GST Rate Cuts - Newspaper Summary

 The sources frame the Goods and Services Tax (GST) rate rationalization, referred to as GST 2.0 or simply GST cuts, as a significant domestic policy reform intended primarily to stimulate consumption, boost economic growth, and streamline the tax structure in India, particularly against a backdrop of global economic headwinds.

GST 2.0 involves a major overhaul of the tax structure and has immediate impacts on consumer goods, the automobile sector, and specific industries like apparel and edible oils.

I. Overview and Objectives of GST Rate Rationalization (GST 2.0)

The GST rate rationalization came into effect on September 22, 2025. This reform involves the revision of rates on around 400 goods and services.

Structural Simplification

The core of the reform is a move to simplify the GST structure by merging the existing four slabs into primarily two: 5% and 18%. This eliminates the previous 12% and 28% rates.

Economic Goals

The cuts are a key component of the government's fiscal policy tools, aimed at stimulating economic growth, much like rate cuts are to monetary policy.

• Boosting Consumption: The measures are intended to boost domestic demand, supported by a largely benign monsoon season and income tax relief. S&P Global expects the GST cuts to support continued strong domestic demand and hold India’s GDP growth steady at 6.5% for FY26.
• Reducing Distortions: Economists at S&P Global Ratings believe that streamlining GST reforms will reduce distortions and improve efficiency, which would be growth positive for the economy.
• Managing Inflation: The revision in GST rates, effective from September 22, is expected to have some impact on retail inflation based on the Consumer Price Index (CPI). S&P Global revised India’s inflation forecast down to 3.2% for the fiscal year due to a sharper than expected decrease in food inflation, noting that GST cuts may leave room for further monetary policy adjustments.

II. Specific Sector Impacts and Consumer Response

Consumer Packaged Goods (FMCG) and Pricing Strategy

GST cuts have made household items, from soaps and shampoos to snacks, cheaper. The revised GST rates positively impact 35–40% of the portfolio of companies like Godrej Consumer Products Ltd.

• Affected Products: Products shifting to the 5% slab (from 18% earlier) include hair oil, shampoo, toothpaste, toilet soap bars, toothbrushes, shaving cream, ice cream, tea, coffee, and biscuits. Goods like butter, ghee, cheese, fruit juices, and snacks (namkeens, bhujia, mixtures) are reduced from 12% to 5%.
• Volume Uplift: Consumer goods companies anticipate lower prices, festive buying, and an above-normal monsoon to boost volume growth, especially in rural areas. Snack maker Bikaji Ltd expects volume growth of over 12% in the second half of FY26.
• Pricing Strategy: Companies face a challenge in passing on the benefits, especially for "price-point packs" (small packs).
  • Volume Increase: Companies like Hindustan Unilever Ltd (HUL) and Bikaji Foods are opting to increase the weight or volume of products to avoid "odd pricing and coinage-related challenges" while retaining popular price points like ₹1, ₹5, and ₹10. Bikaji Foods is increasing the grammage of products like bhujia and namkeen.
  • Price Cuts: Other major companies, including Parle, Coca-Cola, and Reliance Consumer Products, have chosen to implement outright price reductions on small packs, for example, cutting ₹10 packs to ₹9. Coca-Cola bottler SLMG Beverages reduced the price of its 125 ml Maaza tetra pack from ₹10 to ₹9.
• Shift to Branded Goods: Analysts predict the narrowing price gap between taxed and untaxed goods will accelerate the shift from unbranded to branded products in categories like namkeen and biscuits.

Apparel and Premium Goods

The apparel industry is seeing a mixed impact.

• Benefit for Mass Fashion: GST on apparel priced up to ₹2,500 was reduced from 12% to 5%. Firms are passing on 100% of this benefit to consumers. This is viewed as a "big win for everyday wear".
• Challenge for Premium Goods: The GST rate on apparel priced above ₹2,500 was hiked from 12% to 18%. This brings challenges, particularly for premium categories like lehengas and bridal wear during the festive season.
• Absorption of Hike: Brands are either fully or partially absorbing the impact of the higher GST on premium items to fuel consumer demand and avoid disrupting the strong demand momentum during the festival period.

Automobile Sector

The GST reduction and festival offers have "sparked an extraordinary wave of consumer interest and enthusiasm" for the auto sector.

• Auto dealers are seeing unprecedented walk-ins, a spike in enquiries, and record deliveries in the first two days of GST 2.0 and Navratri.
• This sustained festival momentum for companies like Maruti Suzuki India (MSIL) and Tata Motors contributed to the Nifty Auto index gaining 0.62 per cent.

Edible Oil Sector

The Solvent Extractors’ Association of India (SEA) stated that the revision in GST rates, including a reduction to 5 per cent on edible oils and meals, will enhance the competitiveness of Indian edible oils in both the domestic and international markets. The government also provided flexibility to revise the Maximum Retail Price (MRP) on unsold stock manufactured or imported before the GST revision up to March 31, 2026.

III. Policy Reforms Context and Challenges

Government Vigilance Against Profiteering

The Indian government is taking proactive measures to ensure that companies pass on the benefits of GST cuts to consumers.

• The Consumer Affairs Ministry is monitoring complaints of price manipulation, focusing on tactics such as retiring old models, adding minor cosmetic features, and passing them off as new, upgraded variants with a higher price tag.
• The ministry has created a dedicated GST category on its Integrated Grievance Redressal Mechanism (INGRAM) portal for consumer complaints related to the new rates.
• Consumer complaints related to price manipulation will be linked with revenue enforcement to prevent unfair pricing and tighten oversight on profiteering. The revenue department will forward these complaints to enforcement agencies, and the Goods and Services Tax Appellate Tribunal is expected to be operational for appeals before the end of September.

Broader Policy and Economic Context

The GST rate cuts are part of a larger government strategy employing fiscal policy to stimulate growth.

• Historical Context: The sources contextualize GST cuts against previous tax stimulus measures:
  • The 1997–98 'Dream Budget' featured sweeping tax cuts which reversed a cyclical downturn and led to buoyant tax collections.
  • The 2019 corporate tax cut failed to stimulate private capital expenditure (capex) due to external shocks (pandemic, Ukraine-Russia war), with corporations opting to strengthen balance sheets instead of investing.
• Market Impact: Despite the enthusiasm in sectors like auto, the immediate impact of the GST reforms failed to lift investor spirits in the equity market. The Indian rupee still plunged to an all-time low, heavily weighed down by external pressures like US tariffs and the H-1B visa fee hike.
• Condition for Success: The long-term success of the GST cuts hinges on two key factors:
  1. Whether prices fall significantly enough for demand to pick up, meaning firms must pass on the benefits.
  2. Whether consumers prioritize consumption spending over reducing household indebtedness.

Other Policy Reforms in Parallel

The GST reforms are taking place alongside other key policy movements aimed at improving India's economic resilience and governance:

Reform Area	Specific Policy Action/Measure	Impact/Goal
Corporate Governance	SEBI introduced a new framework for Related Party Transactions (RPTs), broadening the definition of a related party (lowering the shareholding threshold from 20% to 10%) and mandating standardized disclosure templates.	Aims to strengthen corporate governance, improve transparency for minority shareholders, and boost investor confidence.
Financial Sector Regulation	SEBI and RBI are in advanced discussions to ease entry processes for new overseas investors by standardizing documentation and reducing registration time from six months to 30-60 days.	Designed to address weak foreign flows and attract global capital amid external trade tensions.
Dispute Resolution	The MSME ministry is exploring adding powers for the Central Government to empanel private Online Dispute Resolution (ODR) firms to address delayed payments cases.	Intended to expedite the resolution of delayed payment disputes for small businesses, as state-level councils have been slow.
Infrastructure Spending	The Centre has the fiscal space and intent to raise capital expenditure (capex) by ₹20,000–30,000 crore beyond the budgeted ₹11.21 trillion for FY26.	Used to compensate for sluggish private investment amid global headwinds and to spur demand through a strong multiplier effect.