GST reset: A tax reform that can reignite our consumption story

India's GST revision restores confidence in its economic promise and provides just the spark we needed at a delicate moment

- RAJESH SHUKLA is managing director and chief executive officer of People Research on India's Consumer Economy.

India's GST Council has finally done what many had hoped for since 2017—simplified the regime and made it more pro-consumption. From 22 September, the goods and services tax (GST) will collapse into two main rates of 5% and 18%, plus a stiff 40% for a narrow set of luxury and 'demerit' goods. What looks like a technical rearrangement of slabs is in fact a powerful reset that could change how households spend, companies set prices and the economy grows.

The headline is price relief where it matters most. Everyday goods—like soaps, shampoos, packaged foods, bicycles—shift to the 5% bracket. Cement, long burdened at 28%, moves to 18%, cutting construction costs. Farm equipment and irrigation tools also drop to 5%, giving a boost to rural capex. Life-saving drugs go down to 0-5%, while health and life insurance premiums are exempt altogether. In one stroke, the reform touches both mass consumption and social welfare. For the bottom 40% of households struggling with inflation, the tax cut translates into immediate breathing room.

Urban discretionary demand, which has wavered since the pandemic, should strengthen. Large appliances—ACs, dishwashers, TVs above 32-inch screens—shift from the punitive 28% slab to 18%. Two-wheelers and small commercial vehicles also benefit. Lower sticker prices and loan repayment instalments could nudge lower middle-class households earning about 5-10 lakh annually to upgrade rather than defer. That psychological shift is crucial. India's urban consumer has been cautious, squeezed by high financing costs and food inflation. A GST-led price reset, coinciding with the festive quarter, offers exactly the kind of trigger that can unlock pent-up demand.