GST rate cuts
Cash registers in Indian markets are anticipated to see a significant uptick. According to a recent research by Mumbai-based financial services company PL Capital, low inflation, strong rural income, and updated GST slabs have created the conditions for a significant resurgence in domestic demand in India.
According to the analysis, the Indian economy is at a turning point, with several tailwinds coming together to boost consumer spending that may go far past the festival season. This might help offset the impact of export losses brought on by Trump’s tariffs.
The ideal scenario for a surge in consumption
This optimism is based on a far better inflation scenario. Food costs are deflationary, and the Consumer Price Index (CPI) has dropped to an exceptionally low 1.6%.
Ordinary Indians will have more purchasing power as a result. In comparison to the high single-digit inflation that previously put pressure on household budgets, this is a dramatic reversal.
There are other additional elements that are intensifying this.
Rural revival: A typical monsoon is increasing agricultural production and, as a result, rural incomes, giving a large portion of the population more money.
Fiscal firepower: It is anticipated that a tax cut of ₹1,000 billion (₹1 lakh crore) in the upcoming fiscal year (FY26) will serve as a direct stimulus, promoting expenditure.
Less expensive loans: It is projected that the Reserve Bank of India (RBI) will lower interest rates by a substantial 100 basis points (1%). According to the research, this will directly encourage expensive purchases by lowering the EMIs for personal loans, auto loans, and residences.
GST 2.0: The impending game-changer
Previously, there were four GST slabs, but now there are just two, at 5% and 18%. This will lower the cost of “common man” and “middle class things,” such as autos, air conditioners, shampoos, and soaps.
Tobacco and luxury goods, however, would now be subject to 40% GST rather than 28%. This category will include motorcycles and cars that are medium to large and have engines larger than 350cc.
The biggest structural change fostering this optimistic attitude is the implementation of GST 2.0. By keeping just two slabs, this next-generation tax reform streamlines the tax structure.
With receipts more than doubling from ₹11.77 trillion in FY19 to a record ₹22.08 trillion in FY25, GST has emerged as a key source of income for India since its introduction in 2017.
According to the analysis by PL Capital, GST 2.0 has reduced prices for a variety of goods, from daily necessities and medications to cars and home appliances, by rationalizing the slabs. This has significantly increased consumption.
