The Narendra Modi Government is in a hurry, and for all the good reasons. An income tax cut for all those earning up to Rs. 12 Lakh per annum and rejigging the GST slabs in the same calendar year are signs of intent and commitment.
The Modi Government wants people to consume more, for people to be able to afford more, for MSMEs to be able to sell more, and for small entrepreneurs to be able to manufacture more. The 7.8 per cent growth rate in the first quarter of the ongoing financial year has furthered the government’s reform spirit. A government too eager to get the job done is a stellar sign for the fastest-growing economy in the world.
The GST reforms are generous, simplified, and timed well for various reasons. Firstly, the states are willing to squander short-term gains for long-term benefits. While some analysts are fixated on the revenue loss theory, factoring in the fiscal health of the state governments, the truth is that the simplified reforms are only going to increase consumption, thus expanding the tax base. The timing is of the essence here. To have the rates in effect from September 22, 2025, ahead of the busiest quarter of the year, which has the bumper Diwali sales, shows urgency.
The first gainer is the automobile sector. The reduced slabs benefit the automobile sector by enhancing affordability and stimulating demand. For small cars and two-wheelers, the shift from 28 per cent GST plus cess (up to 29%) to a flat 18 per cent rate without cess lowers ex-showroom prices by 8-10 per cent, making entry-level vehicles more accessible to budget-conscious buyers and potentially reversing recent sales slumps in the sub-4m segment.
Mid-size SUVs and sedans see effective taxes drop from 50 per cent to 40 per cent, reducing on-road costs by 6-7 per cent and boosting festive season purchases. This reform simplifies compliance, cuts operational costs for manufacturers, and encourages investments in production and innovation, such as electric vehicles, remaining at 5 per cent GST. The automobile industry is expecting a sales surge of 10-15 per cent in the ongoing financial year. However, it’s more about the households that are now closer to their first car purchase.
The Modi Government’s GST reforms have exempted cancer drugs and rare disease medicines from GST, reducing the rate to zero on 33 specified life-saving drugs to enhance affordability and access. This complements earlier customs duty cuts. The 2023 Budget exempted import duties on rare disease drugs, while the 2024 Budget waived duties on three key cancer medications like Trastuzumab Deruxtecan.
The 2025 Budget further expanded exemptions to 36 additional life-saving drugs, alleviating financial burdens for patients amid high treatment costs. These measures aim to boost healthcare equity, reduce out-of-pocket expenses, and support the pharmaceutical sector’s growth.
The biggest move will be seen in the fast-moving consumer goods. One of the recent surveys on monthly per capita expenditure stated how people in India’s villages were spending more on non-food items, including processed foods and lifestyle products. The rejig aims to further enhance the demand for these goods.
The new slabs slash rates from 12-18 per cent to 5 per cent on essentials like soaps, shampoos, detergents, packaged snacks (e.g., sev, namkeen), and groceries, directly benefiting consumers by lowering grocery bills and enabling larger pack sizes or promotions from companies like HUL and Parle.
Other consumer goods, including appliances such as air conditioners, TVs, and washing machines, see similar cuts, making them 10-15 per cent cheaper and more accessible. These reductions free up disposable income, stimulating demand.
The GST reforms also address another longstanding demand: cutting down the GST on insurance premiums. The reforms slashed the GST rate on individual life and health insurance premiums from 18 per cent to zero, effective September 22, 2025, providing significant relief to all income groups.
This exemption applies to term life, endowment, ULIP, and individual health policies, exempting them entirely while group policies remain taxable. By eliminating the tax component, premiums drop by up to 18 per cent, making coverage more affordable for middle-class families and low-income groups, where insurance penetration stands at just 4 per cent for life and under 1 per cent for health. This enhances coverage by encouraging higher uptake, reducing out-of-pocket expenses during medical emergencies, and promoting financial security.
Already, industry commentators are predicting a 10-15 per cent surge in policy sales, fostering a healthier insurance ecosystem and supporting the government’s goal of universal health coverage. The government has done its duty. It’s time now for the insurance companies to pass on the benefits to the consumers.
Prime Minister Narendra Modi, in his address from the Red Fort on August 15 earlier this year, spoke about ushering in a complete overhaul of the GST framework. Less than three weeks later, his government has delivered. The ongoing year has been one of the productive spells for the government, given the critical moves on the legislative and policy front.
The excitement and anticipation within the industry will only grow now. The markets have already responded positively. Now, everyone will be looking forward to the second half of September when the Diwali shopping begins. The government has already supplied the gifts. It’s time for the populace to go shopping.
