GST 2.0 Reforms - Newspaper Summary

 The GST 2.0 reforms, implemented effective September 22, 2025, represent one of the most significant changes to India's Goods and Services Tax framework since its 2017 launch, leading to a notable—though contested—impact on consumption and broader economic and market dynamics.

GST 2.0 Reforms and Immediate Consumption Impact

The reform primarily focused on simplifying the multi-tier structure and reducing taxes on essential consumer goods:

1. Rate Rationalization: GST 2.0 simplified the structure into two main slabs: 5% for essentials and 18% for most goods, alongside a 40% rate for sin/luxury items.
2. FMCG and Essentials: Taxes were reduced on a wide range of Fast-Moving Consumer Goods (FMCG) such as hair oil, soap, toothpaste, butter, ghee, namkeen, and ice cream, moving them from the 12–18% bracket down to a consumer-friendly 5% rate.
3. Automobile Sector: GST rates on cars up to 4 meters in length and up to 1,200 cc engines were slashed from 28% to 18%, with the cess also removed, making these vehicles cheaper.
4. Apparel: Rates on readymade garments costing up to ₹2,500 per piece were reduced to 5%.

This immediate fiscal stimulus, coinciding with the festive season (Dhanteras and Diwali in October 2025), provided significant positive momentum for consumer demand.

• Automobiles: The reduction of GST on vehicles has driven robust demand, with Tata Motors recording 30% year-on-year growth this Dhanteras and anticipating delivery of over 25,000 vehicles during the Dhanteras and Diwali period. The rate cut specifically increased footfalls in showrooms for small cars, convincing customers to make purchases now rather than wait.
• Retail and FMCG: Consumer product makers, including those in packaged food, durables, ethnic apparel, and gifting, are witnessing a robust uptick in sales driven by buoyant buying sentiment and the GST rate cuts. For instance, Parle Products reported 12–15% growth, with sales on the quick commerce channel 30–40% higher than the non-festive period. Ethnic apparel firm Libas also noted that GST 2.0 reforms contributed to their momentum, helping achieve a 10% year-on-year growth.
• Overall Sales Expectations: The Confederation of All India Traders (CAIT) expected Diwali 2025 to generate sales exceeding ₹5 lakh crore, reflecting massive crowds and strong market activity.

GST 2.0 in the Context of India's Economic & Market Dynamics

The GST 2.0 reforms are viewed as a key component of a larger push to accelerate India’s domestic economic growth in late 2025 (H2FY26).

1. The Triad of Stimulus and Credit Growth

Bankers and market experts link the consumption momentum to a "triad" of recent positive policy changes: tax benefits, GST rate cuts, and interest rate cuts.

• Financial Market Response: This combined stimulus is visibly improving economic activity across various segments. Punjab National Bank's MD & CEO anticipates the GST rate cut will boost credit growth (advances) in the retail and MSME sectors by 1 to 2 per cent.
• Retail Credit Acceleration: HDFC Bank's MD & CEO expects retail credit growth to rise over 20% in H2FY26, a sharp increase from the 14-15% growth seen in H1, fueled by the triad of tax and rate cuts.
• Lending Push: Banks are actively leveraging the festive season with lucrative offers (lower personal loan rates, zero foreclosure charges, cashback on electronics) aimed at supporting consumer demand across products. CEAT Ltd. projects the GST rate cuts will have a structural positive impact in subsequent quarters, aiding demand for two-wheelers, small cars, and tractors, particularly in rural markets.

2. Market Sentiment and Earnings Outlook (Oct 2025)

While retail activity appears buoyant, market analysts hold a mixed view regarding the extent and timing of the economic revival, particularly concerning corporate earnings:

• Earnings Caution: India Inc.’s top executives expect earnings to pick up only in the second half of FY26 (H2FY26), with moderate results in Q2FY26.
• Skepticism on Consumption Boost: A majority of experts (58%) surveyed believe that the GST rate cuts have overestimated the festive demand revival, indicating a cautious tone in the festive quarter.
• Sectoral Disappointment: Not all sectors benefited equally. Garment wholesalers in Kolkata reported that the GST rate cuts for apparel did not benefit them, with their business down 30% compared to the previous year, attributing the decline to a surge in online sales and manufacturers bypassing wholesalers.

3. The Profiteering Problem

A major concern dampening the effectiveness of GST 2.0 in maximizing consumer benefit is the alleged failure of manufacturers to pass on the full tax reduction, leading to a "profiteering problem".

• Withholding Benefits: Consumer groups and the All India Consumer Products Distributors Federation (AICPDF) allege that manufacturers are withholding tax benefits by keeping pre-cut prices intact, often by inflating base prices or delaying necessary financial adjustments to distributors.
• Base Price Manipulation: Manufacturers are accused of raising the pre-GST base price (e.g., by 8–10% when the GST dropped by 13 points) to ensure the final Maximum Retail Price (MRP) remains unchanged, thereby converting the tax cut into corporate profit.
• Regulatory Gaps: This malpractice is exacerbated by regulatory gaps, notably the dissolution of the National Anti-Profiteering Authority (NAA) and the perceived weakness of current oversight by the Competition Commission of India (CCI).
• Proposed Solutions: To ensure the intended relief reaches the common man, suggestions include reviving a dedicated anti-profiteering body, using GST Network (GSTN) data to automatically flag unusual base price increases after rate reductions, and launching a public portal detailing expected price drops to empower consumers.

In sum, while GST 2.0, coupled with other policy measures, created tangible positive momentum in India's consumption economy and boosted credit demand, the overall market view in October 2025 remained cautiously optimistic, pending confirmation of sustained growth in H2FY26 and resolution of ongoing issues regarding the full transfer of tax benefits to consumers.