Can GST 2.0’s Revenue Boost Save India from US Tariff Losses?

As US tariffs cast a shadow over India’s exports in August 2025, the proposed GST 2.0 reforms, set to brighten Diwali 2025, promise a spark of relief for the common man. By simplifying taxes and boosting domestic spending, these changes aim to counter the economic hit from global trade tensions. But can the extra revenue from GST 2.0 truly offset the losses from tariffs? Let’s break it down with numbers, exploring how this affects everyday Indians.

The US Tariff Blow

In early August 2025, the US slapped a 25% tariff on Indian exports, with another 25% hike planned by late August, pushing duties to 50% on goods like textiles, seafood, jewelry, medicines, and electronics. These sectors drive millions of jobs and a significant portion of India’s trade. The tariffs could slash export earnings by $35 billion annually, roughly 0.6% of India’s GDP, based on estimates from economic analysts. This translates to a revenue loss for the government, as export-related taxes (e.g., corporate taxes from firms) could drop by $5-7 billion yearly. For the common man, this means potential job cuts—up to 1-2 million in textiles alone—and higher prices for imported goods like electronics, as the rupee weakens.

With trade talks stalled, India is looking inward. Instead of matching US tariffs, the government is betting on GST 2.0 to fuel local markets and soften the blow. The goal is to keep shops bustling, factories running, and wallets fuller for the average Indian during Diwali’s festive rush.

GST 2.0: A Diwali Boost

Unveiled with a festive flourish, GST 2.0 proposes trimming four tax slabs (5%, 12%, 18%, 28%) to two main rates: 5% for essentials and 18% for most goods, with a 40% tax on luxury items like high-end cars and tobacco. Set for Diwali 2025, this aims to make life cheaper for the common man, ease business burdens, and generate extra revenue through increased spending. Economists estimate GST 2.0 could boost tax collections by $15-20 billion annually by spurring consumption and improving compliance, even as it lowers rates on most goods.

Benefits for the Common Man

1. Cheaper Everyday Goods: Items like groceries, clothes under ₹1,000, and household appliances (e.g., fans, TVs) will shift from 12% or 28% GST to 5%, cutting prices by 7-20%. A ₹500 grocery basket might drop to ₹450, saving families $50-100 monthly. This means more money for Diwali sweets, clothes, or school supplies, making the festival brighter.
2. Extra Cash in Pockets: Combined with 2025’s income tax relief (no tax on incomes up to ₹12 lakh), middle-class households could save $600-1,200 yearly. This extra cash fuels purchases like a new phone or fridge, boosting local shops during the festive season.
3. Lifting Small Businesses: Simplified GST rules cut paperwork for small shopkeepers and vendors, from kirana stores to clothing stalls. Lower taxes on raw materials mean they can offer better prices, keeping markets lively and supporting millions of jobs for workers like tailors or delivery staff.
4. Offsetting Tariff Losses: The $35 billion export hit threatens jobs and growth, but GST 2.0’s $15-20 billion revenue boost (from higher consumption) could cover 43-57% of that loss. By encouraging Indians to buy more locally—think festive markets packed with shoppers—the reforms keep businesses afloat, protecting the common man’s livelihood.

Revenue Gains vs. Tariff Losses

• GST 2.0 Revenue: By lowering taxes, GST 2.0 could drive $120-150 billion in extra consumer spending yearly, adding $15-20 billion to government coffers through broader tax collection and better compliance. For instance, if Diwali sales surge by 10%, retailers and manufacturers pay more GST, even at lower rates. This assumes the 40% luxury tax offsets any shortfall from reduced slabs.
• Tariff Revenue Losses: The US tariffs could cut export earnings by $35 billion, reducing government revenue from corporate and related taxes by $5-7 billion annually. Indirectly, job losses and slower growth could shrink income tax collections by another $2-3 billion, totaling a $7-10 billion fiscal hit.
• Net Effect: GST 2.0’s $15-20 billion revenue gain significantly outpaces the $7-10 billion tariff loss, potentially creating a net positive of $5-13 billion. This extra revenue could fund job-saving schemes or infrastructure, cushioning the common man from tariff fallout.

Why It’s Not a Full Fix

While GST 2.0 is a festive lifeline, it’s not a complete shield. The $35 billion export loss dwarfs the $15-20 billion revenue boost, leaving a gap. Textile workers or jewelry makers can’t rely on local sales alone, as US markets are key. Rural families, less tied to formal markets, may see smaller savings, and luxury buyers face pricier goods, dimming their Diwali.

Fiscal risks linger too. Lower GST rates might strain state budgets, forcing cuts in local projects like roads or schools. If global trade slows or the rupee dips, rising prices for imported goods could wipe out GST savings. For instance, electronics reliant on foreign parts might cost more, hitting middle-class budgets.

A full offset needs more: new trade partners (e.g., Europe, Africa), export subsidies, or US negotiations. GST 2.0 is a strong start, but it’s one piece of a bigger puzzle to protect India’s economy.

A Festive Strategy

GST 2.0 is a bold move to keep India’s economy glowing amid tariff clouds. For the common man, it means cheaper goods, more savings, and thriving local markets—perfect for Diwali 2025. Small businesses gain agility, and the $15-20 billion revenue boost could nearly match the $7-10 billion tariff loss, offering a buffer for jobs and growth. Yet, export-heavy sectors need extra help, and global risks loom.

As India lights diyas this Diwali, GST 2.0 signals resilience, turning a trade war into a chance to strengthen home markets. With smart policies like trade diversification, India could not only survive but thrive, keeping the festive spirit alive for the common man.