Fixing problems, unlocking India’s growth potential

India’s economic journey has always been shaped by bold reforms, and the latest set of Goods and Services Tax (GST) measures announced at the 56th GST Council meeting on September 3, 2025, may well prove to be one of the most consequential yet. For years, businesses and policymakers alike have called for simplification, predictability, and fairness in India’s indirect tax regime. With the latest decisions — streamlining rates, correcting anomalies, easing compliance and strengthening dispute resolution — the government has delivered a package that balances ambition with pragmatism.

What makes this moment special is not just the scope of the changes but also the collaborative spirit behind them. The result is what many are calling GST 2.0 — a reform designed not merely to fix today’s problems but also to unlock India’s growth potential for the decade ahead.

Relief for many income groups

Essentials such as soap, toothpaste, hair oil, shampoo, kitchenware and packaged foods now fall under lower tax brackets, immediately easing household budgets and boosting demand in sectors that employ millions. For housing, reduced GST on cement and construction materials will bring homes within reach for more families, supporting the government’s ‘Housing for All’ mission while stimulating allied industries such as steel, tiles, sanitaryware and paints. Infrastructure projects too will benefit from lower costs of inputs, improving project viability and freeing capital for expansion.

Life-saving drugs and critical medical devices have been moved to nil or 5% GST, cutting treatment costs and expanding access for patients. In a country that has emerged as a global hub for affordable medicines, this is both a social and economic win.

Labour-intensive industries such as textiles, handicrafts, leather, footwear, and toys — stand to gain from lower rates that protect margins, safeguard livelihoods, and create jobs in semi-urban and rural clusters. The automotive sector, a key driver of growth, will also see a boost as now more affordable small cars, motorcycles, buses and trucks will encourage demand and investment in auto-manufacturing hubs.

Helping exporters and MSMEs

The rationalisation of rates would also help exporters. Long-standing distortions created by inverted duty structures in textiles, fertilizers and renewables are finally being corrected. This will make Indian products more competitive globally while reducing import dependence. Export-heavy sectors such as handicrafts, leather, and engineering goods — most driven by micro, small and medium enterprises (MSME) — are well placed to gain benefits. Lower duties on capital goods and intermediates will also promote local value addition, directly supporting the ‘Make in India’ initiative.

One of GST’s biggest challenges has always been litigation. Interpretational disputes, classification complexities and uncertainty over tax treatment have burdened businesses and clogged up the system. Rationalisation addresses this by simplifying slabs and harmonising rates for similar goods. Clarifications on intermediary services and post-sale discounts further reduce ambiguity, bringing long-awaited relief to service exporters and aligning tax rules with commercial practices.

Small exporters will welcome the decision to remove thresholds for refunds on low-value consignments. This ensures fairer treatment for courier and e-commerce players, where liquidity pressures are acute. Faster, more reliable refunds will ease working capital challenges and encourage reinvestment in growth.

Perhaps the most path-breaking measure is the Simplified GST Registration Scheme for Small and Low-Risk Businesses. By introducing automated approvals within three days, the government has dramatically reduced entry barriers, which will cut compliance costs, encourage formalisation, and allow MSMEs to expand into new markets with greater ease.

Given that MSMEs are the backbone of India’s economy — contributing to jobs, exports and innovation — the significance of this step cannot be overstated.

Institutional reform has also received a boost with the operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT). By enabling faster and fairer resolution of disputes, GSTAT will strengthen confidence in the system and reduce case backlogs. This signals that GST is not just about revenue collection but also about building a fair and predictable tax framework that businesses can trust.

The broader message is equally important. The streamlined two-rate GST structure (a standard rate of 18% and a merit rate of 5% with a special de-merit rate of 40% for a select few goods and services) aligns India more closely with global best practices, moving it to the kind of tax regime that advanced economies employ. For international investors, the reforms send a strong signal of policy stability, predictability and ease of doing business. In a world where global supply chains are being reconfigured, India is positioning itself not just as a vast market but also as a reliable and competitive investment destination.

A pathway to economic expansion

Of course, reforms are never the end of the road. Implementation will be key, and challenges such as delays and procedural complexities still need attention. But what stands out is the intent. The government has shown that it is listening to industry, willing to act decisively, and committed to building a tax system that fuels, rather than impedes, growth.

GST 2.0 is more than just a tax reform. It is an economic reform that promises to boost consumption, empower MSMEs, strengthen competitiveness, and reinforce India’s growth momentum. It lays the foundation for India’s next phase of economic expansion.

The story of GST has always been one of bold ambition. With these reforms, India has taken a decisive step toward realising that ambition. For businesses, consumers and policymakers alike, this is not just an adjustment of rates. It is the start of a new chapter in India’s growth journey.

Harsha Vardhan Agarwal is President, Federation of Indian Chambers of Commerce and Industry (FICCI)