GST 2.0 vs export competitiveness

India's Goods and Services (GST) Tax Council, meeting on September 3, unveiled what was billed as the most radical simplification of the levy since its introduction in 2017.

- DEBASHIS BASU

On September 22 the country will move to two broad slabs — 5 per cent and 18 per cent — with essentials such as foodgrains and fresh produce exempted, and hundreds of other goods shuffled into lower brackets. The changes followed Prime Minister Narendra Modi's Independence Day promise of reform. Will these benefit the Indian consumer and the economy? Lower indirect taxes, in theory, should spur demand. And since, private final consumption expenditure (PFCE) contributes 60 per cent to growth in gross domestic product (GDP), a boost to consumption would push GDP higher.

In practice the cuts will touch only about 11 per cent of consumption — mainly processed food and consumer durables shifting from 12 per cent or 28 per cent into lighter buckets. The boost to spending, reckons one estimate, will be ₹0.7 trillion-1 trillion, or 0.2-0.3 per cent of GDP, showing up in the latter half of FY26. That is more a statistical rounding off than a growth engine.