GST Rationalisation: Implications for India’s Consumption and Growth Cycle-Ashwini Shami
Executive Vice President & Portfolio Manager
The GST Council’s 56th meeting has delivered the most comprehensive overhaul of India’s indirect tax structure since its inception in 2017.
Beyond technical simplification, this reform signals a deliberate policy push to revive consumption, ease inflationary pressures, and create a more efficient tax ecosystem — with far-reaching implications for equity markets.
Structural Simplification: From Four Slabs to Two
The multi-rate system has been consolidated into a two-tier structure of 5% and 18%, eliminating the contentious 12% and 28% brackets.
A 40% sin tax remains on tobacco, pan masala, and luxury vehicles. This simplification reduces classification disputes, enhances compliance, and aligns India with global best practices.
Consumer Relief: Zero Tax on Essentials
Expansion of the zero-rated list boosts household purchasing power:
• Food staples – roti, paneer, UHT milk
• Healthcare & insurance – life and health policies, senior citizen plans, 33 critical drugs
• FMCG – soaps, toothpaste, shampoo, butter, ghee, dry fruits (tax cut from 18% to 5%)
Sectoral Stimulus: Growth Drivers for Listed Companies
• Autos & Durables – small cars, two-wheelers, ACs, TVs moved from 28% to 18%; a direct demand trigger for discretionary consumption plays.
• Agriculture – tractor tires, drip irrigation, bio-pesticides cut to 5%; rural productivity support with spillover into rural consumption themes.
• MSMEs – faster registration (3 days), quicker refunds, and GST Tribunal rollout by Dec 2025; positive for formalisation and supplier ecosystems.
• Insurance/Healthcare – lower tax burden improves penetration and supports long-term financialisation of savings.
Macro-Economic Impact
Effective September 22, 2025, the rollout is strategically timed with Navratri to maximise festive demand. While revenue loss is estimated at ₹48,000 crore, economists expect a 1–1.2% GDP growth lift over 4–6 quarters, offsetting fiscal concerns through demand expansion.
Investor Takeaways
For investors, GST rationalisation reinforces the case for a consumption-led growth cycle. Sectors such as FMCG, consumer durables, autos, and rural-focused businesses stand to gain from volume growth and margin support.
Healthcare, insurance, and agri-inputs may see stronger penetration and adoption curves.
OmniScience Capital View: GST rationalisation is not just a tax reform but a structural catalyst for India’s next consumption wave. Investors should consider overweight positions in consumption-linked sectors, where both cyclical recovery and structural tailwinds now converge.
