GST 2.0: Will lower rates make insurance, cars affordable and push GDP growth higher?

India’s proposed GST 2.0 overhaul could trigger a surge in consumer spending, reignite demand across key sectors, and significantly reduce compliance burdens for businesses.

For the insurance sector, Tarun Chugh, Managing Director & CEO of Bajaj Allianz Life Insurance Company, in an exclusive chat with Business Today TV, said, “The proposed reduction or exemption of GST on life and health insurance will directly benefit the customer.”

However, Chugh also cautioned that the final impact on insurance premiums would depend on how input tax credit is treated under the new structure. “If insurers lose input credits on reinsurance and commissions, they may need to adjust base premiums,” he noted.

In his view, a 5% GST with input credits could work better than a full exemption for the industry. However, a lower rate or an exemption will be far better than the current 18%, as it will help expand insurance penetration in the country.

When asked if customers should delay buying policies to wait for lower premiums, Chugh advised against it. “It’s too early. GST changes won’t happen overnight—systems and policy terms need time to align.” He added, “Insurance is a long-term product. Keep paying your premiums. Affordability will improve, but protection shouldn’t wait.”

From a macroeconomic perspective, Madan Sabnavis, Chief Economist at Bank of Baroda, praised the structural shift away from the earlier multi-rate GST regime. “The shift towards a simplified two-slab GST structure (5% and 18%) is very progressive,” he said, adding that multiple rates earlier led to confusion and compliance burdens for businesses.

He also pointed to the strategic timing of the reform, supplementing the income tax cuts announced earlier in the budget, which may unlock discretionary spending ahead of the festival season.

On whether the GST reform-led consumption boost will lead to higher GDP growth, Sabnavis said, “It will help boost consumption, but not radically change GDP forecasts. While the direct impact of GST cuts on GDP would be marginal, I expect a ‘0.3% or so’ positive boost.”

When asked about the potential revenue loss to the government due to GST rationalisation, Sabnavis mentioned that instead of calling it a revenue loss, it should be termed a revenue transfer, “from government to households.” “GST reforms are unlikely to fully offset the impact of US tariffs on the Indian economy,” said Sabnavis, adding that they can help mitigate the negative effects of tariffs.

For the auto sector, which has long borne the brunt of high indirect taxation, the proposed GST cut from 28% to 18% is being seen as a major relief.

Shridhar Kallani, Research Analyst (Automobiles) at Axis Securities, described it as a much-needed demand catalyst. “A GST reduction of almost 28% to 18% in most cases will be like an immunity booster for the auto sector as a whole.” Dealerships are already reporting higher enquiries. “There’s already an uptick in demand inquiries, especially for small entry-level cars,” he added.

On the impact of lower GST rates on prices, he said, “Price drops of approximately 8–10% are expected on small passenger vehicles and two-wheelers. Almost five to six EMIs will be saved by a common man.”

He also shared a view on increasing growth forecasts for the auto sector based on anticipated GST cuts. “For two-wheelers, where we were expecting mid to high single-digit growth, that forecast has now increased to the lower double digits. For passenger vehicles, which was largely lower single-digit growth, that has been revised to the mid-single digits.”