GST Reforms Empowering India’s MSMEs: Driving Growth, Jobs, and Self-Reliance
Introduction
The recent alterations in the Goods and Services Tax (GST) are meant to complement important Government initiatives such as Make in India, PM Gati Shakti, and the Pradhan Mantri Awas Yojana. The GST reform will empower Micro, Small, and Medium Enterprises (MSMEs) by lowering tax rates and compliance costs, among other things, to grow their business and reach larger markets. GST rates have been lowered by the vision of Prime Minister Narendra Modi in sectors like automobiles, food processing, clothing, logistics, and handicrafts. These changes help improve supply chains, encourage local production, and create more jobs especially for women, rural entrepreneurs, and workers in the informal sector. Sectors like garments, toys, handicrafts, and leather are seeing better job opportunities, particularly in areas where women work, such as tailoring, textiles, and dairy. These reforms are moving India toward becoming a self-reliant, competitive, and inclusive “Viksit Bharat” (Developed India).
Table of Contents
Automobiles and Transport
The GST rate cut on two-wheelers, cars, buses, and tractors has increased demand. This is helping MSMEs involved in making parts like tyres, batteries, glass, plastics, and electronics. Affordable bikes are now more accessible to gig workers, farmers, and small traders in rural areas. Cheaper cars are also helping MSMEs and auto dealers in small towns.
The Goods and Services Tax (GST) on tractors with an engine capacity of less than 1800 cc has been lowered to 5%. This strengthens India’s global competitiveness in tractor manufacturing and benefits the economic well-being of small businesses that supply tractors with parts. For commercial goods vehicles such as trucks and delivery vans, the GST has fallen from 28% to 18%. This drop in GST may lead to lower transportation costs and assist micro, small, and medium enterprises (MSMEs) operating with trucks. The GST on buses for transporting seating more than 10 passengers has reduced from 28% to 18% in a similar fashion thus making transportation for schools and entertainment more cost effective and lowering travel costs for labourers.
Food and Dairy
GST has been lowered on most food items from 12% or 18% down to 5% or even NIL. This benefits MSMEs working in food processing, small regional brands, dairy cooperatives, packaging, and cold storage units. Sweet makers will see better sales because of lower GST on chocolates, cakes, and confectionery. The dairy sector benefits too, with NIL GST on milk and paneer and reduced GST from 12% to 5% on butter and ghee. This helps farmers, women-led groups, and self-help groups.[1]
The GST on milk cans has been lowered from 12% to 5%, making a cheaper option for the storage of dairy products. Special dietary foods manufactured for diabetic patients have been lowered from 12% to 5% GST, further reducing dietary costs for individuals subject to special diets. Dried fruits (i.e., almonds, dates, figs, and hazelnuts) have all fallen to 5% GST; this promotes healthy eating habits. As well, prepared fish, fruit pulp, drinks derived from milk, and fruit juices have all been lowered from 12% to 5% GST, offering further savings.[2]
Textiles, Apparel, and Leather
GST on man-made fibres has been cut from 12% to 5%. This solves the earlier problem of an inverted tax structure and helps MSMEs in textile manufacturing and exports. The GST slab for readymade garments at 5% now covers items priced up to ₹2,500 (earlier ₹1,000), which supports demand in smaller towns and cities. This is good news for garment units that employ many women.
Leather products under ₹2,500 per pair now attract only 5% GST instead of 12%. This helps small units in leather processing, tanneries, and footwear manufacturing.
Housing and Building Materials
Cement has now seen a decrease in GST from 28% to 18%. It could help with PMAY/affordable housing, as well as employment in mining and logistics. The job work GST rate related to the manufacture of bricks has been reduced from 12% to 5%, which will spur rural housing opportunities, as well as be helpful for brick kiln personnel. Cement-bonded boards and jute particle boards were also included at a 5% GST, making prefab homes more affordable.
Domestic stone products, such as marble and granite, are now being taxed at a 5%, rather than a 12%. This will further benefit small-scale stone processors. Furthermore, agro-based wood products like bamboo flooring and rice husk based boards will now also attract a 5% GST rate. This will further allow for sustainable construction materials, and benefit MSME’s working in the wood products industry.[3]
Handicrafts and Creative Industries
Artisans and craftspeople get a major relief with GST on handicrafts cut from 12% to 5%. This includes items like idols, paintings, terracotta, handbags, and tableware. Toys and sports goods now have only 5% GST instead of 12%, which supports the “Vocal for Local” initiative. This reduction will increase domestic production and reduce import dependence, creating more jobs in the toy industry.
Logistics, Packaging, and Sustainability
The GST on packing materials such as paper, cartons, and crates is now at 5%. This is productive for small MSMEs in the packaging business as it would also reduce logistics and e-commerce costs. Biodegradable bags, previously 18% GST, now only attract 5% GST. This is intended to promote eco-friendly considerations for packaging products, especially those made from compostable materials by start-ups and MSMEs.
India’s logistics ranking progressed significantly from 54th in 2014 to 38th this year on the World Bank’s Logistics Performance Index. The World Bank appreciated India’s focus on developing supply chain infrastructure and connectivity. The recent GST rate cuts build on these efforts to decrease logistics costs.
Tourism and Hospitality
The GST on hotels that charge less than ₹7,500 a day was previously 12% and has now been lowered to 5% with no input tax credit (ITC). This benefit was aimed at supporting prices for domestic tourism and also benefits mid-range and budget hotels, and at the same time, it creates more jobs in the hospitality industry. The share of the tourism sector in GDP in terms of absolute values increased from 1.50% in 2020-21 to a provisional 5.22% in 2023-24, and the sector will likely continue to grow with lower GST rates.[4]
Conclusion
The Goods and Services Tax (GST) reforms reinforce the objectives of important Government initiatives such as Make in India, Aatmanirbhar Bharat, and PM Gati Shakti by empowering Micro, Small, and Medium Enterprises (MSMEs) and employment creation. The lower rates of tax have resulted in lower costs of goods and services, which facilitate the expansion of the small business sector. These reforms also promote women-led and rural enterprises by making essentials and raw materials more affordable. By fixing earlier tax issues, cutting costs, and making it easier to follow tax rules, the government is helping build a strong and self-reliant industrial system. These steps bring India closer to the vision of “Viksit Bharat”a developed and competitive country by the year 2047.
[1] https://www.pib.gov.in/FactsheetDetails.aspx?Id=149281
[2] https://www.pib.gov.in/FactsheetDetails.aspx?Id=149281
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