A game-changer for India’s manufacturing sector, ETManufacturing

GST 2.0 seeks to change that narrative. Built on three pillars—structural reforms, rate rationalisation, and ease of doing business—the new framework promises a cleaner, simpler system. The Indian manufacturing industry today is at an interesting crossroads. Global headwinds with the tariff war, supply chain disruptions, and rising competition are shaping new realities, while the country’s ambitions to emerge as a global manufacturing hub remain stronger than ever. Against this backdrop, the government’s announcement of GST 2.0 reforms on 15th August 2025 could not have come at a better time. More than just another tax adjustment, these reforms have the potential to simplify the system, unlock capital, and give manufacturers a better opportunity to focus on growth, innovation, and competitiveness. As the Prime Minister Narendra Modi said, “The GST reforms incorporated `Panch Ratna’ (five gems) – simpler tax system, better quality of life for citizens, boost for consumption and growth, encouraging investments and job creation through ease of doing business and strengthening cooperative federalism for developed India – to the country’s economy”.

Beyond rate cuts – A deeper overhaul

GST, rolled out earlier in 2017, consolidated a complex web of indirect taxes into one unified structure. But over time, it started facing some issues such as multiple slabs, inverted duty structures, and cumbersome compliance, especially for manufacturers who already operate on thin margins.GST 2.0 seeks to change that narrative. Built on three pillars—structural reforms, rate rationalisation, and ease of doing business—the new framework promises a cleaner, simpler system. By rationalising rates, fixing anomalies, and ensuring better utilization of tax credits, GST 2.0 is being positioned as not just a tax policy, but as an enabler of industrial progress.

Unlocking manufacturing competitiveness

For many years, manufacturers in sectors like textiles, fertilizers, and electronics were stuck with an inverted duty structure, where inputs attracted higher taxes than finished products, resulting in locking up of working capital, hampering cash flow, and making Indian goods less competitive.With GST 2.0, these structural glitches are being resolved. Manufacturers will now enjoy freer working capital and smoother tax credit flows, which means lower input costs and better pricing power. In short, companies can now make more at lower costs, and pass on the benefits to consumers. Lower prices will naturally stimulate demand, setting off a chain reaction: more consumption, higher production, and stronger economic momentum.

Sectoral impact – A broad push for growth

The reforms are expected to create ripple effects across industry sectors:

• Automotive: Lower input costs will help both auto OEMs and component makers. At a time when the industry is transitioning towards electric vehicles and cleaner technologies, this relief will help boost margins and encourage investment.
• FMCG & Packaged Food: With rationalized rates, everyday goods will become more affordable, driving higher demand and consumption. With this, manufacturers stand to benefit from scale.
• Textiles & Apparel: By addressing inverted duty structures, GST 2.0 will improve liquidity, helping Indian textile companies compete more effectively in global markets.
• Electronics & Durables: Reduced tax inefficiencies will encourage domestic production and align better with the government’s Make in India drive.
• Fertilizers & Agriculture Inputs: With lower input costs, farmers can access fertilizers and equipment more easily, strengthening the entire agri-value chain.
• Renewable Energy: Rationalized tax rates on solar and wind equipment will attract fresh investments and energize the clean-tech ecosystem.
• Healthcare & Insurance: Cheaper access to medicines, devices, and insurance coverage will expand both reach and demand, benefiting industry and society alike.
• MSMEs & Handicrafts: Simplified compliance will help smaller players, reducing paperwork and encouraging them to enter the formal economy.

Taken together, these changes promise an overall boost for manufacturing, making India more resilient and competitive on the global stage.

MSMEs – Unlocking grassroots potential

No discussion on Indian manufacturing is complete without highlighting the role of MSMEs. They account for nearly a third of GDP and employ over 100 million people. Yet, the compliance issues and high tax costs often held them back.

GST 2.0 changes the equation. Simpler compliance rules help reduce time and money spent on paperwork. Lower rates improve margins. And with more firms moving into the formal fold, MSMEs will gain better access to credit, subsidies, and global supply chains. In short, this reform will not just help MSMEs survive—it will help them thrive.

Leveraging GST 2.0 – The way forward for manufacturers

The reforms, however, are not an automatic ticket to success. Manufacturers must actively use this window of opportunity to innovate, modernize, and expand. Freed-up capital can be invested in R&D, digital transformation, and advanced production technologies that not only improve efficiency, but also boost product quality.

Equally critical is the focus on exports. With cost structures improving, Indian manufacturers have a chance to gain ground in global markets. By aligning with international standards and scaling production, companies can ensure they remain relevant and competitive in a fast-changing global trade landscape. Those who integrate GST 2.0 benefits into long-term strategies will emerge stronger, both locally and globally.

A catalyst for “Atmanirbhar Bharat”

At its core, GST 2.0 complements the government’s vision of Atmanirbhar Bharat. By fixing structural inefficiencies, rationalizing taxes, and easing compliance, it gives domestic manufacturing a clear competitive advantage. Less dependence on imports, more domestic production, and a stronger export base all align perfectly with India’s aspiration to become a self-reliant economy.

The reforms promise a triple benefit: freed-up working capital, greater investment inflows, and rising consumer demand. Together, these can accelerate job creation, encourage innovation, and help India move closer to its $5 trillion economy goal, with manufacturing as one of its strongest pillars.

Looking ahead

Of course, the real test lies in execution. Effective rollout, coordination across states, and continuous dialogue with industry are necessary to ensure that GST 2.0 delivers on its promises.

But, if implemented well, these reforms could mark the start of a new chapter for Indian manufacturing—one defined by resilience, agility, and global competitiveness. More than just a tax reform, GST 2.0 could be remembered as the catalyst that redefined India’s industrial landscape and set it firmly on the path to becoming a global manufacturing powerhouse.

• Published On Sep 15, 2025 at 02:46 PM IST

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