GST rate cuts: Industry sees demand pickup and consumption boost
Concerns over the revenue hit in the short term remain, whether companies pass through rate cuts key monitorable, GoMs to meet on August 20, GST Council meeting likely in late September
- Aug 19, 2025,
- Updated Aug 19, 2025 12:43 PM IST
Companies are looking forward to the proposed rate cuts under the goods and services tax (GST), which is expected to give a boost to both discretionary as well as some amount of non-discretionary spending. Combined with the 100-basis point cut in rates by the Reserve Bank of India, consumer durable and auto companies also expect it to lift sales.
But despite the consumption push that is seen to also boost revenues, there remain concerns about potential revenue losses and the impact especially on state finances.
States have taken a cautious stance on the proposal mooted by the Centre and are awaiting the details and the fineprint. The Group of Ministers on rate rationalisation is set to meet in Delhi on August 20 and 21 to discuss the proposals and is likely to finalise its reports. Other GoMs under the GST Council, including the GoM on compensation cess and the GoM on health and life insurance, are also expected to meet on August 20.
A final decision on the proposed rate rationalisation as well as other reforms under GST is expected to be taken by the GST Council when it meets in late September.
“The cut in GST rates that has been proposed by the Centre will certainly boost consumer sentiment. Sales of FMCG and discretionary items will see an immediate impact as and when the cuts get approved by the GST Council and implemented. The tax cuts will be especially useful for more large ticket items like consumer durables and auto where can give a big difference in pricing,” said an industry expert.
As per the proposal mooted by the Centre, mass consumption and daily use items such as ghee are likely to be moved to the 5% slab from the current 12% slab. Meanwhile, consumer durables, small cars and two-wheelers that are currently taxed at higher rates of 28% could move to the 18% GST slab.
A report by Kotak Institutional Equities noted that this could translate to an estimated economic boost of around Rs 1.3 lakh crore to select sectors and the quantum may be higher if entire 12% slab gets subsumed in 5%. “Mass consumption and aspirational goods will likely move to lower rates, resulting in rate reduction for select autos, cement, consumer durables and staples,” it said, adding that cement sector may see limited benefit given low price elasticity.
HSBC Global Investment Research also said that immediate tax cuts could spur demand across products - food, beverages, consumer durables, autos, hotels, cement, building materials. Further, over time, efficiency gains of moving to a simpler and more predictable tax regime with fewer rates, could raise India's potential GDP growth over time,” it said.
But key questions on the revenue loss from the move and the actual transmission of the rate cuts to consumers by companies remain to be seen.
“However, things begin to get complicated when we ask who will foot the bill of tax cuts,” said the report by HSBC Global Investment Research noting that the Centre has other revenue sources to count on but the states do not have as many options.
“We estimate that as some products are moved to lower tax buckets (from the 12% to the 5% bin, and from the 28% to the 18% bin, though a minority may be pushed up from the 12% to 18% or from 28% to 40% too), the cost to the exchequer will be around $ 16 billion (Rs 1,430 billion or 0.4% of the GDP),” it said adding that in the GST spirit, this could be equally split between the central and state governments.
The centre has other revenue sources to count on, but states do not have as many options, said the report, adding that states may not agree to the revenue hit.
Nomura in a report also noted that lower taxes along with low inflation and favorable monetary policy present tailwinds for recovery in consumption demand in the second half of the fiscal year.
It expects that the move could reduce tax collection for the exchequer by more than Rs 1.5 trillion, or 0.45% of GDP. “Lower oil prices leading to higher excise duty collection, and higher dividends from RBI and higher consumption demand are mitigating factors to an extent, in our view,” it noted.
Companies are looking forward to the proposed rate cuts under the goods and services tax (GST), which is expected to give a boost to both discretionary as well as some amount of non-discretionary spending. Combined with the 100-basis point cut in rates by the Reserve Bank of India, consumer durable and auto companies also expect it to lift sales.
But despite the consumption push that is seen to also boost revenues, there remain concerns about potential revenue losses and the impact especially on state finances.
States have taken a cautious stance on the proposal mooted by the Centre and are awaiting the details and the fineprint. The Group of Ministers on rate rationalisation is set to meet in Delhi on August 20 and 21 to discuss the proposals and is likely to finalise its reports. Other GoMs under the GST Council, including the GoM on compensation cess and the GoM on health and life insurance, are also expected to meet on August 20.
A final decision on the proposed rate rationalisation as well as other reforms under GST is expected to be taken by the GST Council when it meets in late September.
“The cut in GST rates that has been proposed by the Centre will certainly boost consumer sentiment. Sales of FMCG and discretionary items will see an immediate impact as and when the cuts get approved by the GST Council and implemented. The tax cuts will be especially useful for more large ticket items like consumer durables and auto where can give a big difference in pricing,” said an industry expert.
As per the proposal mooted by the Centre, mass consumption and daily use items such as ghee are likely to be moved to the 5% slab from the current 12% slab. Meanwhile, consumer durables, small cars and two-wheelers that are currently taxed at higher rates of 28% could move to the 18% GST slab.
A report by Kotak Institutional Equities noted that this could translate to an estimated economic boost of around Rs 1.3 lakh crore to select sectors and the quantum may be higher if entire 12% slab gets subsumed in 5%. “Mass consumption and aspirational goods will likely move to lower rates, resulting in rate reduction for select autos, cement, consumer durables and staples,” it said, adding that cement sector may see limited benefit given low price elasticity.
HSBC Global Investment Research also said that immediate tax cuts could spur demand across products - food, beverages, consumer durables, autos, hotels, cement, building materials. Further, over time, efficiency gains of moving to a simpler and more predictable tax regime with fewer rates, could raise India's potential GDP growth over time,” it said.
But key questions on the revenue loss from the move and the actual transmission of the rate cuts to consumers by companies remain to be seen.
“However, things begin to get complicated when we ask who will foot the bill of tax cuts,” said the report by HSBC Global Investment Research noting that the Centre has other revenue sources to count on but the states do not have as many options.
“We estimate that as some products are moved to lower tax buckets (from the 12% to the 5% bin, and from the 28% to the 18% bin, though a minority may be pushed up from the 12% to 18% or from 28% to 40% too), the cost to the exchequer will be around $ 16 billion (Rs 1,430 billion or 0.4% of the GDP),” it said adding that in the GST spirit, this could be equally split between the central and state governments.
The centre has other revenue sources to count on, but states do not have as many options, said the report, adding that states may not agree to the revenue hit.
Nomura in a report also noted that lower taxes along with low inflation and favorable monetary policy present tailwinds for recovery in consumption demand in the second half of the fiscal year.
It expects that the move could reduce tax collection for the exchequer by more than Rs 1.5 trillion, or 0.45% of GDP. “Lower oil prices leading to higher excise duty collection, and higher dividends from RBI and higher consumption demand are mitigating factors to an extent, in our view,” it noted.