Please note some significant data to understand the impact of changes in the GST.

Approximate GST Coverage

Background

Introduction of GST in India was a good idea which was badly implemented because of Modi’s objective of benefiting the rich corporates and general incompetence. A simple and effective GST would have resulted in about 1-2% increase in the GDP. The twin blows of the stupid idea of demonetization and faulty GST resulted in a loss of about 4% of GDP in the financial year 2016-17. Moreover, no efforts were made to revert the damage done to the economy. Thus, the effects continue till date. Despite these blows, Indians, either because of their love of the idea of Muslim hatred, or Balakot strike or election manipulations or collective stupidity made Modi continue in power in 2019. With his 4-hour notice lockdown Modi gave another blow to the economy, particularly the MSMEs, causing a loss of about 2% of GDP. By hook or crook, mostly the latter, Modi is still the PM after 2024.

The UPA government had proposed a uniform GST rate of 15-18% which would have been a good idea. Modi, introduced a complex GST and kept fuel and liquor out of its ambit and to complicate things further imposed a cess on certain products.

In Sep 2025 Modi, under pressure from Trump’s tariffs and Rahul’s exposure of “vote chori” has announced some corrections in the GST after 8 years of sustained ruin of the economy and people’s lives. Promoting these corrections as “Modi’s gift to the nation” is laughable. In reality Modi should apologize to the nation for demonetization, faulty GST, stupid lockdown and bad economic policies. Recently Murli Manohar Joshi of the RSS has criticized Modi’s handling of the economy, particularly the creation of economic disparity worse than the British Raj and low per capita GDP.

Key Changes in GST

1.       Rate Rationalisation – New Slabs

1. The existing four-rate GST system (which had 5%, 12%, 18%, 28%) is being replaced with a simpler structure.
2. Under the new system:
   • 5% — Merit/essential goods/services.
   • 18% — Standard rate for general goods/services.
   • 40% — A new de-merit/sin/luxury slab for certain items (luxury, harmful, or sin goods).

2.       Implementation Date

1. These changed GST rates come into effect from 22 September 2025.
2. Some exceptions: tobacco, cigarettes, etc., will continue under older rates plus compensation cess until certain conditions/law changes are in place.
3. Which Goods/Services See Rate Cuts vs. Higher Rates

Goods/Services Getting Mirrored Relief / Lower Rates:

2. Many essential or daily-use items shift down to 5% or even 0%. Examples include toiletries (soap, shampoo, toothpaste, etc.), household articles (tableware, kitchenware), baby items (feeding bottles, diapers), and some food staples.
3. Agricultural machinery and equipment – rate reduced from 12% to 5%.
4. Medical devices, most medicines, life & health insurance exempt or moved to lower rates.

Goods/Services Facing Higher or New 40% Rate:

2. Luxury vehicles (larger cars, SUVs), motorcycles above 350cc moved into the 40% slab.
3. Sin goods: cigarettes, pan masala and some beverages (aerated, carbonated with sugar, fruit‐based non-alcoholic but treated in this category).
4. Electronic appliances (AC, TVs, dishwashers) have their rates lowered from 28% to 18%.

Chidambaram’s (former FM) Comments

1.       Although rate rationalisation is good, Chidambaram warns it’s not sufficient to boost the economy by itself.

2.        He points out that the GST laws are complicated to administer, difficult for small traders to comply with, form filling is burdensome, and many need professional help even for small turnovers.

3.       He is critical of harsh enforcement – use of penal or criminal measures even in cases that may be inadvertent, or for small traders. He believes tax law should be more civil in enforcement, more trader/seller-friendly.

Chidambaram’s Suggestions

• Move ultimately to a more uniform or single GST rate (or very few slabs) over time.
• Simplify the law (rules, acts, sections) so that compliance, returns, filings are easier.
• Decriminalise minor GST violations; enforce through civil penalties rather than severe punitive actions.
• Make the system more transparent, less intimidating for small traders; reduce dependence on professionals for compliance.

Comments of Subramaniyan (former Chief Economic Advisor)

He welcomed the simplification and the removal of the 28% Slab. He acknowledged that many items from the 12% slab have been moved (or rationalised) which contributes to simplification.

He cautioned that this correction will not remove the deep structural problems. Some of those problems include weak private investment, enforcement risks, complexity in classifications (e.g. many sub-slabs, exceptions), and underlying “doing business” risks.

Potential Large Revenue Loss

·       He believes that the revenue loss from these rate cuts may be far greater than the government’s estimate (which is about ₹48,000 crore). He estimates something closer to ₹1.5-2 lakh crore in revenue decline on an annualised basis for Centre + States.

• This has implications for fiscal targets, budget deficits, and how states will manage, especially since many states rely on GST/cess revenues.

Concerns About Erosion of State Autonomy & Cooperative Federalism

• He says that over the past several years, states have seen their fiscal sovereignty eroded under GST (particularly after the initial compensation framework expired or weakened).
• Bringing additional items like petroleum under GST (i.e. asking states to give up more tax powers) will be harder to sell given this context.

 Growth Boost?

• Subramanian thinks the reforms may boost consumption in the short run (because lower taxes → lower prices → more consumer spending), but that permanent growth improvements depend on many other reforms.
• He points out that weak private investment, risk premium, regulatory impediments, business environment concerns (including arbitrary enforcement) limit how far tax-cuts alone can help.

 Suggestions

• Further simplification: fewer slabs, fewer exceptions, categories; reduce classification complexity.
• Better enforcement without overly punitive or arbitrary measures. Less “inspector Raj.”
• Stronger cooperative federalism: trust between the Centre and states to share burden, revenue neutrality, etc.

·       Focus on structural reforms that increase productivity, reduce risks, improve the business environment.

Comments of Professor Arun Kumar

Impact on Unorganized vs Organized Sector

• Unorganized sector is largely outside GST:
  • Turnover below ₹50 lakh (services: ₹20-40 lakh) – no GST.
  • Below ₹1.5 crore – composition scheme at 1%, no input tax credit.
• Result:
  • Input Tax Credit (ITC) is available only to the organized firms.
  • This lowers costs for organized sector, making their goods cheaper.
  • Demand shifts from unorganized (small producers, neighbourhood stores) → organized sector (big brands, malls, e-commerce).

Example industries affected:

• Pressure cookers: 5 big firms benefited, 25 small ones suffered.
• Leather goods, luggage, textiles, FMCG – similar trends.
• Retail trade:
  • E-commerce and malls growing at 25-30% annually.
  • Neighbourhood stores losing business.

Prof. Arun Kumar sees GST, demonetization, and NBFC crisis as systematically hurting the unorganized sector, which employs 94% of India’s workforce.

Export Concerns and Trump Tariffs

• Trigger for GST rate cut: U.S. imposed a 25% extra tariff on Indian goods starting 27 August 2025.
• This made Indian exports 50% costlier, while competitors like China, Bangladesh, and Vietnam faced lower tariffs.
• India risks losing $50 billion in exports (~₹4.4 lakh crore in production).
• To counter this, the government hurriedly cut GST rates to stimulate domestic demand.
• However, Prof. Kumar says this will not work effectively because:
  • Unorganized sector demand will fall further.
  • Organized sector demand may rise slightly.
  • Net effect: no real demand increase.

Rising Inequality

• Only the top 10% of population (organized sector buyers) will benefit from lower GST.
• 90% poor population:
  • Earn very low wages (e.g., e-Shram data shows 90% earn less than ₹100/day).
  • Buy goods from the unorganized sector, which won’t get tax benefits.
  • Their incomes and jobs will shrink further.

“This policy benefits a small segment, while 94% workers in the unorganized sector face higher unemployment and lower demand.”

GST on Coal – Inflationary Effect

• GST on coal increased from 5% → 18%.
• This will raise energy costs, affecting all industries and leading to inflation.
• While some product prices will fall due to lower GST, coal will push costs up, creating a confusing net effect.

Government’s Approach Criticized

• GST cut was done in haste, announced on 15 August, just a week after the U.S. tariff hike.
• Lacked proper planning:
  • No clear roadmap for which sectors need relief.
  • Anti-profiteering body scrapped, so businesses may not pass on benefits to consumers.
  • States may increase taxes on petrol/diesel to cover their revenue loss.

Bigger Policy Issue – Focus Only on Organized Sector

• Government policies over the past 8-9 years have favoured the organized sector:
  • Demonetization → digitization.
  • GST → formalization of businesses.
  • Large infrastructure projects → benefit capital-intensive industries, not labour.
• Rural employment schemes cut, while freight corridors, highways prioritized.
• Result:
  • Rural distress, falling jobs, weak purchasing power.
  • Private companies hoard cash but don’t invest due to low demand.

Inequality in Growth

• Only top 4-5% wealthy households resemble European middle class.
• India’s per capita income is $2,800 (vs. U.S. $88,000, Germany $55,000).
• Growth driven by top consumers is unstable because:
• • Limited repeat purchases.
  • Mass demand missing.

Political Centralization

Prof. Kumar also criticizes centralized decision-making:

• Key policies like GST and demonetization announced without consultation.
• PMO overrides ministries like Finance, Commerce, External Affairs.
• Creates repeated policy mistakes and economic shocks.

Overall Conclusion

The September 2025 GST changes:

• Help the organized sector and exports in the short run.
• Hurt the unorganized sector and 90% of the population.
• Will not boost overall demand or jobs.
• Reflect a short-term, reactionary policy, not structural reform.

“Without strengthening the unorganized sector where most Indians work, growth will remain around 1.5-2%, not the 6-7% as claimed by the government.”

–COL M M NEHRU