GST 2.0 fuels consumption boom, set to lift India’s growth

In what the government hailed as a vindication of its “GST 2.0” reforms, Finance Minister Nirmala Sitharaman on October 18 said that the benefits of the latest Goods and Services Tax rate cuts have been effectively passed on to consumers, triggering a sharp rise in sales and consumption that could soon reflect in India’s GDP growth figures for FY2025–26.

Speaking at the “GST Bachat Utsav” alongside Commerce Minister Piyush Goyal and Information & Broadcasting Minister Ashwini Vaishnaw, Sitharaman said central GST formations have been closely tracking prices of 54 daily-use items since the rollout of the reformed tax structure on September 22 — and the impact is unmistakable.

“Not in one has the tax benefit not been passed on,” Sitharaman said, adding that only a few brands of high-end Portland cement showed partial transmission. “All other major categories — from milk and personal care items to household goods — have seen price reductions.”

Consumption rebound and the GDP link

Officials said the cuts have sparked a significant uptick in consumption, particularly in electronics, fast-moving consumer goods, and household essentials, giving a festival-season boost to retail and manufacturing.

Vaishnaw cited data from retail chains showing a 20–25% increase in Navratri sales compared with last year. “Food items are showing deflation for four straight months. Electronics manufacturing is growing at a double-digit CAGR, directly employing 25 lakh people,” he said, adding that India has now surpassed its neighbour in smartphone exports to the US.

The government believes the consumption wave could translate into macroeconomic gains. “With last year’s GDP at ₹335 lakh crore — ₹202 lakh crore of which was consumption — we estimate consumption could rise over 10% nominally this year, adding nearly ₹20 lakh crore,” Vaishnaw said.

While Sitharaman refrained from projecting an exact growth figure, she said the upward trajectory of consumption — one of the key engines of economic expansion — is clear.

GST 2.0: From four slabs to two

The reforms mark a major structural shift — compressing the earlier four GST slabs (5%, 12%, 18%, and 28%) into two principal rates: a merit rate of 5% and a standard rate of 18%, along with a 40% “sin and demerit” rate for select goods.

Prime Minister Narendra Modi had announced the next-generation GST structure in his Independence Day speech, followed by the GST Council’s approval on September 3. The new regime came into effect on September 22.

Price cuts across sectors

Sitharaman presented granular data showing that actual price reductions have exceeded expectations across several consumer categories.

• Shampoo: Expected benefit 11.02%, actual price drop 12.36%
• Talcum powders: 11.77% reduction vs. expected 11.02%
• Clinical diapers: 10.38% reduction vs. expected 6.25%
• Household metal utensils: 10.24% reduction vs. expected 6.25%
• Toys and tricycles: 8.93% reduction vs. expected 6.25%
• Umbrellas: 9.19% reduction vs. expected 6.25%

The auto sector too has shown signs of revival: three-wheeler dispatches rose 5.5% year-on-year in September to 84,077 units, passenger vehicle sales climbed 4.4% to 3.72 lakh units, and tractor sales doubled month-on-month to 1.46 lakh.

Reforms built over 18 months

Rejecting opposition claims that GST 2.0 was a “course correction,” Sitharaman said the initiative was a deliberate structural reform developed over 18 months through multiple groups of ministers. “The Opposition neither implemented nor even attempted GST. What we’re doing is not a correction but a conscious effort to simplify and return benefits to people,” she said.

She also clarified that the reforms were unrelated to ongoing India–US trade discussions. “These changes have been under deliberation long before any tariff talks,” she said.

Industry confidence rising

Goyal described the tax relief — ₹2.5 lakh crore through direct and indirect measures — as “unprecedented,” noting that foreign investors have reacted swiftly, viewing the reforms as a trigger for a demand surge.

He also warned e-commerce platforms against withholding the benefits of rate cuts, saying consumer affairs authorities are empowered to act.

Simplified, streamlined, and festival-ready

The Finance Minister said GST 2.0 brings three key advantages — reduced rates, simplified registration, and resolution of long-standing classification disputes that had clogged the courts.

“We launched it on the first day of Navratri, well in time for Deepavali. It’s not just a tax reform — it’s a consumption reform,” she said. “And India’s consumers have embraced it.”