PM Modi unveils simplified GST reforms to accelerate India's economic growth

Prime Minister Narendra Modi addressed the nation on the evening of 21 September 2025, heralding a new era of Goods and Services Tax (GST) reforms aimed at simplifying the tax structure and propelling India's economic growth. The changes, set to take effect from 22 September—coinciding with the auspicious start of Navratri/Durga Puja—include a streamlined two-slab system of 5% and 18% for most goods, alongside initiatives like the "GST Bachat Utsav" to celebrate savings for consumers. 

While the GST reforms were announced by Finance Minister Nirmala Sitharaman apparently to fight the impact of Trump's tariffs, neither she that day not the prime minister today made any reference to the US president.

The prime minister described the reforms as a "festival of savings" for all Indians, emphasising their role in making daily essentials more affordable, enhancing cooperative federalism and aligning with the "Swadeshi mantra" of self-reliance. 

With India's GDP projected to grow at 7.2% in 2025-26, these measures are positioned as catalysts for increased consumption, industrial revival and job creation, benefiting micro, small and medium enterprises (MSMEs) and the middle class.

The mention of MSME was perhaps a veiled assurance to H-1B Visa aspirants who might be disheartened by the hiked fee, alluding to the possibility that this sector of the Indian economy could absorb the talented workforce.

However, experts caution that while the reforms promise relief, their success hinges on seamless implementation and state-level cooperation, amid ongoing debates over revenue sharing and fiscal federalism.

Announcement of GST reforms in national address

In his televised speech from New Delhi, broadcast at 5 pm on 21 September, Modi outlined the "next-generation GST reforms" as a transformative step towards a more efficient tax regime. He highlighted that from 22 September, most everyday items—including food staples, medicines, insurance premiums and educational materials—would attract lower rates, primarily under the 5% and 18% slabs, eliminating higher brackets for non-luxury goods.

This simplification, he said, would reduce compliance burdens for businesses and pass on savings to consumers, estimating an annual relief of up to Rs 2.5 lakh crore nationwide.

The prime minister tied the rollout to Navratri, calling it "special" this year as a symbol of empowerment and prosperity, urging citizens to embrace the "Swadeshi mantra" by supporting local manufacturing.

The address lasted about 20 minutes and was preceded by suspenseful speculation on social media, with users guessing topics from foreign policy to economic stimulus.

The prime minister praised the GST Council's collaborative efforts, noting that the reforms reflect inputs from all states and embody "cooperative federalism." He called on state governments to leverage the changes to attract investments and boost manufacturing, aligning with the Atmanirbhar Bharat initiative. 

Finance Minister Nirmala Sitharaman, in a follow-up briefing, detailed that the new structure would cover over 80% of consumer goods, with exemptions or zero-rating for essential health and education items.

Key highlights from PM Modi's speech

Modi enumerated several benefits of the reforms, framing them as a "double bonanza" for the poor and middle class. He stated that reduced rates on food items like pulses, vegetables and dairy would lower household expenses by 10-15%.

In comparison, medicines and health insurance premiums would see up to 18% cuts, making healthcare more accessible. The prime minister highlighted the "GST Bachat Utsav"—a promotional campaign running through the festive season—to educate consumers on savings and encourage digital compliance via the GST portal. "This Navratri is special," he remarked, linking the reforms to cultural festivities and women's empowerment, noting that schemes like free sanitary products under the new slabs would benefit millions.

On economic growth, Modi asserted that the reforms would "accelerate India's growth story" by stimulating demand, reducing input costs for industries and fostering a competitive environment. He pointed to MSMEs, which employ over 12 crore people, as key beneficiaries, with simplified filings and lower taxes expected to revive sectors hit by global slowdowns.

Prime Minister Modi also urged a "Make in India" push, saying, "What can be made in India should be made within India itself," to cut imports and boost exports. He projected that these changes could add 0.5-1% to GDP growth over the next fiscal year, aligning with the Reserve Bank of India's estimates.

Reactions from stakeholders and experts

The announcement elicited widespread praise from industry bodies. The Confederation of Indian Industry (CII) welcomed it as a "game-changer," predicting a surge in consumer spending during Diwali and beyond, potentially adding Rs 1 lakh crore to retail sales.

Ficci echoed this, noting that lower rates on electronics and automobiles could revive manufacturing hubs in Tamil Nadu and Maharashtra. MSME representatives hailed the reduced compliance as a relief from "tax terrorism," with simplified e-invoicing set to cut paperwork by 50%.

Opposition parties offered mixed responses. Congress leader Rahul Gandhi criticised it as "too little, too late," arguing that the reforms fail to address farmer distress and rising unemployment, demanding a rollback of GST on agricultural inputs.

West Bengal Chief Minister Mamata Banerjee, a vocal GST critic, accused the Centre of undermining federalism by imposing changes without adequate state consultations.

Economists like Arvind Subramanian, former chief economic adviser, cautioned that while simplification is positive, revenue neutrality must be ensured to avoid fiscal deficits, estimating a short-term loss of Rs 50,000 crore.

Reactions on the social media platform X were buoyant. # GSTReforms trended as users shared memes of "Bachat Utsav" bargains and praised Modi's timing with Navratri. One post quipped, "From GST confusion to celebration—Modi's masterstroke!" while critics highlighted potential price hikes on luxury items to offset losses.

Economic impacts expected

The reforms are expected to invigorate consumption, which constitutes 60% of India's GDP, by putting more money in consumers' pockets. With inflation at 5.4% in August 2025, lower taxes on essentials could ease cost-of-living pressures, particularly for low-income households spending 40% of their income on food.

Industries anticipate a manufacturing boom, with reduced input tax credits streamlining supply chains and attracting foreign investment under the Production Linked Incentive scheme. The housing sector, sluggish due to high rates, could see a revival with cheaper construction materials, potentially adding 1-2 million jobs.

Challenges remain: States like Kerala and Punjab, reliant on GST revenues, fear shortfalls and demand higher compensation cess. The GST Council will finalise details, meeting next on 25 September, including slab adjustments for services. Globally, the move aligns with India's G20 presidency goals for inclusive growth, potentially influencing trade partners like the EU in ongoing FTA talks.

Broader context and future outlook

These reforms mark the most significant GST overhaul since its 2017 launch, addressing long-standing criticisms of multi-slab complexity that hampered compliance. Modi reiterated GST's success in unifying India's market, with collections hitting Rs 1.8 lakh crore monthly this year. 

As India eyes a $5 trillion economy by 2027, these changes could accelerate progress, but sustained monitoring is essential to mitigate inflationary risks from festive demand. With "GST Bachat Utsav" underway, the coming weeks will test consumer uptake, setting the tone for Modi's third-term economic agenda.

Prime Minister Modi's GST reforms promise a leaner, more consumer-friendly tax system, poised to fuel growth while navigating federal and fiscal hurdles. As Navratri begins, India's economic festival may usher in a season of savings and self-reliance.