India Plans Biggest GST Overhaul in Eight Years
India is preparing for its most significant Goods and Services Tax (GST) reform since the tax was introduced in 2017. The GST Council has begun deliberations on a proposal to simplify the current multi-slab system into just two major rates: 5% and 18%, while keeping a 40% rate for luxury and sin goods. Over 400 items, including daily essentials like toothpaste, shampoos, and even small cars, could become cheaper under this new structure. The move is designed to ease compliance, boost consumer demand, and make taxation more predictable for businesses. While consumers and manufacturers stand to gain, states are expected to face a significant ₹ lakh crore (~$21 billion) drop in revenue. The central government will likely offer compensation via higher borrowings or adjustments in future tax-sharing mechanisms .
FMCG companies such as Hindustan Unilever and ITC are expected to benefit from higher volumes, while automakers anticipate a pickup in car sales with lower GST rates. Consumers, especially in urban and rural middle-income segments, stand to gain from reduced prices on everyday goods. However, the reform presents a challenge: state governments are likely to lose nearly ₹1.7 lakh crore in revenues. The central government may need to step in with compensation or allow additional borrowings to ensure state finances remain stable. Economists expect a short-term fiscal strain balanced by long-term growth from increased compliance and broadened consumption. The timing ahead of Diwali could catalyze a consumption cycle, though market watchers will track auto and consumer retail stocks closely .
Analysts believe the short-term revenue hit could be offset in the long run by stronger consumption-led growth and improved tax compliance. Experts highlight that the timing of the reform—just ahead of the festive season—could provide a much-needed demand boost to the economy. Market watchers will be closely monitoring consumer discretionary and auto sector stocks for early signs of revival. This tax rationalization is part of Prime Minister Modi’s push for economic self-reliance and consumer relief, particularly amid strained U.S. trade ties. The aim is to offset higher external tariffs, support manufacturing, and promote domestic consumption before the festive season .
FMCG companies such as Hindustan Unilever and ITC are expected to benefit from higher volumes, while automakers anticipate a pickup in car sales with lower GST rates. Consumers, especially in urban and rural middle-income segments, stand to gain from reduced prices on everyday goods. However, the reform presents a challenge: state governments are likely to lose nearly ₹1.7 lakh crore in revenues. The central government may need to step in with compensation or allow additional borrowings to ensure state finances remain stable. Economists expect a short-term fiscal strain balanced by long-term growth from increased compliance and broadened consumption. The timing ahead of Diwali could catalyze a consumption cycle, though market watchers will track auto and consumer retail stocks closely .
Analysts believe the short-term revenue hit could be offset in the long run by stronger consumption-led growth and improved tax compliance. Experts highlight that the timing of the reform—just ahead of the festive season—could provide a much-needed demand boost to the economy. Market watchers will be closely monitoring consumer discretionary and auto sector stocks for early signs of revival. This tax rationalization is part of Prime Minister Modi’s push for economic self-reliance and consumer relief, particularly amid strained U.S. trade ties. The aim is to offset higher external tariffs, support manufacturing, and promote domestic consumption before the festive season .