Abstract

The Goods and Services Tax (GST), implemented in July 2017, represents a landmark indirect tax reform in India aimed at unifying the tax regime, eliminating cascading effects, and enhancing revenue buoyancy. Building upon this foundation, the introduction of GST 2.0 in September 2025 marks the most significant overhaul since its inception. Approved by the GST Council in its 56th meeting and effective from September 22, 2025, the reform rationalises the previous multi-slab structure (0%, 5%, 12%, 18%, and 28%) into a simplified two-slab system—primarily a 5% merit rate for essential goods and an 18% standard rate—with a 40% de-merit rate applied selectively to luxury and sin goods. Additional exemptions (Nil rate) were extended to critical items such as UHT milk, certain breads, life-saving drugs, and individual life/health insurance. This paper provides a comprehensive examination of the structural changes introduced under GST 2.0, its macroeconomic impacts on GDP growth, inflation, government revenue, employment generation, and formalisation, as well as sectoral dynamics across FMCG, automobiles, construction, MSMEs, textiles, and services. Drawing on official data from the GST Council, PIB, CBIC, RBI reports, MoSPI, Economic Surveys, and industry analyses up to mid-2026, the study evaluates early post-implementation trends. Preliminary evidence indicates positive impulses on consumption and economic growth, moderated inflationary pressures (estimated 30–90 basis points decline), and improved ease of doing business through reduced compliance burdens and fewer classification disputes. However, short-term revenue pressures, estimated net fiscal loss of around `45,000–93,000 crore (partially offset by higher volumes and the 40% slab), pose challenges for fiscal federal coordination. Long-term benefits are projected to materialise through enhanced tax buoyancy, supply chain efficiency, MSME competitiveness, and consumption-led growth, contingent upon effective benefit pass-through to consumers, robust compliance mechanisms, and seamless Centre-State fiscal arrangements. The reform’s success will significantly influence India’s trajectory toward a more efficient, inclusive, and resilient economy.

Keywords: GST 2.0, Tax Rationalisation, Indian Economy,, Consumption-Led Growth,, Fiscal Policy,, MSMEs