GST 2.0 and Consumer Welfare: Assessing the Affordability Dividend

Abstract

This study examines the implications of India\'s GST 2.0 reform, a sweeping revision of the Goods and Services Tax structure, for consumer welfare and affordability. Through an examination of policy initiatives, sectoral effects, macroeconomic outcomes, and stakeholder viewpoints, it assesses the extent to which the reform advances public well-being. The analysis integrates evidence from a wide range of credible media and institutional sources, including leading international and national news outlets (e.g., Reuters, the Times of India, and the Financial Times), official government communications, and authoritative reports from think tanks and financial institutions (such as SBI and Axis), thereby ensuring rigor and reliability. The findings suggest that GST 2.0 marks a strategic shift beyond simple procedural efficiency to an inclusive, consumption-oriented economic paradigm. When implemented equitably, supported by transparent federal measures, and combined with effective corporate accountability, it has the potential to become a milestone in India’s economic development. If sustained over time, this reform promises more than immediate relief; it will lay the foundation for lasting, demand-driven resilience.

Introduction

India’s Goods and Services Tax (GST), launched in 2017, replaced multiple indirect taxes under the “One Nation, One Tax” vision. Though transformative, GST 1.0 faced criticism for its complex multi-slab structure, compliance burden, and delayed refunds, especially for MSMEs and exporters. These issues led to calls for simplification.

B. GST 2.0 Reform: Structure and Objectives
Announced in 2025, GST 2.0 introduces a simplified slab system:

• 5% for essential/merit goods

• 18% for standard goods

• 40% for sin/luxury items

It also offers tax exemptions on key staples like UHT milk, paneer, and life-saving drugs. The reform aims to:

• Enhance affordability

• Simplify compliance

• Stimulate demand and consumption

• Boost GDP by 1–1.2 percentage points

• Reduce inflation by up to 1.1 points

C. Methodology
The study uses qualitative media analysis (news, government reports, think tanks) via content, framing, and thematic analysis to assess the public and policy discourse around GST 2.0.

Key Features of GST 2.0

1. Rate Rationalization

• Most items from 12% → 5%; 28% → 18%

• Essential drugs and insurance: now GST-free

• Agricultural and rural economy inputs (tractors, fertilizers): shifted to lower slabs

2. Structural Reforms

• Resolved inverted duty structures

• Faster refunds and ITC harmonization

• Introduction of GST Appellate Tribunal (GSTAT)

• Auto-approval for low-risk registrations (within 3 days)

3. Ease of Compliance

• Auto-filled returns, 2FA security, and AI tools for fraud detection

• Simplified systems for MSMEs with turnover < ?2.5 lakh/month

• Faceless audits and vendor compliance scoring

Impact on Consumer Welfare and Sectors

1. Price Relief

• FMCG: Shampoo, toothpaste → GST down from 18% to 5% → Prices drop 11–13%

• Healthcare: ?6,000–?12,000 monthly savings on essential drugs

• Insurance: Premiums 18% → 0%, saving ~?1,800/year per policy

2. Sectoral Impact

• Automobiles: Small cars and bikes now at 18% GST → ?40,000–?60,000 savings

• Consumer Durables: TVs, ACs down from 28% → 18% → ?1,500–?2,500 cheaper

• Construction: Cement, steel at reduced rates → Housing costs drop by ~5–8%

• Tourism: Budget hotels now at 5% → Encourages domestic travel

• Retail: Apparel/footwear under ?2,500 at 5%; luxury taxed at 18% → Mixed impact

• Renewables: Green energy tech now at 5% → Promotes sustainability

3. Macroeconomic Impact

• Consumption boost likely to add 100–120 bps to GDP

• Positive market response (Sensex/Nifty up 0.5–1.1%)

• Industry leaders across FMCG, auto, insurance, healthcare welcome the reform

Conclusion

GST 2.0 represents a substantive enhancement of consumer affordability and public welfare through deliberate tax rationalization, targeted exemptions, and sector-specific relief measures. The consolidation of tax slabs, eliminating intermediate tiers and instituting a two-rate structure (5% for essentials, 18% for most goods, and a punitive 40% for luxury items), intervenes directly in lowering the cost of living while simplifying administration and enhancing compliance. These reforms also address systemic inefficiencies, such as the inverted duty structure, thereby safeguarding working capital and providing liquidity to MSMEs and exporters. However, the realization of GST 2.0’s promise relies critically on practical implementation and ensuring benefits reach end-consumers. Speedier processes, auto refunds, prefilled returns, and expedited registration alone are insufficient; their impact hinges on robust execution and minimizing administrative frictions. Furthermore, maintaining fiscal equilibrium, especially across federal layers, is essential. Looking ahead, further reforms should prioritize deeper simplification, such as merging remaining confusing slabs (e.g., dissolving the 12% bracket) and ensuring broader inclusivity by bringing long-excluded sectors, including petroleum, electricity, and real estate, into the GST net. Such expansion would enhance the tax base, reduce state revenue vulnerabilities, and promote equitable distribution without escalating rates. GST 2.0 goes beyond mere simplification; it represents a significant shift toward an inclusive, consumption-driven economic trajectory. If well-balanced with robust implementation, transparent federal support, and business accountability, it could be a defining chapter in India’s growth story. Successfully sustained, it promises not just short-term relief but the foundation for durable, demand-led resilience.

References

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Copyright

Copyright © 2025 Dr. Rajashree Upadhyay, Dr. Mahesh Kumar Kurmi. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.