India Unveils New GST Reforms to Boost Consumption and Growth

Why in News

Prime Minister Narendra Modi has introduced sweeping GST reforms aimed at stimulating domestic consumption and economic resilience amid escalating global trade tensions and looming U.S. tariffs. The changes involve streamlining the tax structure, providing immediate relief to consumers and MSMEs, and potentially repositioning India’s growth trajectory.

Key Points

1. GST structure simplified from four rates to two—daily essentials taxed at 5%, with a few high-de-merit goods, like tobacco, taxed up to 40%.
2. SBI projects a ₹1.98 lakh crore boost in consumption but warns of an annual revenue shortfall of ₹85,000 crore.
3. GST rationalisation may temporarily raise India’s fiscal deficit to 4.5% in FY26 and 4.6% in FY27, but long-term growth benefits are anticipated.
4. Market sentiment is optimistic: the Nifty50 could climb to 28,000 by September 2026 due to improved confidence from GST reforms.

Explained

Structural Reform for Broad Relief:

By reducing GST slabs to just two core rates, the government aims to simplify compliance and reduce the tax burden on daily essentials, fostering transparency and efficiency. This “next-gen GST” is intended as a “Diwali gift” for citizens.

Balancing Growth and Fiscal Prudence:

Although projections indicate a potential increase in the fiscal deficit, the anticipated growth in consumption and economic dynamism is expected to counterbalance these fiscal risks in the medium term.

Boosting Markets and Confidence:

Analysts believe that GST reform will unleash pent-up demand, stimulate MSMEs, and enhance investor sentiment, setting the stage for sustained economic growth and possible stock market gains.

Strategic Timing amid Global Tensions:

With U.S. tariffs reaching up to 50%, India’s pivot toward domestic demand is strategic. Increased consumption and structural stability could mitigate external shocks and preserve growth momentum.

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