GST 2.0 Arrives — I Feel Both Validated and Restless

Today India woke to a simpler GST map: two broad slabs (5% and 18%) plus a punitive 40% band for sin/luxury items. The policy reads like a deliberate attempt to make everyday life cheaper for millions — packaged foods, many personal-care products, life-saving medicines, and even certain vehicles and household appliances have been shifted into lower slabs. At the same time, aerated sugary drinks, high‑cc petrol/diesel vehicles and other “sin” goods face a steep 40% rate. These changes took effect on 22 September 2025 and companies and consumers are already reacting to revised MRPs and discounts New GST Rates LIVE Updates and local coverage New GST rates take effect today.

What I notice at a glance

• Winners: packaged foods, many FMCG staples (soaps, toothpaste, shampoos), dairy products such as butter and ghee, a large list of daily‑use items moved to 5%; a raft of electronics and smaller cars/bikes moved from 28% to 18%.
• Losers (or intentionally discouraged): soft drinks, aerated sweetened beverages, and certain high‑end motor vehicles now in the 40% band.
• Market mechanics: big brands and retailers are already revising MRPs and announcing price cuts (Amul, HUL, Maruti promos have been cited) while the government has asked unsold stock MRPs to be revised until a December deadline so consumers see the benefit New GST Rates LIVE Updates.

I welcome these moves — they are clearly designed to stimulate consumption at a time when demand needs a nudge — but I’m also thinking about the second‑order effects that matter more for long‑term, inclusive growth.

Why this feels familiar — and why that matters

I wrote about the need for tax rationalisation and targeted relief years ago. I advocated: simplifying slabs, directing relief to increase disposable income, and using fiscal reform as a lever to revive consumption and growth. See my earlier note about a tax‑slab rejig to put more money in the hands of those earning above ₹5 lakh (an idea to revive consumption) Next govt stimulus may cheer the middle class.

More directly, years back I proposed that part of any new indirect tax architecture could be used to both incentivize digital payments and build household savings — for example by routing a small share of GST toward a PPF/PPF‑like account for the buyer if the purchase was digitized via RuPay or mobile wallet. I called this vision Jan Dhan Sarjan Yojana (People’s Wealth Creation Scheme) and mapped out how small systemic nudges can create a virtuous circle: higher digitalization, higher formal savings, better tax transparency, and stronger domestic demand GST conundrum — compromise formula & Jan Dhan Sarjan Yojana and A New Way to E-Way?.

The core idea I want to convey is this — take a moment to notice that I had brought up these thoughts and suggestions years ago. I had predicted the need for simplification, proposed ways to couple tax cuts with incentives for digitalization and savings, and flagged logistics and e‑way reforms as essential complements. Seeing today's GST changes unfold, I feel a quiet validation and a renewed urgency to revisit those earlier ideas — they still appear relevant.

What the reforms will (and will not) do

• Immediate relief: For many households, especially those buying packaged food, toiletries and some electronics, the direct price impact will be tangible. Companies like Amul and HUL have moved quickly to pass on savings New GST Rates LIVE Updates.
• Distributional question: Lowering GST on goods used by the middle class is politically popular and stimulative, but we must track who benefits the most. Luxury tax hikes target sin goods and very high‑end consumption — the revenue tradeoffs matter.
• Fiscal arithmetic: Reduced rates across hundreds of items will lower collections unless offset by base broadening or growth in consumption. That is a policy choice — stimulate demand now, hope growth and compliance fill the gap later.
• Passing-through depends on firms: Manufacturers and retailers decide how much of the tax benefit reaches consumers. Government directives on MRP revision speed the pass‑through, but market discipline and competition ultimately determine outcomes Times of India coverage.

Two things the reform needs to be paired with

1) Digital payments + automatic savings: If tax relief is meant to boost durable consumption, pair it with incentives that turn transactional relief into long‑term savings and financialization for households. My Jan Dhan Sarjan idea suggested routing a fraction of tax benefits into PPF accounts when purchases are made digitally — a way to lock in higher domestic savings while encouraging a digital footprint that helps widen the tax base GST conundrum — compromise formula.

2) Logistics and pricing efficiency: Lower GST on appliances and vehicles is only fully beneficial when goods move efficiently and distribution costs fall. I have argued repeatedly that freight movement must be reimagined (e‑way bills, conveyor‑belt thinking for highways, RFID omnipresence) so the cost savings reach consumers and firms alike From E‑Way Bills to Express‑ways of Commerce and A New Way to E‑Way?.

(Yes, a small, slightly odd footnote: as car prices fall domestically because of GST cuts, global manufacturers and retail promotions continue to influence local pricing — from employee‑pricing events abroad to factory offers; think of promotional moments like Ford Employee Pricing in Canada as a reminder that vehicle pricing is shaped by many moving parts beyond domestic tax alone Ford Employee Pricing.)

What I hope to watch for in the weeks ahead

• Do MRPs on unsold stock actually fall in the market as directed? How quickly do chain stores and small kirana shops reflect the change?
• Which categories see durable demand increases (not just festive flurries) that raise manufacturers’ and retailers’ confidence about capacity and hiring?
• Whether the 40% band on sin/luxury items raises sufficient revenue to offset cuts, and if there are any unintended substitution effects.
• Importantly, whether the GST reform is paired with nudges toward digital payments and logistics upgrades — without those, the reform is a short‑term consumption boost, not the structural reset we need.

Final, personal note

I am glad to see many concepts I’ve argued for — simplification, demand revival through lower indirect taxes, and the need to pair tax reform with digitalization and logistics — reflected in policy today. That sense of validation is real. But validation alone is not enough. The deeper test is whether we use this moment to bind the reform into broader structural change: faster, cleaner logistics; higher household financialization; and a digital transactional trail that strengthens the formal economy.

If these GST cuts remain an isolated policy event, they will help this festive season — and that matters — but they will fall short of unlocking the long‑term virtuous circle of savings → investment → jobs → growth that I have been writing about for years.

For those interested, some of my earlier pieces on these threads are still worth reading: my tax‑slab thoughts and stimulus ideas Next govt stimulus may cheer the middle class, my Jan Dhan‑linked GST proposals GST conundrum — compromise formula, and my logistics/e‑way reflections A New Way to E‑Way?.

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Regards,
Hemen Parekh