The most significant impact of this reform will be an increase in consumer demand. With lower GST rates, prices of essential and everyday consumer goods will fall, thereby enhancing purchasing power and accelerating real domestic demand
On the occasion of Independence Day, 15 August 2025, the Prime Minister, while addressing the nation from the ramparts of the historic Red Fort, announced the proposed economic reforms under GST 2.0.
This proclamation made by the Prime Minister was well received by the GST Council, which, in its 56th meeting held on 3 September, approved the GST Reforms Bill (GST 2.0). It includes a reduction in GST tax slabs from 5, 12, 18, and 28 per cent to 5 per cent and 18 per cent, thereby reducing the existing four slabs to two, which will be effective from September 22.
It also includes numerous simplifications of the tax structure. In this regard, the Ministry of Finance has introduced a two-slab structure (standard and merged) in place of the current five-slab system of 0 per cent, 5 per cent, 12 per cent, 18 per cent, and 28 per cent, with only a few selected goods being kept under special rates. It is estimated that about 20 per cent of items currently under the 12 per cent slab, such as packaged food, beverages, textiles, hotel services, and others, have been shifted to either the 5 per cent or 18 per cent slabs.
This could result in a short-term revenue loss, but it is expected to stimulate domestic industries and potentially boost the Gross Domestic Product (GDP) of the country by 0.6-0.7 per cent. The new GST slabs can stimulate consumption, investment, employment, and provide a much-needed push towards faster economic growth. This will also help to balance affordability, growth, and revenue, and will prove to be a pro-growth tax structure for the nation in the long run.
The most significant impact of this reform will be an increase in consumer demand. With lower GST rates, prices of essential and everyday consumer goods will fall, thereby enhancing purchasing power and accelerating real domestic demand.
The special tax cuts will particularly affect kitchen and non-durable goods, which will provide a boost to the micro, small, and medium enterprises (MSME) sector. The two-slab model, revised input tax credit, and a less-disputed framework will likely improve ease of doing business and cash flow for MSMEs and other enterprises.
These comprehensive reforms will reduce business costs and enhance the global competitiveness of Indian goods, thus benefiting the export sector in particular. Simplification of the tax structure, exceptional technological automatic refunds, and stability will create increased investment opportunities. These reforms will aid India’s progress towards becoming a global manufacturing hub.
The Indian economy has been moving forward strongly due to continuous economic reforms undertaken by the Narendra Modi government. Recently released data from the National Statistics Office show that the Consumer Price Index-based retail inflation rate is at its lowest level in the past eight years, mainly due to declining food prices. Additionally, favourable monsoon conditions and good sowing of the Kharif crop signal further stability.
On 14 August, S&P (Standard and Poor’s) Global Ratings upgraded India to the BBB investment-grade category after 18 years — the last upgrade was in 2007. This clearly indicates that investing in India’s economy is currently safe, as monetary policy is investment-friendly and attracting investors.
The BBB rating means India is capable of meeting its debt and financial obligations, but financial pressures and policy challenges remain. BBB indicates economic and political stability, though external shocks such as global recession, volatile oil prices, or current account deficit could have an impact. Higher ratings such as A or AA are considered more reliable. International investors and fund managers interpret the BBB rating as a signal that India is investable but with somewhat higher risks.
A higher rating improves prospects for foreign investment and cheaper credit, while a downgrade to the “junk” category weakens investor confidence. For comparison, China holds an A+ rating, which falls into the upper tier of the A-grade and reflects a more reliable and stable economy compared to India. The United States is rated AA+, representing one of the most stable and trustworthy economies globally. Pakistan, on the other hand, has a B- rating, which is considered “speculative grade” or “junk,” indicating potential repayment difficulties and high risk for investors.
The lowest rating, “D,” signifies that a country has defaulted on its financial obligations and has stopped servicing most of its debt. The decision of the GST Council to discontinue the 12 per cent and 28 per cent rates and reduce the tax rate of more than 500 goods, following the Prime Minister’s call from the Red Fort to reduce GST rates, will boost demand for consumer goods in the domestic market, thereby accelerating industrial growth. In particular, this will aid the expansion of micro, small, and medium enterprises and also serve as an important factor in employment generation.
The author is a Member of Parliament (Lok Sabha) from Haridwar and former chief minister of Uttarakhand