Daybreak - One year of GST 2.0. Who's it working for?

Episode Date: September 21, 2026

One year ago, GST 2.0 rewrote the tax on almost everything Indians buy — from soap to cars. It promised a simpler system and cheaper shopping. Twelve months on, we ask the obvious question: is it working? Tune in.Tap here to help us make The Ken's  Daybreak X First principles Autumn Playlist 

I have something to ask of you before we start. You know, there is a word for the particular kind of autumn season that we experience in India. It's called Sharath. And Tagore came back to it again and again in his work. And it has very little to do with the Hollywood-inspired image that we have of red leaves and yellow leaves and pumpkin-spice latte. Sharath is the season that comes after the rain. The sky suddenly looks bigger, the colours look brighter. If you pass by any riverbank, you will see white cash flowers blooming, glistening in the sunlight.

There is this refreshing feeling that the world has been washed clean. And that is the feeling that we're chasing. For the first time, my colleague and the Ken's CEO, Rohan, who writes our wonderful Sunday newsletter First Principles and I, from Daybreak, are making an autumn-inspired playlist built by you. So tell us, what does autumn feel like? where you are. What's the little thing that tells you that it has arrived? And what is the one song that sounds like autumn to you? Tell us why that song matters to you as well. We might

read your answer on daybreak or even feature it on first principles. It won't take more than three minutes, I promise. The link is in the show notes. I can't wait to hear from you. And now, on to today's episode. Today marks one year since India rewrote the way we pay tax on almost everything that we buy. On the 22nd of September 2025, the biggest overhaul of GSD, the goods and services tax since it began in 2017, came into force. The four main tax labs were compressed into two, 5% and 18% with a separate 40% rate for luxury and sin goods. It touched almost every shelf. The government cut the tax on hundreds of everyday things. Soap, shampoo, toothpaste, package food, TVs, ACs, small cars, individual health and life insurance premiums were

made completely tax-free. The idea was to do two things at once. Make the tax system simpler and make it cheaper to buy things. The government estimated that the changes would have an annualized revenue implication of about 48,000 crore rupees based on a 2023-2024 consumption base. In return, it expected the lower tax burden to feed into consumption. One widely cited estimate from SBI research put the potential demand boost to close to two lakhuro rupees. At the time, one much circulated calculation put the potential savings for a middle-class household at $15,000 to $17,000 a year.

Just to make it clear, this came from a constructed basket of $15,000 rupees of monthly household spending. So it was an illustration of what was possible, not an estimate of what an average family could save. And the government says that the experiment worked. The finance ministry says that it tracked 54 everyday products, brand by brand, and found that the benefit of the lower rates had been fully passed on to customers. It has also pointed to strong festive sales and record auto sales as evidence that the cuts helped to unlock demand. But away from the press conference, at the Kirana store, at the chemist shop, a lot of Indians still feel like the tax came down, but the bill did not quite follow.

And then there's also a second question. Did GST 2.0 did the bigger thing that it was designed to do? Because this reform was also meant to make GST itself simpler for businesses, cutting the number of slabs and clearing up the classification tangles that made the tax hard to navigate. And the timing matters too, because in two weeks on the same, 7th of October, the GST Council will meet again. And this time, the focus is expected to be the next layer of the reform, which is the processes, compliance and the rules sitting underneath the rates. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma,

and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Vargheese and I will come to you with one business story that's worth understanding and worth your time. Today is Tuesday the 22nd of September. Two big promises buried in GST 2.0. One was that your shopping would get cheaper and then second was that the tax itself would get simpler to deal with. Let's start with the first because we have some early evidence. NIPFPP, which is a public finance research institute set up with the finance ministry

and other government and academic bodies, looked at the government's own consumer price index data. The CPI basically is a measure of how the prices people actually pay for a basket of goods and services move over time. The researchers took 355 items and compared their average CPI in the four months before the reform, which was May to August 2025, with the four months after it took effect to October 2025 to January 26. So this is not the MRP printed on one's shampoo bottle before and after, It is how the prices across these categories moved. And the pattern is quite striking. For some of the biggest purchases that we make,

the data lines up with the effects of the tax cut being passed on. The GST on motor cars and jeeps fell from 28% to 18%, and their consumer price index or CPI fell 7.5%. For air conditioners too, it fell from 28 to 18%, and the CPI was down by 6.4%. CPI for motorcycles and scooters also down by 5.19%. Now look at the things that you buy without thinking, the everyday stuff. Hair oil went from 18% to 5% under the new GSD slab,

which was one of the steepest cuts in the whole exercise. But its CPI rose 2.77%. Shampoo, conditioner, hair products also cut to 5% and their prices went up by 1.07%. 07%. Toilet soap, body wash, hand wash, all up by 0.66%. I'm talking about CPI still. Same with toothpaste, mouthwash, toothbrushes, the CPI was up by 0.7%. And the paper's medicine category, despite the rate cuts, rose 0.38%. So, you see, what happened to the price depended almost entirely on what you were buying. Now, a word of caution here about what this can and cannot

show, the think tank calls these early signs, not a definitive causal estimate, which means prices can also move on input costs, supply chains, demand, inventory and the company's own pricing calls. But there is a pattern here. It found that food, household and personal care products often rose after the reform, while many durables and automobiles fell, and it calls the transmission of the cuts incomplete and commodity specific. So, to understand that gap, we need to follow the tax cut from the factory to the shelf and ask what actually gives a company a reason to pass it on. More on that in the next segment. A part of the answer is that a tax cut is not worth the same to every business. A car is a big

ticket buy. You can postpone it, you can compare models, negotiate, you can switch brands, but a lower price can genuinely tip your decision. So a car maker has every reason. So a carmaker has every reason to pass the cut on and win the sale. Shampoes, on the other hand, work differently. You might glance at the price, but you're usually buying a product that you will use all the time from a brand that you have already settled on. A few rupees either way rarely changes whether you buy it or not. NIPFP, the think tank, makes the same point.

Goods with more price-sensitive demand, like cars and durables, give sellers a stronger reason to pass on the benefits of the tax cuts and stimulate the sales. For essentials, that incentive is weaker. And then there is everything between the factory and the checkout. Companies may be sitting in on stock made before the rate changed. Inputers move all the time. Distributors and retailers have their own margins, and firms raise or hold prices for reasons that have nothing to do with GSD. NIPFP itself flags input costs, supply chain rigidities, demand conditions, inventory and pricing decisions as factors in what you finally pay. And the paper raises one more possibility, the most uncomfortable one,

and it puts it carefully. In categories where only a few brands dominate the shelf and where shoppers tend to stick with what they know, the think tank says that the presence of market power, even tacit coordination between firms, cannot be ruled out. In plainer, terms, where a company knows that you're unlikely to switch, it can quietly keep the tax cut instead of passing it on to you with little competitive pressure forcing its hand. The paper does not say this is what happened, but it says that it cannot be ruled out. But it is the one explanation that points not at supply chains or input costs, but at the companies themselves. So, the cut does not move through a system like a fixed discount.

What reaches you depends on the product and on the market around. it. And there is a reason to think that that gap has only widened since. Also important to note is that the NIPFP, the think tank, took its snapshot between October 2025 and January 26, which was one of the calmest stretches for prices in years. Retail inflation was near multi-year lows. So it caught the reform at its most flattering moment. And even then, the everyday shelf did not get cheaper. And you know what happened in February 26, the US and Israel war on Iran broke out. Naturally, conditions have turned since. By August 2026, retail inflation was back up to 4.8% which was the highest in more than a year and a half, with food inflation itself close to 6%. And the government's own

daily price data now shows the staples climbing. I covered both the price rise of sugar and cooking oil on daybreak a couple of weeks ago. I will link it to the show notes of the this episode. Just to give you a clearer picture, let us follow one product the whole way. When GST 2.0 arrived, Karnataka's Nandini brand cut a liter of ghee from 650 rupees to $610, which was a discount that you could see on the label. This year, that same liter of ghee climbed to $700, which was higher than before the tax was ever touched. The Dairy Federation blamed global prices, not GSD. But that's exactly the point that I'm trying to make. The relief showed up for a moment and then everything else swallowed it.

So a year-on for the things that fill an ordinary basket, the shelf is still just not cheaper. It is dearer than before. But there was also a second promise in GSD 2.0. And this one aimed at businesses inside that supply chain. The government wanted the tax itself to get simpler for them. And that did happen. Four main slabs, 5% 12%. 18 and 28% became 2. 5% and 18% plus the separate 40% rate, which the government says cuts down the classification fights that clogged the system. There were process changes as well, an optional scheme giving eligible low-risk businesses automatic registration within three working days. The government says that it could cover about 96% of new applicants and risk-based provisional

refunds to return money faster. And businesses do recognize this progress. A Deloitte survey of business leaders released in mid-20206 to mark nine years of GST overall found that more than 99% reported a positive or neutral experience with compliance-going digital named as a single biggest win by 69%. The same survey, though, shows where the friction moved. 87% wanted clearer rules on how tax is interpreted. 77% flagged refund delays and 57% pointed to input tax credit disputes. But that is the view from the top of the market.

For the smallest businesses, going digital itself is the hurdle. Only about a third of rural enterprises use the internet for businesses at all. And the way input tax credit works, a small form can find its own legitimate refund blocked simply because a supplier further up in the chain filed something wrong. Even in that Deloitte survey, it is the smaller businesses pushing hardest on cash flow. Nearly 9 and 10 want interest paid automatically when a refund is delayed. There is also a bigger bill in the background.

The states. Since 2022, they've absorbed the swings in GSC revenue with no compensation cushion. Ahead of this reform last year, several states had asked for that protection back, and the council did not commit. For now, strong collections have carried the shortfall, but unevenly, with the richer manufacturing states riding the buoyancy and consumption-heavy ones more exposed. So, one year in, the rate chart is simpler. Some processes are simpler.

The system is also far more digital. But the hard parts have not disappeared. They have just moved into interpretation, refunds, input tax credits and audits, and into the shelf, where the cut, went missing. And also on to the states that are now carrying the cost. Which leaves the reform whose clearest wins are the ones that you can see on the rate card. While whether you actually feel it still depends on what you're buying, how big your business is and where in the system you happen to sit.

Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of a subscriber-only offerings and a full subscription offers daily, long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted and produced by my colleague, Nika Sharma, and edited by Rajiv CN.