India's Goods and Services Tax (GST) reforms, which went into effect today, are expected to boost the country's GDP by 0.8%, according to Union Petroleum and Natural Gas Minister Hardeep Singh Puri. Puri announced that these reforms are a "budget utsav," bringing happiness and benefits to all sections of society, especially the lower middle class.

Key Changes and Impacts

The GST Council approved these reforms earlier this month, streamlining the tax structure from four slabs to two: 5% and 18%. A separate 40% slab is retained for luxury and sin goods. These changes aim to simplify taxation and reduce the financial burden on households, businesses, and farmers.

• Simplified Tax Structure: The new GST regime primarily features two tax slabs: 5% for essential goods and services and 18% for most other items. Ultra-luxury and sin goods will be taxed at 40%.
• Reduced Tax Rates: Many daily-use items, food products, consumer electronics, and renewable energy products will see reduced GST rates.
• Exemptions: Life insurance policies are now exempt from GST.
• Impact on Consumers: Essentials, household items, and daily goods will mostly fall under the lower 5% slab or nil GST. Many FMCG products, including soaps, shampoos, and toothpaste, are also getting cheaper.
• Benefits for Businesses: The reforms aim to reduce costs for consumers, ease compliance for traders, and enhance competitiveness for Indian businesses.

Sector-Specific Impacts

• Automobile Industry: Two-wheelers, small cars, and auto parts now fall under the 18% GST, reduced from 28%. Maruti Suzuki India has reduced car prices by up to ₹1.29 lakh after the GST rate cut and is giving additional discounts on small cars.
• Construction: GST on cement, marble, granite, and other building materials has been reduced from 28%/12% to 18% or 5%, lowering construction costs and helping home buyers and real estate projects.
• Renewable Energy: The GST on renewable energy equipment has been reduced from 18% to 5%, potentially saving investors up to ₹1.5 lakh crore by 2030.
• Agriculture: GST on farm machinery, irrigation equipment, and bio-pesticides has been slashed to 5%, cutting farming costs and encouraging sustainable practices.
• Hospitality and Tourism: A lower GST rate of 5%, down from 12%, will be applicable on hotels, making stays more affordable for middle-class and budget travelers.

Government Perspectives

• Prime Minister Narendra Modi: Modi has emphasized that the GST reforms will speed up India's growth story, calling it a big and important step for "Aatmanirbhar Bharat". He highlighted that promoting 'swadeshi' products will help in India's prosperity. He also said that the poor, neo-middle class, and middle class have received a “double bonanza” through recent tax reforms.
• Union Home Minister Amit Shah: Shah stated that the next-generation GST reforms by PM Modi aim to serve the poor, youth, farmers, and women, boosting India's growth.
• Odisha Chief Minister Mohan Charan Majhi: Majhi said the GST reforms will boost consumption of 'swadeshi' goods and services, resulting in a resilient and stronger economy.

Concerns and Criticisms

• Congress: The Congress party has accused PM Modi of taking “sole ownership” of the amendments made to the GST regime, stating that the current reforms are inadequate. They argue that the reforms do not resolve the states' demand for an extension of compensation for another five years.
• MSMEs: There are concerns about the widespread issues faced by MSMEs, the major employment generators in the economy.

Overall Impact

The GST reforms aim to boost household spending, ignite economic growth, and put more money in the pockets of citizens. These reforms are expected to inject an estimated ₹2 lakh crore into the Indian economy. By lowering tax burdens, the government aims to stimulate demand, fuel production, and boost economic activity.