By Manash Ranjan Debata
The September 21st GST reforms aim at turbocharging the Indian economy, driving consumption to new highs, cashing on the festive season, and more importantly absorbing the tariff shocks. Will Modi succeed?
In what’s viewed as an economic masterstroke, PM Modi gifted the nation a much needed GST reform yesterday. After Trump’s tantrums attempted to derail a well-progressing Indian economy by levying targeted unreasonably heavy tariffs on Indian exports and an all-out International pressure to isolate India for buying Russian oil, Modi did what he always does best — surprising his adversaries and looking inside the country to rediscover national strength.
The GST reforms of September 21st by PM Modi aims at turbocharging the Indian economy, driving festive consumption to new highs. With the GST reductions kicking in from today, prices of kitchen staples to electronics, from medicines and equipment to automobiles, will get cheaper. 2025) as the reduced Goods and Services Tax (GST) rates on about 375 items come into effect. In a festive bonanza to consumers, the GST Council, which includes Centre and States, decided to reduce tax rates on goods and services, from September 22.
If you look at the timing, it’s the the starting point of India’s much vaunted festive season. In fact, the first of the Navaratri starts from 22nd September, with Dussehra and Diwali winking at a distance. Doubtlessly, reduced GST means more firepower in the hands of the consumers. This is likely to shoot up consumer sentiments and in turn shape the mood of the market. Amidst global uncertainty, ‘Aatmanirbharta’ is the only goalpost that the PM wants us to rely upon. As the PM puts it, “We don’t have any enemies in the world except our reliance on other countries for anything.” Indeed, if we look deeper this was the key reason China was spared by Trump while we were levied a stiff 50 percent tariff by America. China can fight back because it controls the global supply of rare earth – a critical mineral without which American EVs and defence equipments can be crippled. Besides, China has a robust manufacturing base which earns it the ‘workshop of the world’. Neither America nor Europe is in a position to threaten China. If they do, they would be counter levied.
“This time, this auspicious occasion of Navratri is very special. Along with the GST Bachat Utsav, the mantra of Swadeshi is going to receive new energy during this period. Let us come together in collective efforts for the fulfilment of the resolve for a developed and self-reliant India.”
– Narendra Modi, Prime Minister of India
Already, Indian textiles and jewelley sector are bleeding because of Trump tariffs. Last week’s hike of H1B Visa to a staggering $100000 is a death blow to Indian talents hoping to get a key foothold in USA, chasing the American dream. What should India do then? Well, we have to activate our startup ecosystem and see to it that we grow a thousand unicorns. The government has to handhold the promising startups, especially the deep-tech startups and defence startups and see to it that they produce in India for the world. The tariff hit Indian exports has to be diverted to new markets to lessen dependency on the US. The GST reforms is just a proper step in the right direction to absorb the tariff shock. GST 2.0 will help spur domestic consumption and take pressure off the Indian exporters.
Similarly, India needs to take steps to explore new markets to place Indian IT talent and help those non-American markets grow. We should be worried but should not be tense. We are the talent capital of the world. Top global firms need us as much we need them. India should create space to absorb out-flowing talent to script its own growth story. The likes of Nadellas and Pichais should be nurtured and utilized for our own growth. Make in India for the world is the way ahead. We must encourage Indian unicorns to spread wings globally.
Let’s have a look at the breakdown of the recent GST reforms in India and how they could kickstart the economy, especially the IT/tech sector — including both opportunities and pitfalls.
WHAT EXACTLY CHANGED
Some key features of the GST reforms (also called “GST 2.0”) are:
- Simplification of GST slabs: the tax structure has been rationalised from four slabs (5%, 12%, 18%, 28%) to mainly two (5% and 18%), plus higher rates for luxury or “sin” goods.
- Many goods and services, including everyday consumables and essential items (like toiletries, packaged food, kitchenware) have seen GST rate cuts from 12‐18% to 5%.)
- Some goods that were taxed higher have been moved into the lower slab (e.g. small cars, electronics) or reduced.
- Specific reliefs: exemptions (or lower rate) for life and health insurance; faster/clearer refund and compliance processes; better clarity on classification of exports/intermediary services.
- Government projecting a stimulus of about ₹2 lakh crore into the economy via these rate cuts etc.
KICKSTARTING THE INDIAN ECONOMY
Boost in consumption
Lowering GST on many consumer goods → lower prices → higher disposable income, especially for middle & lower‐income households. Increased purchasing will help sectors from retail, FMCG, consumer electronics to automobiles.
Lower inflationary pressures
With tax cuts, price pressures on essentials ease. That helps households and also helps in keeping interest rates more stable. Investors and companies benefit because cost of goods/services is slightly less volatile.
SMEs/MSMEs benefit
Simplified slabs and lower rates reduce compliance burdens. MSMEs spend a lot of effort in accounting for different GST slabs and chasing refunds. These reforms reduce that friction. That can free up working capital, more predictability.
Domestic manufacturing gets a push (“Make in India”)
Lower input costs and simpler taxation helps Indian manufacturers, including hardware, electronics. That encourages domestic production, investment in capacity.
Exports and global competitiveness
Clearer rules for exports/intermediary services, faster refunds, “zero‐rating” of exports makes Indian IT / software/ services more competitive.
Improved investor confidence
Policy clarity tends to increase confidence. When businesses know rules are simpler and rates more predictable, they are more likely to invest, expand.
Fiscal trade‐offs
There will be some short‐term revenue loss, and possibly a slight rise in fiscal deficit. But projections suggest growth benefits and higher consumption will more than offset this over a few years.
IMPLICATIONS FOR INDIAN IT
So what would be the implications for IT sector. How would GST 2.0 benefit the software, services, telecom, and the enterprise networking sectors. Will it also throw some challenges? Let’s examine them one by one:
Benefits:
- Zero‐rated exports / input tax refund improvements
Some revisions clarify that intermediary services are treated based on customer location, making more services qualify as exports. That means such services can be taxed at zero GST, allowing input credits and refunds, improving cash flow. - Lower input costs for hardware, software tools, infrastructure, etc.
If hardware or software goods/tools used by tech firms are now taxed at lower rate, cost of setting up servers, data centers, buying equipment etc. comes down. This helps especially for startups or smaller companies. - Reduced compliance burden and tax litigation
Simpler slabs, clearer rules, less ambiguity mean fewer legal disputes and less time/money spent on tax compliance. Frees up resources to focus on core business. - Boost in domestic demand for tech products
As consumer goods like TVs, electronics, appliances become cheaper, there’s likely higher demand. That benefits companies involved in software, apps, services that go with devices. Taking advantage of increased hardware sales + ecosystem growth. - Better attractiveness for foreign clients
When costs are lower, and export rules more favourable, Indian IT firms can price more competitively. That can help in winning global contracts. Also helps in FDI inflows into tech. - Scale & hiring
With more demand domestically and from exports, companies may scale more, hire more, expand operations. Good for job creation.
CHALLENGES FOR IT SECTOR
Inverted duty structure
For some sectors, inputs may still face higher GST or be taxed differently, creating inverted duty issues where the raw materials or components are taxed at higher rates than finished goods. That hurts margins and working capital.
Pass‐through to consumers not guaranteed
Just because rates are cut doesn’t always mean retailers or companies will lower their end‐price immediately or fully. Some part of the benefit may be absorbed by supply chains.
Revenue loss & fiscal pressure
Norms of governance and state finances mean some states may need to cover for reduced GST revenue. There might be pressure to raise other taxes or reduce spending. If those trade-offs hurt infrastructure or education, it might hurt long term growth.
Adjustments period
Businesses will need to adapt — updating billing systems, accounting software, compliance processes. There will be transitional costs (training, audits, system upgrades). Might be more burdensome for small firms.
WILL IT SPUR GROWTH?
Putting together all the above, here are ways these reforms can catalyze a significant upturn, especially in tech & exports:
- By lowering barriers for MSMEs and small tech startups to export, India could see a wave of smaller companies entering the global services market.
- As hardware becomes cheaper and demand for devices, IoT, home electronics, etc. increases, there’s potential for domestic value‐chains (local manufacturing, assembly, design) to expand, which can reduce import dependence.
- Increased consumption strengthens the domestic market, which provides a buffer against external shocks (e.g. when exports slow).
- Better tax clarity & faster refunds improve cash flows, enabling firms to reinvest in R&D, hire, scale.
- The reforms might attract more foreign clients or investment into Indian tech (both for software services and for product / hardware businesses).
CAUTIONS
- Ensuring transparency and speed in refunds, input credit. Delays or blockages could negate many benefits.
- Making sure that businesses actually pass on the tax cuts to consumers; otherwise inflation or markups will absorb them.
- Keep an eye on how GST reforms interact with other policies (e.g. import duties, subsidies, foreign trade policy, labour laws). Holistic ecosystem matters.
- Ensuring state governments are on board, because GST is a shared tax structure; differential impact across states could lead to mismatch or friction.
- Maintaining fiscal discipline so that government deficits do not balloon in ways that could lead to inflation or less ability to invest in infrastructure or human capital.
To conclude…
To conclude, if everything works, we can safely expect a bump in GDP growth over the next 1–2 years thanks to higher domestic demand. Some analysts have already predicted up to 0.7 percent rise in GDP. The IT industry or even the export sectors will grow faster, giving rise to new smaller players. This will also boost up the domestic hardware, telecom and the electronics sectors. More consumption led growth in middle and small towns, especially as essentials get cheaper, will drive the growth rally. Let’s hope a self-sustaining India emerges more confident, turning an adversity into real, tangible and helpful opportunity, essaying a permanent change, so that we can negate the evil effects of a trade war by a foreign power.
