms. This will reduce the tax burden across the country. This will be a gift ahead of Diwali,” Modi declared to delighted denizens from the ramparts of the Red Fort.
Coming on the back of the raising of the income tax limit in this year’s budget to Rs 12 lakh per annum, it seemed like an icing on the cake for middle-class India.
But from where the government is, it is a case of desperate times calling for desperate measures.
#WATCH | Delhi: Prime Minister Narendra Modi says, "This Diwali, I am going to make it a double Diwali for you... Over the past eight years, we have undertaken a major reform in GST... We are bringing next-generation GST reforms. This will reduce the tax burden across the… pic.twitter.com/2hAPP0CFtH
— ANI (@ANI) August 15, 2025
GST reforms, including the much-flaunted slab simplification, was a demand as old as this new tax regime itself. However, the demand, and even the government’s resolve, ambled along for long, until a maverick leader in a land far, far away forced India’s hand.
“The issue is larger than GST. The way India is caught in a pincer-grip right now, geopolitically, accused of financing Russia in the Ukraine war,” said Ravi Saxena, co-founder and CEO of the leading home appliance brand, Wonderchef. “Whether it is that war, or Pakistan or Bangladesh puppet government, there are larger forces at play.”
The long drawn-out trade negotiations between Trump’s America and India are stalling in a stalemate—with President Trump imposing up to 50 per cent duties on Indian products if no solution is worked out later—may bring down India’s growth rate in more ways than one. For the beleaguered government in New Delhi, the solution has been to look for ways to catalyse domestic consumption.
While the curious K-shaped growth since then has seen massive government infra spending trickling down to see record profits for corporates and contractors, public consumption has had a mixed story to tell. While aspirational and high-end markets boomed, rural distress was all too real since 2021, all the way to this year, though the latest indications would seem that the worst is behind as far as the rural economy is concerned.
But the same could not still be said about urban consumption, which has been on the down and out even before Covid gave it a double blow and showed no sign of making a resurgence. With inflation being the last nail, Finance Minister Nirmala Sitharaman finally bit the bullet of raising income tax limits in this year’s budget, with the expected GST revisions set to be the decisive push.
The proposal from the finance ministry, being thrashed out this week by the GoM (group of ministers) who will then take it to the GST council meeting to be convened in the third week of next month is this: bringing down the multiple slabs into just two — five per cent for essential and universal needs, and an 18 per cent slab for more aspirational disposable goods. Of course, since Indian bureaucracy is never known to let anything be too simplified if they can help it, there would be an additional slab of 40 per cent for products like cigarettes, aerated beverages and perhaps, luxury goods, too, to be compounded by additional cess as well.
The objective is two-pronged. Along with the raising of the tax ceiling, this simplification would hopefully move many items in the 12 per cent slab into the 5 per cent bracket, and many in the 28 per cent slab (like small cars, for instance) into the 18 per cent bracket. Meaning, a reduction in the final all-inclusive price (which Indian companies would hopefully pass on to consumers) for many an item. And this would lead consumers, particularly the middle and lower classes to spend more, thereby lifting the economy from whatever dip it may otherwise be subjected to due to the export hit it will take due to America’s duty damage.
“Govt knows there will be a financial implication, but knows they need to carry the domestic market with them,” said Saxena, adding, “I am expecting a 5-7 per cent boost in consumption. That is a significant gain in the festive period, as these 3-4 months of festivals account for 50 per cent of our consumption, of purchasing in most sectors except daily groceries.”
Of course, just like in the raising of personal income tax limits, here also, it is a gamble being indulged by the government, since there will be a case of tax loss due to the rejig. Presently, GST collection has been on the up and up in recent times, with July registering Rs 1.96 lakh crore, up from Rs 1.85 lakh crore in June (or 1.82 lakh crore in July of the previous year).
But that may see a drop once the new revised slabs come into play unless ordinary citizens loosen their purse strings and really splurge. Some states, especially the Opposition-rules ones, would also ask for minimum guarantees in the tax devolving to them, just in case the tax mop-up turns out to be insufficient. There was a compensation cess to collect additional payouts to states to make up for any shortfall that was agreed upon when GST launched in 2017; however, its extended run is set to expire by the end of this financial year. Will extending it be the price Centre will have to pay to ensure this gamble sails through?
