The festive cheer, it is hoped, would get louder after the GST Council in a unanimous decision — finally — announced the rationalisation of rates for the goods and services tax regime that was a tangled maze. A new two-tier tax slab, comprising 5% and 18%, has now replaced the older, four-slab edifice. The constituencies that appear to have been the focus of the exercise include middle-class consumers, farmers and labour intensive industries. Thus, the tax rates of a wide basket of fast-moving consumer goods and consumer durables — items of personal use, packaged food, beverages, bicycles, air conditioners, televisions, small cars and so on — have been lowered. The intent is obvious: spur consumption growth in an economy that has shown signs of sluggishness, notwithstanding the impressive rate of growth in the gross domestic product in the first quarter of FY 2025-26. Moreover, even though the finance minister, Nirmala Sitharaman, dismissed speculation about the association of the GST jig with Donald Trump’s punishing tariffs on India, there is a line of thought that argues that this bid to boost consumption, along with the rate cuts announced by the Reserve Bank of India and reforms in income tax, would spur economic growth and act as a protective buffer against external shocks such as the tariff war by the United States of America. The onus now should be on passing the benefits to the consumer at the earliest. An additional benefit is the seamless organisation of the tax slabs to avoid disputes pertaining to the classification of goods into tax brackets. The reduction and, in some instances, exemption of GST on certain kinds of life saving drugs and medicine as well as the GST immunity to life and health insurance products are also wise steps in a country faced with a considerable expenditure burden in healthcare.

Some issues, however, warrant attention. There is, quite obviously, a projected impact on revenue streams of states on account of the altered GST tax slabs. In fact, the states have demanded an extension of compensation for a further five years to protect their revenues. This demand needs to be examined. This is because it would be reductive to view the GST mechanism through the prism of cold finance and taxes only. The mechanism could also be perceived as a key element in the architecture of India’s cooperative federalism. This spirit too demands a reform for the better.