PM Modi's GST 2.0 Announcement: A Strategic Move to Enhance India's Economy Ahead of Diwali

Prime Minister Narendra Modi's announcement of GST 2.0 is seen as a strategic move to strengthen India's economy. Speaking from the Red Fort, Modi revealed plans to reduce GST rates by Diwali, aiming to lower prices of everyday items. This reform targets the eight-year-old tax system, which has faced issues like litigation and evasions.

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The Finance Ministry later proposed a new GST structure with two main slabs: standard and merit, alongside special rates for select items. This would replace the current four-bracket system, where goods and services are taxed at 5, 12, 18, and 28 per cent. Luxury and sin goods face an additional levy on top of the highest rate.

GST Rate Rationalisation

Krishan Arora from Grant Thornton Bharat noted that rationalising GST rates has been anticipated for some time. With the Prime Minister's announcement, it appears that rate adjustments are complete. Items currently taxed at 12 per cent may drop to 5 per cent, potentially reducing prices and boosting demand, especially benefiting MSMEs.

Saurabh Agarwal from EY India highlighted that these reforms are not just procedural but essential structural changes. They aim to address global trade tensions by unlocking working capital and enhancing export competitiveness. Rationalising rates could also boost domestic consumption, providing a buffer against external shocks.

Impact on MSMEs and Employment

CII Director General Chandrajit Banerjee emphasised the Prime Minister's commitment to empowering youth and strengthening MSMEs through initiatives like the PM-Viksit Bharat Rozgar Yojana. This programme offers Rs 15,000 support for first-time job seekers, potentially creating large-scale employment opportunities.

MSMEs, crucial to India's economy, stand to benefit significantly from increased access to talent and targeted incentives. These measures could help them scale up, innovate, and integrate more deeply into global value chains.

Upcoming GST Council Meetings

The long-awaited GST 2.0 seems closer with potential reforms on the horizon. Harsh Shah from Economic Laws Practice mentioned possible changes such as eliminating the 12 per cent slab and rationalising rates for health and life insurance. Clarity on blocked credits provisions is also expected.

Vivek Jalan from Tax Connect Advisory Services LLP noted that the GST Council hasn't met in eight months due to ongoing rate rationalisation efforts. A Group of Ministers is reviewing this comprehensive programme. By Diwali, items of mass consumption might be taxed at a lower 5 per cent rate.

Economic Boost and Future Prospects

Vineet Mittal of Avaada Group believes the GST announcement will ease tax burdens and encourage entrepreneurship nationwide. The Samudra Manthan vision for deepwater energy exploration signals a push towards energy self-reliance and securing resources vital for various sectors.

Assocham stated that easing tax burdens while creating jobs and enhancing skills lays the foundation for a prosperous India. This approach aims for global competitiveness while ensuring inclusive growth for all citizens.

With GST collections in FY 2025-26 expected to exceed Rs 22 lakh crore, averaging Rs 1.85 lakh crore monthly, experts believe it's an opportune time to boost the economy amid recent geopolitical challenges.

With inputs from PTI