GST 2.0 reinforces India’s credibility on the global stage

The recent decisions by the GST Council mark an important turning point in India’s economic journey. The adoption of a simplified two-tier structure of 5% and 18%, with a higher 40% rate for luxury and sin goods, is not just a rate revision. It represents a significant step towards aligning India’s tax system with global best practices and building a foundation of trust and predictability for the years ahead.

The importance of this reform lies not only in its simplicity but also in its timing. India is at an inflection point—an economy that has grown to become the world’s fifth largest but still grapples with challenges of compliance, informality, and uneven competitiveness. A more coherent and streamlined GST framework provides the clarity required for India to move decisively into its next phase of growth.

As we look across the world, there are clear lessons on how simplification drives efficiency. The European Union’s VAT reforms demonstrated how consolidation of rates led to compliance improvements of close to 20%. ASEAN countries that moved towards fewer, more rationalised slabs observed more predictable investment flows and greater stability in collections. These experiences underscore that clarity in tax policy reduces disputes, improves revenue buoyancy, and fosters trust among businesses. India, through GST 2.0, has taken a similar step forward.

By eliminating inverted duty structures and phasing out the compensation cess, the council has created a more coherent system. This clarity is particularly important for investors who seek transparency and predictability. It signals that India’s fiscal policy is maturing in line with the scale of its economy. For global capital, predictability is as valuable as cost competitiveness. GST 2.0 provides that reassurance by reducing distortions that discouraged long-term commitments in the past.

For Indian enterprises, competitiveness is shaped not only by innovation and scale but also by the certainty of the tax environment. Rationalised rates reduce the friction that often erodes margins, particularly for sectors with high capital expenditure. Improved input credit flows free up resources for investment and innovation. This is a crucial step for businesses—from healthcare to digital services to manufacturing—that must operate within a globally competitive framework. It also provides a level playing field where smaller firms can integrate into supply chains without being penalised by inefficiencies in the tax system.

Beyond improving competitiveness for enterprises, GST 2.0 also benefits critical sectors such as healthcare. The rationalisation of rates on life-saving drugs and medical consumables, along with lower GST on construction inputs such as cement and fly ash bricks, will ease costs for patients and providers alike. Coupled with the Union Budget’s tax cuts and 100% FDI in insurance, these steps create a strong platform for affordable healthcare and wider insurance adoption. They also reinforce India’s edge in medical tourism by enhancing cost competitiveness and capacity, enabling the country to serve both domestic and international patients more effectively.

Trust, too, is an important form of capital. Countries that have simplified their tax regimes have historically seen stronger capital inflows because investors value transparency. GST 2.0 builds such confidence for India. For small and medium enterprises, lower compliance costs matter as much as lower rates. By making it easier for MSMEs to comply, the reform draws more firms into the formal economy, broadens the tax base, and strengthens governance. Over time, this formalisation deepens the link between growth, taxation, and public services, creating a healthier social contract.

Simplification also strengthens fiscal health. With GST 2.0 expected to increase annual collections by ₹1.8–2 lakh crore, the government gains valuable fiscal space to invest in infrastructure, social security, and public health. Higher compliance reduces evasion and builds a more transparent system that benefits citizens and businesses alike. For a country investing heavily in roads, railways, renewable energy, and healthcare, this fiscal resilience is critical.

This reform must be seen as part of India’s broader economic trajectory. As global capital looks for reliable destinations, GST 2.0 signals that India is ready to match international standards in fiscal governance while continuing to prioritise inclusive growth. It tells investors that the country is serious about making taxation less arbitrary, households that affordability is being considered, and businesses that predictability is now embedded in the system.

For households, the reform delivers affordability. For businesses, it brings predictability. For investors, it builds trust. Taken together, these measures create a virtuous cycle of higher consumption, greater investment, and stronger fiscal resilience. Each of these outcomes is mutually reinforcing: affordability fuels consumption, predictability encourages expansion, and trust draws capital—all of which strengthen India’s growth momentum.

GST 2.0 is not merely a tax adjustment. It is a reform that places India firmly within the framework of global best practices while reinforcing our unique path of demand-driven, inclusive growth. By simplifying rates, eliminating distortions, and strengthening compliance, it lays the groundwork for a more competitive, transparent, and resilient economy. In doing so, it not only responds to present challenges but also positions India more confidently on the global stage.