A Critical Analysis of PM Narendra Modi’s Claims on GST Reforms Announced on the 79th Independence Day
GST will soon adopt a two-slab structure.
Prime Minister Narendra Modi’s Independence Day speech in 2025 placed Goods and Services Tax (GST) reforms at the center of his economic vision, promising a “double Diwali gift” to the nation.
His core assertions were that GST will soon adopt a two-slab structure (down from the current four), the reforms will significantly reduce the tax burden for the common man, MSMEs, and that these changes will promote economic resilience and ease of doing business.
The Claims
PM Modi announced the introduction of Next-Generation GST reforms by this Diwali, aimed at reducing taxes on daily-use items. “The government will bring Next Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you,” he said, ensuring that these reforms directly benefit citizens and stimulate economic activity. [Source: PIB]
He asserted that GST would be radically simplified, benefiting smaller businesses, reducing the compliance burden, and lowering taxes on essential and individual requirement services. Discussions with states and a high-powered committee were cited as consultative steps.
Key proposals
- Replacement of the four current GST slabs (5%, 12%, 18%, 28%) with just two main rates: 5% for essentials/merit goods and 18% for standard goods.
- Luxury and 'sin' goods would face a 40% rate.
- Special lower rates would remain for diamonds, gold, silver; petroleum products still outside GST.
- Greater use of AI and automation to reduce compliance and speed up refunds, especially for MSMEs.
GST Performance: The Real Picture
GST collections have been consistently robust:
●July 2025: ₹1.95 lakh crore (7.5% YoY growth).
●April 2025: All-time record of ₹2.36 lakh crore.
●For over 10 months, collections stayed above ₹1.7 lakh crore, indicating a strong tax base and economic activity.
GST revenue growth by year:
| FY | Total GST Collection (₹ Lakh Crore) | Avg. Monthly (₹ Crore) |
| 2021-22 | 14.83 | 1,24,000 |
| 2022-23 | 18.10 | 1,51,000 |
| 2023-24 | 19.80 | 1,65,000 |
| 2024-25* | 22.08 | 1,84,071 |
(*Projected and partially realized)
Will Rate Rationalisation Help the Common Man and Small Businesses?
Potential Positives:
●Simplification: Reducing four slabs to two follows global best practices. Most advanced economies tax essentials at low rates and others at a standard higher rate, reducing disputes and confusion.
●Cheaper Essentials: Almost all items taxed at 12% may move to the 5% bracket, cutting prices for the public. Ex: personal care, food products, some household goods.
●MSME Relief: MSMEs, long burdened by complex compliance and working capital stuck in refunds due to inverted duty structures, will see faster refunds and a lighter compliance regime through automation and technology.
●Export Competitiveness: Resolving duty inversions and freeing up working capital could make exports more globally competitive.
●Revenue Offset by Tax Base: Experts believe the initial revenue loss from rate cuts could be counterbalanced by an expanded tax net and improved compliance.
Structured Support for MSMEs
Recent budgets and the announced GST reforms combine to provide:
- Easier compliance (digital invoicing, fewer returns)
- Lower tax burden on key sectors
- Expanded credit guarantees and increased eligibility, helping over 20 million enterprises
Are the Promises Fully Justified? The Critique
Challenges and Criticisms:
●Complex execution: Transitioning to a two-slab system is not trivial-it requires consensus with all states, may face opposition from those who risk revenue loss, and classification issues may not vanish overnight.
●Risk of inflation in some sectors: Items moving from 12% or 28% to 18%/40% rates could become costlier, though most essentials are expected to be cheaper. The impact on “sin”/luxury goods is unlikely to bother most, but some sectors could see cost hikes.
●Leakages, Compliance, and the Unorganised Sector: The GST, although credited with broadening the tax base, is still vulnerable to evasion in segments like real estate and small traders, where informal practices persist.
●Benefit Transmission: Absence of strict anti-profiteering regulation means businesses may not always pass on lower taxes to consumers in the form of price reductions.
●Petroleum outside GST: Petroleum products-as a huge input cost-remaining outside GST means a truly unified indirect tax system remains out of reach.
●Short-term Revenue Dip: Most experts note the revenue dip from rate cuts must be watched, especially for states relying heavily on GST devolution.
The Bottom Line: Are the Claims True and Do they Hold Good?
Mostly True, but Partly Aspirational:
●Factually Correct: Trends in GST revenue and compliance improvements, sustained high collections, and broad-based economic benefits support Modi’s optimistic view.
●Reform Merits Are Well-Founded: Rate rationalisation and simplification are legitimate demands, echoed by experts, and will likely benefit the economy and businesses if executed carefully.
●Implementation and Compliance Will Determine Success: For the GST reforms to fully deliver, the government and GST Council must negotiate details skillfully, ensure that rate cuts reach consumers, ease compliance for MSMEs, and keep a close eye on revenue trade-offs.
PM Narendra Modi’s claims on GST reforms rest on a strong foundation of recent GST performance, support the oft-cited demand for simplification, and hold substantial promise for MSMEs and the common man.
However, the promised “Double Diwali gift” will depend on the governance, execution, and ability of the system to ensure transparency, consensus-building, and adaptability to evolving economic realities.
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