Blitz Bureau
NEW DELHI: In what is being billed as the most sweeping overhaul of India’s indirect tax system since 2017, the changes announced by the GST Council across a wide spectrum of goods and services resemble a mini populist budget.
Aimed at easing household burden, the reduced rates will give the middle class some relief, support farmers and also insulate the economy from global headwinds. But the key question remains: Will this rate revamp merely provide short-term relief, or can it trigger the kind of sustained consumption-led growth the Government is looking for?
The restructuring collapses four slabs into two — 5 per cent and 18 per cent — while retaining a stiff 40 per cent tax on luxury and sin goods. The intent is clear: Put money in people’s hands at a time when US tariffs threaten export momentum.
For households, the relief is immediate. Everyday items such as toothpaste, soap, butter, paneer, packaged water, cereals and jams now face nil or 5 per cent tax. Appliances like televisions and air-conditioners shift down to 18 per cent tax from 28 per cent earlier. Healthcare too has been eased, with nil or 5 per cent GST on medicines, oxygen, diagnostic kits and insurance policies. Lower costs here are expected to free up disposable income and spur discretionary spending.
The middle class, squeezed by high inflation and patchy job creation, emerges as another winner. Hotel rentals under Rs7,500, economy air tickets and insurance premiums are cheaper. Small cars, hybrids and motorcycles under 350 cc move to 18 per cent GST, boosting affordability. Rate cuts on textiles, footwear, shampoos and cosmetics should spur everyday demand. These are categories that account for a large share of urban family budgets. The Government hopes this will set off a multiplier —more demand, higher production and new jobs. With the festive season approaching, the timing could not be more strategic.
Farmers and the rural economy stand to gain the most. Agricultural machinery — from tractors and threshers to irrigation pumps — is now taxed at just 5 per cent, along with fertiliser inputs and biopesticides. Lower costs ease farm economics, while cheaper tractors and components ripple through rural supply chains. Higher rural incomes typically translate into stronger demand for FMCG, two-wheelers and low-cost durables, offering a bottom-up boost to growth.
The reforms come with a fiscal cost. State and central revenues will be squeezed in the short term, but the Government is betting that higher consumption will expand the tax base and compensate for the hit. Economists are divided: Jefferies sees GDP gains of 1–1.2 percentage points, IDFC First Bank projects 0.6, while SBI Research estimates a surge of Rs.5.3 lakh crore, or 1.6 per cent of GDP.
If the gamble works, the GST overhaul could do more than ease monthly bills — it could trigger a broader consumption cycle, driving production, jobs and investment. But if the relief fades without structural job creation or rural demand revival, the gains may prove transitory.