Reform that boosts growth

India's GST reform of 3 September marks a transformative leap in indirect taxation, with a streamlined two-rate structure and bold rate reductions that will directly spur demand and growth.

- GOURAV VALLABH

It is a strategic move to stimulate economic growth, neutralize the impact of US tariffs, and enhance ease of doing business across sectors.

The headline impact, supported by SBI Research, is an estimated Rs 1.98 lakh crore increase in additional consumption in FY26, projecting the reform as an economic game-changer for households, various sectors, and the broader economy.

On September 3, the GST Council shifted from four complex tax slabs to a simplified two-tier structure: 5 per cent and 18 per cent, plus a demerit rate of 40 per cent for luxury and sin goods. Everyday essentials and infrastructure inputs now fall within the lower two slabs, benefiting millions. These changes are set to roll out from 22 September, aligning with the festive season and amplifying positive impacts.

With new rates, daily items such as hair oil, soaps, butter, ghee, namkeens, chocolates, and coffee now attract just 5 per cent GST—a sharp reduction from previous levels of 12-18 per cent. Lifesaving medicines (33 major drugs) have been fully exempted, and staple foods (milk, paneer, chapatis) are taxed at 0 per cent GST. This means more disposable income for every household, translating into broader spending for other goods and services.

Sectors like cement (GST down from 28 to 18 per cent) and auto components will see cost reductions, boosting construction, automotive demand, and SME activity.