GST rate cuts and its impact on agriculture and agro-based MSMEs: An evidence from Bihar, India

Abstract

The Goods and Services Tax (GST) rate cut by the Government of India, effective from 22 September 2025, is the biggest transformation in indirect taxation. Bihar, with its strong agricultural base and expanding agro-based industries, including food processing, dairy, and beekeeping, is expected to benefit substantially from these tax revisions. This GST rate cut is expected to work as a fuel for existing agriculture and agro-based micro, small and medium enterprises (MSMEs) and may create avenues for the establishment of new MSMEs in this sector. The study critically examines the impact of the GST rate cuts on the performance of agriculture and agro-based MSMEs operating in Bihar. An analytical research design has been adopted using the tax pass-through approach, and the secondary data were obtained from Press Information Bureau releases, GST Council notifications, the GST Portal, and reports published by the Central and State Governments. The study evaluates the implications of GST rate reductions on production costs, price competitiveness, profitability, employment generation, and market expansion among agriculture and agro-based MSMEs. The results show a reduction in the cost of production of MSMEs by 6.16 to 7.19 per cent, leading to lower prices, higher demand, improved profitability, greater competitiveness, employment generation and inclusive growth of the state. However, compliance constraints, limited credit access and weak market linkages may limit the full realisation of benefits of the GST rate cut. The study concludes with policy recommendations aimed at strengthening the effectiveness of GST reforms in promoting sustainable and MSME-led agricultural and rural industrial development in Bihar.