India’s Goods and Services Tax (GST) Council initiated major reforms in 2025. These reforms aim to simplify taxation and support economic growth. Announced by Prime Minister Narendra Modi, the changes focus on reducing tax slabs and promoting renewable energy. The reforms come at a critical time when India’s energy demand and climate goals are rapidly evolving.
Overview of GST Reforms
The GST Council reduced tax slabs from four to two to ease business operations. This simplification is expected to lower costs and curb inflation. The reforms were implemented on 22nd September, coinciding with Navaratri. Industry leaders praised the move for boosting consumer demand and improving the business climate. Critics argued the reforms were delayed but acknowledged their potential impact.
Impact on Renewable Energy Sector
A key feature is the reduction of GST on renewable energy devices from 12% to 5%. This includes solar, wind, and biogas equipment and their manufacturing parts. The cut lowers capital expenditure and encourages domestic production. Simultaneously, GST on coal and lignite increased from 5% to 18% to discourage fossil fuel use. The removal of a ₹400/tonne compensation cess on coal softens the impact on that sector. These tax changes aim to make renewable energy more affordable and attractive to investors.
Renewable Energy Capacity and Challenges
India reached 234 GW of renewable energy capacity in August 2025. Despite growth, nearly 44 GW of projects remain undeployed due to lack of power purchase agreements (PPAs). Delays in interstate transmission lines, especially in Rajasthan and Gujarat, hinder grid connectivity. Regulatory issues like land and environmental clearances cause further project delays. About 20% of installed renewable capacity is stranded, limiting energy utilisation.
Coal’s Continued Dominance
Coal remains India’s primary energy source, supplying 79% of domestic energy in 2023. Several states continue to sign contracts for coal power plants. This reliance poses environmental risks and wastes available renewable energy. The GST reforms alone cannot shift energy dependence away from coal without addressing infrastructure and policy bottlenecks.
Future Directions for Energy Transition
The GST reforms provide a favourable tax environment for renewable energy. However, seamless integration of renewable power into the grid requires smart grid development and regulatory reforms. Addressing transmission bottlenecks and expediting clearances are critical. The government must build on these reforms to ensure India meets its climate targets and energy needs sustainably.
Questions for UPSC:
- Critically analyse the impact of Goods and Services Tax (GST) reforms on India’s economic growth and business environment with suitable examples.
- Explain the challenges in integrating renewable energy into India’s power grid and suggest measures to overcome these hurdles.
- What are the environmental and economic implications of India’s continued dependence on coal? How can policy reforms balance energy security and sustainability?
- Underline the role of taxation policies in promoting clean energy technologies. Critically examine the effectiveness of fiscal incentives in accelerating India’s energy transition.
