Why GST Reforms Was The Need Of The Hour | Jagran Opinion

Reforms are often presented as if everyone wins. In reality, they create winners and losers, shifting burdens across sectors and households. The question is whether the trade-offs put the economy on a stronger, more sustainable growth path. India’s recent reforms to the Goods and Services Tax (GST), announced at the 56th GST Council meeting in September 2025, illustrate this dynamic clearly. By simplifying the tax structure, reducing the burden on households, correcting distortions for producers, and strengthening the dispute resolution system, the Council has repositioned GST as a growth-oriented framework rather than a source of confusion and compliance fatigue. Crucially, in this round of reforms, the middle-class consumer does not emerge as the loser.

The most visible change is the move from a four-tiered GST structure with multiple cesses to a simplified, citizen-friendly system of just two main rates: five percent for merit goods and 18 percent as the standard rate. A special rate of 40 percent is retained only for a narrow set of sin and luxury items, such as betting and casinos, large vehicles, and certain non-alcoholic beverages. Under the old system, tiny differences in wording often meant huge differences in tax treatment. Was a paratha the same as a roti? Was paneer exempt but cheese taxed? Was a small auto part classified under one HS code at 12 percent or another at 18 percent? These ambiguities generated classification disputes, litigation, and administrative backlogs. For small firms without in-house tax teams, this meant spending scarce time and money on compliance rather than production. By collapsing four slabs into two, the Council has reduced opportunities for misclassification, cut down on disputes, and made the tax more predictable.

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The second major reform lies in direct relief for households. Essentials like UHT milk, pre-packaged paneer, and all Indian breads now carry zero GST. Everyday consumption items such as soaps, shampoos, toothpaste, bicycles, tableware, and kitchenware, previously taxed at 12 or 18 percent, are now taxed at just five percent. Aspirational goods like air conditioners, dishwashers, televisions of all sizes, motorcycles up to 350cc, small cars, buses, trucks, and ambulances have seen their rates fall from 28 to 18 percent. For families, this translates into tangible savings. The idea is simple: leave more money in people’s pockets, which then gets spent elsewhere in the economy. With private consumption making up nearly 60 percent of India’s GDP, this is an immediate demand-side boost. In effect, the reforms act like a broad-based consumption stimulus, but without the distortions that targeted subsidies often create.

A third reform area is social protection, especially in health and insurance. For the first time, all individual life insurance and health insurance policies, including term, unit-linked, endowment, family floater, and senior citizen plans, have been made fully exempt from GST. Thirty-six life-saving drugs, including medicines for cancer and rare diseases, have been reduced to nil, while all other medicines, diagnostic kits, reagents, and devices such as glucometers now attract just five percent. The logic here is not only welfare but growth. Affordable health care and wider insurance coverage reduce household vulnerability to medical shocks, free up resources for other spending, and improve productivity by creating a healthier, more secure workforce. Importantly, policymakers resisted calls to exempt all medicines outright.

The fourth area is productivity enhancement through the correction of inverted duty structures. An inverted duty structure exists when inputs are taxed more heavily than the finished outputs, causing businesses to accumulate unusable credits, strain liquidity, and lose competitiveness. The textile sector suffered from this problem: man-made fibre was taxed at 18 percent, yarn at 12 percent, while finished fabric carried only a five percent levy. Fertilizers faced similar distortions, with raw materials taxed at 18 percent but final products at five percent. These anomalies have now been corrected: fibre and yarn are reduced to five percent, and key fertilizer inputs such as sulphuric acid, nitric acid, and ammonia are also aligned at five percent. Cement, crucial to construction, has dropped from 28 to 18 percent, lowering costs across housing and infrastructure. Tractors and a wide range of farm machinery have been reduced from 12 to five percent, cutting costs for farmers, while renewable energy devices now carry a five percent tax, supporting India’s clean energy transition. For growth, the principle is clear: taxes should be neutral, allowing investment and production decisions to be guided by real costs and demand, not by fiscal anomalies.

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The fifth reform is institutional. The GST system has long been criticised for lacking a proper national-level appellate mechanism. Businesses often faced inconsistent rulings across states, adding to uncertainty. The decision to operationalise the Goods and Services Tax Appellate Tribunal (GSTAT) by the end of 2025 is therefore crucial. The tribunal will accept appeals from September and begin hearings by December, with a June 2026 cut-off for backlog appeals. The Principal Bench will also act as the National Appellate Authority for Advance Rulings, creating consistency across jurisdictions. This institutional reform matters for growth because predictable dispute resolution lowers investment risk. Firms are more willing to invest and expand when they know disagreements will be resolved quickly and consistently.

In sum, GST rationalisation was the need of the hour because complexity was breeding disputes, distortions were hurting competitiveness, and regressive burdens were eroding household welfare. The 2017 reform unified India’s market; the 2025 reform matures it into a tax system designed for growth.

(The author is a public policy analyst. Views are personal.)