The Goods and Services Tax (GST) Council’s 56th meeting set in motion the next generation GST reforms as announced by the Prime Minister Narendra Modi on 15th August 2025.
Highlighted as being strategic, principled and citizen-centric, the reforms are expected to enhance the quality of life of the common man and provide impetus to the economy ahead of the festive season. India Inc. has hailed the reforms as a defining milestone in India’s tax journey and has undertaken to pass on the benefit to the consumers. The rationalisation of the tax slabs from four to two is aimed at increasing the ease of doing business, reducing costs and helping businesses get a grip on inflationary pressures.
Expected to be rolled out on 22nd September, the first day of Navaratri, the much-talked-about GST reforms have been predictably received with bouquets and brickbats alike. While the opposition termed the reforms as too little and too late, eight years late to be precise, economists and industrial analysts, on the other hand, have welcomed the move, especially the speed with which the GST Council implemented the Prime Minister’s directive. Few things spur optimism and demand as effectively as tax cuts, and the Indian economy, with sluggish consumer confidence and spending, very much needed this shot in the arm.
Politics aside, GST 2.0 has definitely provided some much-needed relief to the beleaguered and besieged renewable energy sector in India, especially the manufacturing side of it.
The GST Council’s decision to reduce the Taxation rate on renewable energy devices, relating to solar, wind and biogas, and on parts required to manufacture them, from 12 per cent to 5 per cent has been welcomed by the industry as a step towards spurring domestic manufacturing by easing capital expenditures, besides potentially lowering the tariffs for consumers.
Parallel to the GST cut on clean energy equipment, the GST hike of 18 per cent from five per cent on coal and lignite is also a step towards promoting renewable energy by discouraging fossil fuel use.
On the other hand, the simultaneous removal of the `400/tonne compensation cess has been designed to soften the impact on the coal sector. These steps may prove to be major enablers for India’s ambitious climate goals, as a favourable tax regime means a reduction in the cost of renewable power and helps increase adoption across sectors, besides improving project economics for developers and investors.
All this bodes well, as India’s energy demand is spiralling with consumption projected to grow at over three per cent annually for the next 20 years. Complementing this appetite, India achieved a significant milestone by reaching 234 GW of renewable energy capacity in August this year. Yet, despite record-breaking growth in renewable energy (RE) capacity, the sector faces a barrage of infrastructural and bureaucratic bottlenecks. According to the report sent by the Sustainable Projects Developers Association (SPDA) to the Ministry of New and Renewable Energy, nearly 44 GW is ready for deployment but has no takers, as these projects have not been able to sign power purchase agreements (PPAs).
Plagued by unfinished interstate transmission lines, particularly visible in Rajasthan and Gujarat, projects have missed deadlines because they cannot connect to the grid. The scale of stranded renewable projects now accounts for nearly 20 per cent of India’s total installed renewable capacity of 234 GW. Moreover, developers are also dealing with court cases and delays in getting land and environmental clearances.
These regulatory hurdles have forced many companies and investors to pause construction or hold back on commissioning. Making matters worse is the fact that coal still remains the “go-to” source of energy for the nation, posing serious environmental risks.
This is evident with several states such as Uttar Pradesh, Madhya Pradesh and West Bengal signing fresh contracts for coal-based power plants. In the financial year 2023, for instance, 79 per cent of domestic energy came from coal and lignite.
As India locks itself into fossil fuel energy commitments, the unused green energy is going to waste, thanks to the unaddressed bottlenecks. While the GST reforms mean well for the renewable energy sector, they only succeed in addressing some of the challenges facing the sector and not all.
The government must focus on how to ensure that the installed RE capacity of India is able to seamlessly flow into a flexible smart grid, and for that, GST reforms are just the starters.
The writer is a policy analyst
