The Role of Simplified GST Rates in Enhancing MSME Policy Effectiveness

Abstract

The simplification of GST rates under the GST 2.0 reform has played a pivotal role in enhancing the competitiveness of MSMEs in India. By reducing the number of tax slabs and aligning input and output rates, the reform has lowered the cost of compliance and minimized tax-related distortions. MSMEs, which often operate with limited financial and administrative resources, benefit significantly from a clearer and more predictable tax structure. Lower GST on essential inputs and consumer goods reduces production costs and boosts demand, allowing MSMEs to price their products more competitively. Additionally, streamlined input tax credit mechanisms improve liquidity and working capital management, enabling faster reinvestment and scaling. The simplified regime also encourages formalization, helping MSMEs access institutional credit, government incentives, and broader markets. Overall, the rationalized GST framework fosters a more business-friendly environment, empowering MSMEs to grow sustainably and compete more effectively in both domestic and global markets.