GST rate cut has a larger sentimental impact: Dipti Deshpande of Crisil
Dipti Deshpande says GST rate cuts not a large kicker of growth but will help offset some export slowdown, need incomes to grow for sustainable growth in private final consumption expenditure
- Oct 9, 2025,
- Updated Oct 9, 2025 2:06 PM IST
The new goods and services tax (GST) rates will benefit 11 of the top 30 consumption items and a third of an average consumer’s monthly expenditure, a recent report by Crisil had said. In an interaction with Business Today, Dipti Deshpande, Principal Economist, Crisil, explains the nuances of this report and says that while the rate cut may not have a direct impact on growth, it will have a very larger sentimental impact, coming on the back of the repo rate cuts, supportive fiscal policy and income tax cuts. She also says that despite the US tariffs, 2025 has managed to sail through but 2026 needs to be monitored as there are concerns over a global slowdown that would impact India’s exports. Edited excerpts:
It has been over 20 days since the GST rate cuts have come into effect. What do you make of the rate transmission and demand, and will it give the expected boost to consumption?
There are two, three elements when one speaks about GST. The first is the interest around the impact on growth, then on inflation, fiscal and other parameters. Even without the GST rate cut, domestic demand had been strengthening because of other supportive measures. Rural demand was improving due to the good monsoon and agricultural production, interest rates were coming down, and inflation is at an all-time low. What the GST rate cut really does is it’s more than a direct impact on growth, it will have a very larger sentimental impact, after the repo rate cuts, supportive fiscal policy and income tax cuts.
In our report, we looked at about 30 items from the average consumer basket of an Indian, which comprise 88% of the total monthly expenditure. The average GST rates for these came down from about 11% to 9%, which is a 200-basis point benefit. To that extent, prices will come down. Second, we concluded that it’s a very methodical exercise. Rates of essential items like milk products have been cut. One would now either consume more of those or use some of those savings to consume a little bit more of some other product they weren’t consuming earlier. Rates have also been cut for categories like processed foods, which saw very fast consumption growth over the last couple of years. This basically suggests that there are going to be volume kickers coming in for those categories.
And then, of course, there is auto and consumer durables. The most important is the timing, because at the start of the festive season, consumers know exactly where prices are going to be beneficial. The timing is also good from another aspect, because global growth is slowing and will impact India’s exports. So there is likely to be an offset. We do not see the GST rate cut as a very large booster of growth, meaning that it will not significantly push up private consumption either in the second half of this fiscal or the next fiscal because there are two things that private consumption essentially needs to keep growing at a sustainable basis. Number one is that incomes themselves need to rise. Right now, disposable incomes are going up because the tax burden is coming down. But ideally income needs to keep growing on a continuous basis. Until that happens in urban areas, we don’t expect this to be a very large boost for growth. We have kept our growth forecast at 6.5% for FY26, the same as in FY25. And ther
Some of the items where rates are cut like automobiles and consumer durable are only purchased once a while. How will that play out in consumption demand?
For many of the consumer durables, it could very well be a one-time surge, because perhaps people were postponing consumption to take benefit of the rate cut. The other thing that I feel is that people who anyway planned to purchase some consumer durables are the ones who are going to benefit. From a simple behavioural perspective, if I save more today on purchasing milk and other essentials, it’s not going to be enough for me to purchase a consumer durable. It will be good for the first-time purchaser or someone who had been looking at replacement demand right from the beginning. There will be a sustained surge in the demand for these products only when incomes start picking up. I think the government understands it. If you look at government forecasts, if GST were expected to push demand massively, our growth forecast would have gone to 7-8%, but that has not been the case.
Do you think that second quarter growth is going to get impacted as people postponed purchases to the third quarter? What is your forecast for inflation?
In the second quarter, we expect GDP growth to be softer compared to the first quarter, but it will still benefit from the base effect. Also, the front shipment of exports continued even in July and August. So, I think growth will continue to be fairly healthy even in the second quarter.
On inflation, we’ve pulled down our forecast. The RBI’s number is 2.6% for FY26, but we have kept our number at 3.2% as against the earlier 3.5% before the GST rate cuts. From a direct hit, I think inflation will come down, not just over this fiscal, but over the next fiscal. But we want to be a bit cautious on the food price front as well. Right now, inflation is low and September consumer price inflation is also likely to be softer. But there have been excess rains in some states, and we want to monitor that.
Will the GST rate cuts help offset the impact of the US tariffs on growth as we are a primarily domestic-driven economy?
Even from the time US President Donald Trump started talking about tariffs and then eventually announced them, the way we looked at the impact of tariffs on the entire economy was from, three perspectives. Number one, the impact it would have on exports directly in terms of what we ship to the US. Our exports to the US as a percent of India's GDP is less than 2%, if you take out the exempted items and services exports, it is close to about 1.5% of the GDP. The direct hit, because of US tariffs, is, expected to be fairly low on the GDP growth rate. But what the US is doing is that it's creating a lot of uncertainty and the higher tariffs on other economies like the Eurozone and China, which are our trading partners, is expected to lead to slower growth in these countries.
The impact on India is therefore going to be slightly higher. The impact of weaker global growth on India's exports is expected to be greater than the direct impact of higher US tariffs. But half of our fiscal year is over and the calendar year 2025 for these countries is also coming to an end. There has been a lot of front-loading of shipments. I think 2025, as a calendar year, has managed to sail through and that benefits us, because our goods exports until September have been fairly healthy. It's now just the next six months that we need to be worried about, and goods exports, not just to the US, but also the rest of the world is slowing. Calendar year 2026 is where most of the slowdown in the larger economies may take place. So 2025 is looking good but 2026 is a little trickier now.
The new goods and services tax (GST) rates will benefit 11 of the top 30 consumption items and a third of an average consumer’s monthly expenditure, a recent report by Crisil had said. In an interaction with Business Today, Dipti Deshpande, Principal Economist, Crisil, explains the nuances of this report and says that while the rate cut may not have a direct impact on growth, it will have a very larger sentimental impact, coming on the back of the repo rate cuts, supportive fiscal policy and income tax cuts. She also says that despite the US tariffs, 2025 has managed to sail through but 2026 needs to be monitored as there are concerns over a global slowdown that would impact India’s exports. Edited excerpts:
It has been over 20 days since the GST rate cuts have come into effect. What do you make of the rate transmission and demand, and will it give the expected boost to consumption?
There are two, three elements when one speaks about GST. The first is the interest around the impact on growth, then on inflation, fiscal and other parameters. Even without the GST rate cut, domestic demand had been strengthening because of other supportive measures. Rural demand was improving due to the good monsoon and agricultural production, interest rates were coming down, and inflation is at an all-time low. What the GST rate cut really does is it’s more than a direct impact on growth, it will have a very larger sentimental impact, after the repo rate cuts, supportive fiscal policy and income tax cuts.
In our report, we looked at about 30 items from the average consumer basket of an Indian, which comprise 88% of the total monthly expenditure. The average GST rates for these came down from about 11% to 9%, which is a 200-basis point benefit. To that extent, prices will come down. Second, we concluded that it’s a very methodical exercise. Rates of essential items like milk products have been cut. One would now either consume more of those or use some of those savings to consume a little bit more of some other product they weren’t consuming earlier. Rates have also been cut for categories like processed foods, which saw very fast consumption growth over the last couple of years. This basically suggests that there are going to be volume kickers coming in for those categories.
And then, of course, there is auto and consumer durables. The most important is the timing, because at the start of the festive season, consumers know exactly where prices are going to be beneficial. The timing is also good from another aspect, because global growth is slowing and will impact India’s exports. So there is likely to be an offset. We do not see the GST rate cut as a very large booster of growth, meaning that it will not significantly push up private consumption either in the second half of this fiscal or the next fiscal because there are two things that private consumption essentially needs to keep growing at a sustainable basis. Number one is that incomes themselves need to rise. Right now, disposable incomes are going up because the tax burden is coming down. But ideally income needs to keep growing on a continuous basis. Until that happens in urban areas, we don’t expect this to be a very large boost for growth. We have kept our growth forecast at 6.5% for FY26, the same as in FY25. And ther
Some of the items where rates are cut like automobiles and consumer durable are only purchased once a while. How will that play out in consumption demand?
For many of the consumer durables, it could very well be a one-time surge, because perhaps people were postponing consumption to take benefit of the rate cut. The other thing that I feel is that people who anyway planned to purchase some consumer durables are the ones who are going to benefit. From a simple behavioural perspective, if I save more today on purchasing milk and other essentials, it’s not going to be enough for me to purchase a consumer durable. It will be good for the first-time purchaser or someone who had been looking at replacement demand right from the beginning. There will be a sustained surge in the demand for these products only when incomes start picking up. I think the government understands it. If you look at government forecasts, if GST were expected to push demand massively, our growth forecast would have gone to 7-8%, but that has not been the case.
Do you think that second quarter growth is going to get impacted as people postponed purchases to the third quarter? What is your forecast for inflation?
In the second quarter, we expect GDP growth to be softer compared to the first quarter, but it will still benefit from the base effect. Also, the front shipment of exports continued even in July and August. So, I think growth will continue to be fairly healthy even in the second quarter.
On inflation, we’ve pulled down our forecast. The RBI’s number is 2.6% for FY26, but we have kept our number at 3.2% as against the earlier 3.5% before the GST rate cuts. From a direct hit, I think inflation will come down, not just over this fiscal, but over the next fiscal. But we want to be a bit cautious on the food price front as well. Right now, inflation is low and September consumer price inflation is also likely to be softer. But there have been excess rains in some states, and we want to monitor that.
Will the GST rate cuts help offset the impact of the US tariffs on growth as we are a primarily domestic-driven economy?
Even from the time US President Donald Trump started talking about tariffs and then eventually announced them, the way we looked at the impact of tariffs on the entire economy was from, three perspectives. Number one, the impact it would have on exports directly in terms of what we ship to the US. Our exports to the US as a percent of India's GDP is less than 2%, if you take out the exempted items and services exports, it is close to about 1.5% of the GDP. The direct hit, because of US tariffs, is, expected to be fairly low on the GDP growth rate. But what the US is doing is that it's creating a lot of uncertainty and the higher tariffs on other economies like the Eurozone and China, which are our trading partners, is expected to lead to slower growth in these countries.
The impact on India is therefore going to be slightly higher. The impact of weaker global growth on India's exports is expected to be greater than the direct impact of higher US tariffs. But half of our fiscal year is over and the calendar year 2025 for these countries is also coming to an end. There has been a lot of front-loading of shipments. I think 2025, as a calendar year, has managed to sail through and that benefits us, because our goods exports until September have been fairly healthy. It's now just the next six months that we need to be worried about, and goods exports, not just to the US, but also the rest of the world is slowing. Calendar year 2026 is where most of the slowdown in the larger economies may take place. So 2025 is looking good but 2026 is a little trickier now.