India's GST Reforms: A Boost to Consumption and Growth

Strategic Insights -

The Indian government's recent reforms to the Goods and Services Tax (GST) regime aim to simplify the tax structure, reduce litigation, and enhance the ease of doing business. The reforms, which come into effect from September 22, 2025, reduce the number of tax slabs from four to three, with rates of 5%, 18%, and 40% (reserved for sin and luxury goods). Approximately 90% of items have been moved from higher to lower slabs, benefiting consumers directly.

Key Takeaways:

  • The GST reforms are expected to boost consumption and economic growth, particularly in the rural and urban markets, where lower taxes on essential and processed goods will create savings for consumers and improve spending.
  • Experts believe that the reforms will play a key role in addressing demand challenges, with a YES Securities report predicting a premiumisation effect among low- and middle-income households.
  • The reforms are also expected to strengthen domestic economic growth amid global uncertainties, with a Motilal Oswal report suggesting that the measures will support growth and encourage long-term capacity building.
  • Anirudh Garg, Partner and Fund Manager at INVasset PMS, expects private consumption growth to rise by 40-50 basis points in the second half of the current financial year, helping cushion the Indian economy against external headwinds.
  • The reforms are expected to shield external pressures, including worries related to US tariffs, with an ICRA report suggesting that the domestic consumption and sentiment boost will help offset these concerns.

Statistics:

  • Returns are in rupee terms, based on closing values from September 5, 2024, to September 5, 2025.
  • The MSCI India Index delivered -4.5% over the past year, while the MSCI Emerging Markets and MSCI World Indices gained 24.5% and 23.4%, respectively.
  • Around 90% of items have been moved from higher to lower slabs, benefiting consumers directly.
  • The revised GST rates are expected to boost affordability and consumption across rural and urban markets.
  • The government estimates a revenue loss of Rs 48,000 crore due to the reduced GST rates.

Sources:

  • YES Securities report
  • Motilal Oswal report
  • Anirudh Garg, Partner and Fund Manager at INVasset PMS
  • ICRA report
  • Elara Capital report
  • JM Financial report
  • Times of India report