The Goods and Services Tax (GST) has undergone a significant overhaul, with the GST Council approving a shift to a primarily two-rate structure, effective September 22, 2025. This move has been described as a "next-gen GST reform". Economist Sanjeev Sanyal has previously highlighted the importance of GST as a major tax reform and a framework for long-term economic development.

Key Changes and Impacts

The GST Council has rationalized the tax structure to two main slabs of 5% and 18%, merging the earlier 12% and 28% rates. A special rate of 40% will be levied on "sin" goods like tobacco and luxury items such as large cars and yachts. Essential goods and services will see lower costs, while some luxury items will face higher rates. Individual life and health insurance policies are now exempt from GST.

The changes are expected to benefit various sectors:

• Consumers: Many daily essentials, including hair oil, soaps, bicycles, and household articles, will be taxed at 5%. Food items like roti and paratha will have a nil rate. The revised rates are expected to leave consumers with more disposable income.
• Farmers and Agriculture: GST on agricultural equipment has been reduced from 12% to 5%.
• Industries: Labour-intensive industries are expected to receive a boost. The reduction in GST on construction materials like cement may reduce construction costs by 3-5%, providing relief to developers, especially those involved in affordable housing.
• Automobile Sector: Small cars and entry-level bikes are set to become cheaper, with petrol, LPG, and CNG vehicles (under specific engine and length criteria) moving to the 18% rate from 28%.

Economic Implications

The GST reforms are projected to boost consumption and formalization, potentially adding 100-120 basis points to GDP growth over the next four to six quarters. Morgan Stanley has noted that the simplified tax structure will make a range of goods and services more affordable, boosting consumption during the festive season. The rationalization of rates is estimated to have a financial impact of ₹48,000 crore, which is considered fiscally sustainable for both the Centre and the states.

Market Response

The Indian stock market reacted positively to the GST reforms, with the Sensex rising nearly 700 points. FMCG, consumer durables, and cement stocks rallied as common-use items became more affordable.

Sanyal's Perspective

Economist Sanjeev Sanyal, a member of the Economic Advisory Council to the Prime Minister, has emphasized the importance of GST as a significant tax reform. In the past, he has spoken about the positive impacts of GST and the need for continued improvements to the system. While specific recent statements by Sanyal regarding the latest GST changes were not found in the provided context, his earlier remarks suggest a belief in GST's potential to streamline the economy and promote long-term growth. He has also advocated for an outward-oriented approach to economic policies, emphasizing the importance of capturing export markets and building geopolitical linkages.

The GST reforms aim to simplify the tax structure, reduce the burden on the common person, and stimulate economic growth. The changes, effective from September 22, 2025, are expected to have a far-reaching impact on various sectors of the Indian economy.