The Hindu Editorial Analysis- 5th September 2025 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Cuts in Time

Why It Matters?

The government is cutting GST rates to boost domestic spending and counteract slow export growth.

Introduction

​The recent reduction in GST rates, approved during the 56th GST Council meeting, is a significant move aimed at stimulating demand and reviving economic activity. These reforms, coming shortly after the Prime Minister’s Independence Day address, signify a strong commitment to simplifying the tax system, reducing the tax burden, and fostering consumption growth at a time when other economic indicators are not as robust.

Positive Impact of GST Reforms

• The recent changes in GST, approved by the GST Council, have positively influenced public sentiment and hold the potential to stimulate the economy.
• Tax cuts are recognized as one of the most effective measures to boost demand and foster optimism.
• The Centre’s proactive approach in pushing for these reforms facilitated their swift approval by the Council.

Timing and Criticism

• Concerns suggesting that the reforms were implemented “too late” are unfounded.
• As a federal body, the GST Council had the capacity to allow States to propose cuts earlier, but none did at that time.
• The Prime Minister’s announcement prior to formal discussions raised some questions; however, the Council’s endorsement of the decisions on the first day of its two-day meeting demonstrated a strong consensus among the States.
• The minutes from the 56th meeting will provide clarity on the individual positions of the Council members.

Scope of Rate Changes

• Broad Coverage: The recent GST changes resulted in tax rate reductions across most sectors.
• Exceptions: Only a few items, such as luxury motorcycles and high-priced apparel, experienced an increase in tax rates.
• Narrow 40% Tax Bracket: The 40% tax bracket was kept narrow, avoiding the addition of too many new items, which could have overburdened it.
• Strengthening Consumption Demand: These changes, along with income tax cuts in Budget 2025, are expected to boost consumption demand.
• Compensating for Weak Exports and Private Investment: The adjustments aim to offset sluggish exports and private investment.

Fiscal Implications

• The government anticipates an annual revenue loss of ₹48,000 crore based on 2023-24 consumption levels.
• The actual revenue loss could be higher given the extent of the tax cuts.
• Despite demands from Opposition States, the compensation cess was abolished. Keeping the cess would have undermined the simplification goals of the reforms.
• States are now required to rely on their own revenue sources and assistance from the 16th Finance Commission for support.

Structural Improvements

• While GST 2.0 remains somewhat complex, there have been significant improvements such as:
  • Removal of Duty Inversions: This has streamlined the tax process.
  • Simplification of Paperwork: Reducing the administrative burden on businesses.
• To ensure that the benefits of these changes reach consumers, the government should consider:
  • Reviving the National Anti-Profiteering Authority (NAA): Temporarily, to monitor price changes.
  • Monitoring Price Pass-Through: Ensuring that price reductions are passed on to consumers once the changes take effect on September 22.

Conclusion

 The introduction of GST 2.0, despite some remaining complexities, demonstrates a strong commitment to rationalizing the tax system and easing compliance. By addressing duty inversions, abolishing the compensation cess, and aligning with income tax cuts, these reforms provide a timely boost to public confidence and the economy. The real challenge lies in ensuring that these benefits are effectively passed on to consumers.

GST 2.0 is a Landmark in India’s Tax Journey

Why in News? 

 The decision to simplify various GST slabs demonstrates a reform aimed at benefiting the public. 

 Introduction 

 The 56th GST Council meeting, held on September 3, 2025, marks a significant milestone in India's tax history. The reforms introduced go beyond mere adjustments in rates or structures; they represent a decisive shift towards a simpler, fairer, and growth-oriented system. By aligning taxation with the broader vision of Viksit Bharat 2047, these measures signify a strong commitment to building a modern, inclusive, and future-ready economy. 

 Simplification of GST Structure 

Long-standing Demand

•  There has been a persistent demand from both industry and consumers for the simplification of the multiple GST slabs, which currently include 5%, 12%, 18%, and 28%. 

Introduction of “Simple Tax”

•  The GST structure is transitioning to just two main rates: 
• 18% Standard Rate
• 5% Merit Rate (for essential goods) 
•  A 40% de-merit rate will be retained for select goods, such as luxury or harmful items. 

Transformational Impact

•  The simplification reduces compliance burdens for businesses, enhancing predictability and transparency in taxation. 
•  It makes GST more citizen-friendly and easier to understand. 

Global Alignment

•  The move signals the government’s commitment to global best practices in taxation and positions India as a country with a simpler, more efficient tax regime. 

 Relief for Various Income Groups 

Household Essentials

•  Items such as soap, shampoo, toothpaste, bicycles, and kitchenware are now in the 5% GST bracket. 
•  Essentials like UHT milk, paneer, chapati, and paratha are exempt from GST. 
•  Rate cuts on packaged foods, noodles, chocolates, and beverages are expected to boost consumption and ease family budgets. 

Insurance & Social Security

•  All life and health insurance products will be exempt from GST. 
•  This makes insurance more affordable, particularly for senior citizens and low-income families, and strengthens social security by increasing insurance penetration. 

Healthcare Access

•  Exemptions or reductions in GST on essential drugs, medical devices, and treatments for cancer, rare diseases, and chronic conditions will expand access to modern medicine and diagnostics while reducing the financial burden on households. 

Farm Sector Benefits

•  Tractors, farm machinery, and implements will be taxed at just 5%. 
•  Fertilizers and inputs such as sulphuric acid and ammonia are being moved from 18% to 5%. 
•  These changes correct inverted duties, reducing cultivation costs and improving farm productivity. 

Labour-Intensive Sectors

•  Reduced rates for handicrafts, marble, granite, and leather goods aim to stimulate domestic demand and secure employment. 
•  This makes traditional industries more competitive, safeguarding livelihoods and opening new growth avenues. 

 Changes in Critical Sectors 

Inverted Duty Structure

•  The removal of inverted duty structures in key sectors is a major achievement. 
•  For example, the GST on man-made fibre and yarn has been cut to 5%, resolving long-standing distortions in the textile value chain. 
•  Expected outcomes include greater competitiveness, growth in exports, increased domestic value addition, and more job creation in textiles and apparel. 

Rate Rationalisation in Core Sectors

•  GST on cement has been reduced from 28% to 18%, supporting housing and infrastructure with strong multiplier effects. 
•  GST cuts for renewable energy devices and auto components aim to accelerate India’s green growth journey. 
•  The Confederation of Indian Industry’s (CII) long-standing recommendations, including rationalisation of auto parts and relief for hospitality and wellness sectors, have been accepted. 
•  These changes will harmonise markets and minimise disputes. 

 Institutional Strengthening 

Goods and Services Tax Appellate Tribunal (GSTAT)

•  The GSTAT is expected to be operational by the end of the year, benefiting taxpayers by providing faster dispute resolution, consistent rulings, and enhanced trust in the system. 
•  Additional process reforms include provisional refunds for inverted duty cases, risk-based compliance checks, and harmonisation of valuation rules. 
•  Collectively, these measures reduce uncertainty and compliance costs, reinforcing India’s reputation as a top business destination. 

 Industry Partnership and Advocacy 

 Over the past eight months, the Confederation of Indian Industry (CII) has advocated for: 

•  A two-rate GST structure. 
•  Removal of anomalies. 
•  Lower taxes on essentials. 
•  Support for labour-intensive sectors. 
•  Faster implementation of the GSTAT. 

 Many of these proposals have been adopted, demonstrating the Council’s responsiveness and partnership with industry. This marks a significant milestone for stakeholders who contributed constructively to the reform process. 

 Conclusion 

 The phased rollout of reforms from September 22, 2025, is equally significant as it balances revenue stability with immediate benefits of lower tax rates for industry and consumers. This approach not only protects fiscal health but also stimulates demand and investment. The announcements represent a people-centric reform impacting citizens, farmers, workers, businesses, and entrepreneurs. By simplifying the tax structure, reducing rates on essentials, correcting past distortions, and strengthening institutions, GST 2.0 lays a stronger foundation for India’s growth journey. The CII is committed to ensuring smooth implementation, raising awareness, and facilitating the seamless flow of benefits to all sections of society.