Why the Big GST Cut Is Good Economics and Smart Politics for Modi Govt

Why the Big GST Cut Is Good Economics and a Strategic Political Move Ahead of Elections

The Narendra Modi government’s decision to implement a major Goods and Services Tax (GST) cut effective from September 22 has been described as a masterstroke. It is not just a bold economic reform but also a well-calculated political strategy. The timing, just ahead of the festive season and crucial state elections, ensures that the move maximizes its impact on both the economy and the electorate. This combination of fiscal relief and political foresight reflects why the Big GST Cut Is Good Economics as well as good politics.

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The festive season in India is traditionally marked by a surge in spending, from household essentials to luxury items. With the GST cuts coming into effect on the first day of Navratri, the government has created conditions for record consumer spending. This year’s Diwali falls on October 20, almost a month after the cuts are rolled out, giving consumers a long window to plan and make purchases. By aligning the tax reduction with cultural and economic cycles, the government has boosted confidence and purchasing power, ensuring that the benefits are felt immediately in the markets.

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Economically, the cuts come as a second round of relief for the middle class and lower-income groups. Earlier this year, the government had announced income tax concessions under the new regime in the Union Budget. Together, these measures are putting more disposable income into the hands of the common man. Lower GST on essential items, life-saving drugs, and insurance premiums directly reduces household expenses, enabling families to spend more freely on other needs. This creates a multiplier effect, where increased demand drives growth in manufacturing, retail, and services, thereby spurring the broader economy.

The significance of this GST reform lies not only in its economic impact but also in its timing with upcoming elections in states such as Bihar, West Bengal, Assam, Kerala, and Tamil Nadu. By providing visible relief to citizens, the BJP has ensured that it goes into the campaign season with a strong message: the Modi government is consistently putting money back into people’s pockets. The move helps create a narrative of empowerment, showing the government as responsive to public concerns about inflation, healthcare costs, and household budgets.

Politically, the GST cut gives the BJP a clear talking point. Finance Minister Nirmala Sitharaman has already highlighted how the Congress-led UPA government failed to implement GST due to lack of trust between the Centre and states. By contrast, the Modi government has not only implemented GST successfully but has also demonstrated the flexibility to rationalize and reduce rates for the benefit of the public. The ruling party believes that any criticism from the opposition will backfire, as opposing the GST cuts would be seen as opposing relief for the common man.

Another important dimension is the fast-tracking of the decision. Prime Minister Narendra Modi had originally mentioned GST rationalisation in his August 15 Independence Day speech, calling it a Diwali gift. But instead of waiting until October, the government moved quickly to implement the changes by September 22. This ensures consumers do not delay purchases in anticipation of price cuts, which could have dampened spending in the crucial pre-Diwali weeks. The proactive approach underlines the government’s intent to keep economic momentum high during the festive period.

From a governance perspective, reducing GST on everyday essentials, medicines, and insurance highlights the government’s sensitivity towards public welfare. Nil GST on medical and life insurance is a particularly significant reform, as it makes financial protection more affordable. Similarly, lowering GST on life-saving drugs provides direct relief to households battling high medical costs. These steps add a strong welfare dimension to the economic rationale, reinforcing the government’s image as both reformist and empathetic.

In conclusion, the recent GST cuts are not merely an economic adjustment; they are a strategic policy move designed to achieve multiple goals. They stimulate demand, strengthen household budgets, and drive economic growth, while simultaneously boosting the political narrative for the BJP ahead of key state elections. By rolling out the reforms during the festive season, the Modi government has maximized both the economic and emotional impact. This is precisely why the Big GST Cut Is Good Economics and equally effective politics.

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