GST rationalisation to boost growth with lower rates on essentials, autos, appliances: Report

India’s goods and services tax (GST) structure has undergone its most significant reform since its launch, with sweeping rate cuts across agriculture, autos, appliances, textiles, and everyday essentials. According to the Finance Ministry’s Monthly Economic Review (August 2025), the changes are expected to stimulate consumption, ease inflationary pressures, and provide a timely boost to overall economic activity.

The GST reforms that came into effect on Monday (September 22, 2025) are expected to reduce household expenses on groceries and daily essentials by 13%, while buyers of small cars could save nearly Rs 70,000. Government estimates suggest that purchases of stationery, clothing, footwear, and medicines will bring savings in the range of 7–12%. In addition, savings could rise to as much as 18% on individual health and life insurance policies, which have now been exempted from GST.

Key changes

The GST Council has streamlined the tax system into a two-rate structure — a standard rate of 18% and a merit rate of 5%, along with a 40% slab for select demerit goods.

Agriculture: GST on tractors and farm machinery has been slashed from 12% to 5%. Fertiliser inputs such as sulphuric acid and ammonia are also reduced to 5% from 18%.

Automobiles: Small cars, motorcycles under 350cc, three-wheelers, buses, and ambulances now attract 18% GST, down from 28%. Auto parts have been standardised at 18%.

Electronics: Large TVs, monitors, dishwashers, and air conditioners have been shifted to 18% from 28%.

Textiles & labour-intensive goods: GST on man-made fibres and yarn has been reduced to 5% (from 18% and 12%). Handicrafts, marble, and leather goods are also down to 5%.

Everyday essentials: Toothpaste, soaps, hair oil, bicycles, and kitchenware now fall under 5%. Packaged paneer, UHT milk, and all Indian breads are tax-free.

Healthcare: Lifesaving medicines are exempt, while other drugs have been brought down to 5% from 12%.

Services: Hotels charging below Rs 7,500 per night and wellness services like gyms and salons have been reduced to 5%.

Economic impact

As stated in the FM report, GST rationalisation complements earlier corporate tax cuts and income tax reforms, forming a three-pronged fiscal push to demand. Combined with lower inflation and recent RBI policy rate reductions, the measures create conditions for accelerated growth.

Economists believe households will benefit from lower costs, businesses will see reduced input expenses, and consumption of cars and appliances will rise. Reflecting this optimism, the OECD recently raised India’s growth outlook for 2025 to 6.7%, citing the GST overhaul as a key driver.

With the festive season ahead, policymakers expect the reforms to support demand, strengthen formalisation, and align with the government’s broader Make in India strategy.

On Sunday (September 21, 2025), PM Narendra Modi, in his address to the nation, hailed the reforms as “next generation reforms” and congratulated citizens on what he termed the “GST Savings Festival.”

The Prime Minister highlighted how the restructured GST rates would make everyday items more affordable, thereby improving the lives of the poor, middle class, and emerging middle class. He further reiterated the importance of buying goods manufactured in India, stating, “India’s prosperity will gain its strength from the Swadeshi mantra.”