GST rejig promises relief, not real reform

Summary: The Goods & Services Tax (GST) Council recently introduced a series of tax cuts in a bid to boost consumer demand. However, certain flaws in the GST structure may not deliver the desired results. Here’s why. The Goods & Services Tax (GST) Council, on September 3, 2025, approved reductions in the number of rates at which it is levied. The redistribution of items has resulted in lower rates for several of them. In recent years, the Council has been tinkering with rates, especially in the run-up to elections, but this rejig is the biggest since the GST tax regime was introduced in 2017. Broadly, there will be two slabs now: a 5 per cent GST on essentials and an 18 per cent GST on most other goods. There will also be a third category: 40 per cent GST on what are called ‘luxury and sin goods’. The aim of the exercise, proposed by Prime Minister Modi in his Independence Day speech, is to simplify the tax structure, ease compliance and ensure that tax savings leave more disposable income with households, thereby stimulating consumption demand. In theory, lower taxes stimulate demand and since more than half of India’s GDP comes from private consumption, the expectation is that the GST Council’s decisions will lift growth. Concerns about lacklustre consumption and its impact on growth have weighed on the stock market lately. With small cars, two-wheelers, apparel, footwear, processed foods and consumer durables now being taxed at lower GST rates, investors have something to look forward to in the upcoming festive season. The rejig, however, won’t sig

This article was originally published on October 01, 2025.