GST Reforms 2.0: Pharma braces for turbulence amid hopes of long-term stability

India’s much-anticipated GST Reforms 2.0, which came into effect on September 22, 2025, have set off a wave of changes across the pharmaceutical industry. While the government has positioned the reforms as a way to make healthcare more affordable by lowering taxes on essential medicines and devices, the transition has thrown up a series of operational, financial, and logistical challenges. Insights shared by industry leaders at the Global Pharma Logistics Summit 2025 underline both the opportunities and the hurdles posed by these reforms.

For pharma companies, the reforms are both an opportunity and a stress test. Manufacturers, distributors, and logistics providers are rushing to adapt to the new rules, while regulators expect the benefits of reduced GST to flow directly to patients. The industry’s response so far suggests a turbulent adjustment period, but also cautious optimism that the reforms could deliver long-term stability.

The promise of GST 2.0
The Goods and Services Tax (GST) was introduced in 2017 to unify India’s fragmented indirect tax system. Over the years, several rounds of adjustments have been made, but GST Reforms 2.0 marks one of the most sweeping revisions to date. Under the new structure, many life-saving drugs, formulations, and medical devices have been moved from higher slabs, such as 12% into the 5% or nil categories. The government’s stated intent is clear: reduce the burden of healthcare costs for patients.

For end users, the message is straightforward: medicines should now cost less at the counter. For the industry, however, the reality is more complex. Lower taxes on outputs combined with higher taxes on inputs create mismatches that ripple across the supply chain, from manufacturing floors to retail chemists.

A financial balancing act
One of the most immediate consequences of GST 2.0 is the input tax credit (ITC) mismatch. While raw materials and active pharmaceutical ingredients (APIs) continue to attract 18% GST, the finished formulations that reach patients are now taxed at just 5%. This leaves companies holding far more tax credit on inputs than they can offset on outputs, leading to credit accumulation and blocked working capital. 

“Shifting from 12% to 5% GST means longer cycles for capital recovery,” explained Chintan Ghiya, Head of Customer Care & Operations, Sanofi Consumer Healthcare at the summit. “Working capital will be blocked, and there are practical challenges with credit note settlements too. This transition will cause pain before it brings relief.”

The government has announced refund mechanisms to address this imbalance, but industry leaders are watching closely to see how efficient these processes will be. Without timely refunds, many companies, particularly small and medium-sized ones, could face liquidity stress.

Compliance as a logistical marathon
Beyond finances, compliance has turned into a logistical marathon. Companies are expected to pass on the benefit of lower GST to consumers almost immediately, and that has meant a herculean effort in updating packaging, relabelling stocks, and communicating changes across the retail chain.

“Crores of medicine packs had to be stickered with new prices before the September 22 deadline”, explained Anand Prasad, Associate Vice President - Supply Chain, JB Chemicals & Pharma, at the Global Pharma Logistics Summit 2025. “The task was humongous, but we had to ensure patients continued receiving affordable, quality medicines.”

For medical devices, the government has granted a 90-day window for relabelling maximum retail prices (MRPs). But for medicines, no such relief has been clearly defined. Many companies are therefore taking the safer route of publishing updated price lists on websites, circulating notices to retailers, and issuing press releases to avoid penalties.

“Manufacturers must ensure compliance through transparent communication,” said Prasad. “The government wants the benefit of lower GST to reach the patient. That’s the end goal.”

Strain on logistics and distribution
The reforms are also straining logistics networks. Older stocks in circulation may need to be taken back or replaced, which places immediate pressure on distributors and transporters. If not managed carefully, this could create supply bottlenecks.

“There won’t be an overnight cut in freight charges, but the ecosystem will benefit gradually,” said Pabitra Mohan Panda, Chief Business Officer at TCI Express. “Reductions in GST on vehicles from 28% to 18% will help operators in the long run, lowering acquisition costs. But in the short term, logistics partners will feel the strain of stock adjustments.”

The ripple effects extend to last-mile delivery as well. Distributors and chemists are expected to keep up with constant price updates, and any misstep could lead to compliance penalties. In an industry where reliability and timeliness are critical, the added burden of administrative work could slow down processes.

Ground-level realities
The day-to-day realities of implementing GST 2.0 are proving difficult, especially for small packs and imports.

Ghiya pointed out that re-stickering tiny vials and ampoules was close to impossible. Imports already in transit under old pricing rules were another grey area. “There are gaps between what the law expects and what’s practically possible on the shop floor,” he noted. “We may see confusion for the next four to five months until systems stabilise.”

Retailers too are facing a flood of updates. While large chains may be able to quickly implement new MRPs through digital systems, smaller chemists depend on circulars, SMS alerts, and distributor updates. Ensuring uniform compliance across India’s vast pharmacy network is one of the biggest operational challenges.

Technology as a silver lining
Despite the hurdles, experts at the summit see a silver lining in the accelerated adoption of digital tools. Predictive analytics, IoT-enabled real-time monitoring, and AI-driven route optimisation are being viewed as game changers for pharma logistics.

A live poll conducted during the Global Pharma Logistics Summit, 2025 revealed strong confidence in these technologies as tools that will help companies weather the GST transition and build more resilient supply chains in the long term. “Training, transparency, and technology adoption will be key,” Prasad emphasised. “The industry has managed bigger disruptions before, and this too will be overcome.”

Digital compliance tools from ERP upgrades for dual-rate accounting to QR code-based tracking for critical SKUs, are also being fast-tracked. For companies already investing in such systems, GST 2.0 is accelerating the timeline for deployment.

Industry’s resilient spirit
If there was one theme that resonated through the discussion, it was resilience. The pharma industry has weathered shocks before the first GST rollout, the challenges of Y2K, and more recently, the disruption of the Covid-19 pandemic. Each time, it has adapted and emerged stronger.

“We will adapt to this too,” Prasad concluded at the summit. “With training, digital tools, and transparent communication, the industry will manage the transition while keeping patient care at the centre.”

The next few months will likely be turbulent. Manufacturers will wrestle with blocked tax credits, distributors will juggle stock replacements, and retailers will scramble to keep MRPs updated. But the long-term vision of affordable healthcare for patients and a more efficient tax system for the industry remains a goal worth pursuing.

The road ahead
For now, the industry’s focus is on execution. Companies are working overtime for filing refund claims to manage working capital, and training supply chain partners on compliance. If the government’s refund processes work smoothly and regulatory agencies remain pragmatic in enforcement, the pain of transition may give way to lasting benefits.

In the medium term, lower GST on medicines and devices is expected to increase affordability and demand, while reductions on logistics inputs may gradually ease freight costs. If paired with technology-driven efficiencies, GST 2.0 could strengthen the backbone of India’s pharma sector.

As always, patients remain at the centre of the debate. The reforms will be judged not by the complexity of compliance or the strain on balance sheets, but by whether they succeed in making medicines more affordable and accessible across the country. For India’s pharma industry, the true test of GST 2.0 has only just begun.