GST 2.0: A CONSUMPTION BONANZA

The tax overhaul sets the stage for sustained consumption-led growth, potentially reshaping sectoral demand patterns and influencing India's economic trajectory in the coming years

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The onset of Navratri starts a major festive buying season in India, but this year it brought a windfall for consumers.

On 12th September, India launched the most radical overhaul of the goods and services tax (GST) since the system's inception in 2017. In one sweep, the government compressed a patchwork of rates into two slabs of 5% and 18%, doing away with the 28% slab, and exempted or softened taxes on a long list of essentials, with the aim to boost demand, lighten inflation and spur investment. Along with tidying the tax, the reform seeks to provide a fiscal jolt to an economy that has shown signs of fatigue in recent quarters.

By leaving almost ₹2 lakh crore with consumers and cutting the effective tax burden on spending to around 10%-11%, down from 14%-15%, the government is betting on the fact that lower prices will reignite demand across a swathe of sectors, from soaps to scooters.

Finance Minister Nirmala Sitharaman was quick to emphasize the populist thrust. With 99% of goods now placed under either a nil rate, 5% or 18% slab, she argued, the benefits would accrue disproportionately to the middle class and the poor.

Experts, for their part, see the move as a classic Keynesian boost at a time when global headwinds are dampening exports and corporate capex has been hesitant.

The stakes are high. For nearly a decade, India's policymakers have struggled with a conundrum: how to engineer faster household consumption without loosening the fiscal screws too much. The new GST architecture represents an ambitious attempt to solve that puzzle.

A CONSUMPTION STIMULUS

Though cast as a tax rationalization, GST 2.0 is effectively a consumption stimulus. Together with earlier income-tax cuts, economists reckon the measures could lift private consumption by as much as 1.6% of GDP in FY26.