GST Reforms Spark Debate Over Fiscal Impact and Stimulus

On August 28, 2025, the GST Council is preparing to meet in the coming days to discuss the next generation of GST reforms. The primary focus of these reforms is to simplify the tax rates, reduce the number of slabs, and make life easier for both consumers and businesses.

The proposed changes could lead to lower taxes, which in turn could mean cheaper goods, more consumer spending, and a much-needed boost to the Indian economy. However, this potential stimulus comes with a significant trade-off, as states that rely heavily on GST revenue could face serious shortfalls.

According to estimates by SBI and Ambit Capital, the combined loss for the Centre and states could range from ₹70,000 crore to ₹1.8 lakh crore per year. Ambit Capital calls this a deliberate "fiscal stimulus," similar to the recent income tax cuts, and believes that the impact on GDP could be an increase of 20-50 basis points if the price drops reach consumers without the government cutting spending.

Not all states will feel the pain equally, though. Consumption-driven states like Karnataka and Tamil Nadu may actually benefit from the reforms, while debt-heavy states like Punjab, Bihar, and West Bengal could face serious stress, as GST makes up more than 40% of their tax revenue. Maharashtra, with its large deficits, may also see short-term gaps.

The upcoming GST Council meeting on September 3-4 will be crucial, as some states may oppose the proposed rate cuts or demand additional compensation, especially those heavily reliant on GST revenue. The Council's decision will have far-reaching implications for both the Centre and the states, and the ability to reach a consensus will be critical to the successful rollout of GST 2.0.