The rejigging of GST rates has been long awaited, promising a non-inflationary push to the economy, stimulation of demand, and ease of doing business. The Centre hopes it will also cushion India against the impact of US tariffs.
Overall, the reset is expected to lift sales, reduce costs, and improve corporate profits. SBI Research estimates retail inflation could ease by 65–75 basis points. Large companies stand to benefit most, while individuals may see only token gains — like an extra gram or two in low-priced FMCG packs. Pencils and similar items if purchased in bulk would benefit the buyer.
In many cases like airline tickets, apparel or shoes dual rates pose problems. Benefits may be less on present market stocks but it can gradually set a new lower pricing trend.
The health insurance sector remains in a bind. Even with an 18 percent (to zero) GST cut, premiums may not drop significantly as insurers await clarity on input tax credits. They are demanding zero GST on
agents’ commissions or input cost refunds. Since commissions range from 30–80%, the benefits may not
reach consumers.
Airlines face dual rates — 5% for economy class, 12% for business class — and argue that a uniform rate would simplify operations. Hotels too complain that GST input taxes aren’t defrayed, leaving doubts on whether benefits from reduced room tariffs can be passed on to customers.
E-commerce delivery services face 8 percent tax, raising food delivery fees by about Rs 2 per order for Zomato and Swiggy. Amazon and Instamart are already under this slab. Drug prices will fall modestly, e.g., Rs 3 on a Rs. 50 strip, while clothing and footwear under Rs 2,500 may be cheaper by Rs 125 a piece, though big retailers may mask the benefit under promotional offers. Dual rates on apparel above Rs 2,500 may not brighten up festive sales. Amazon and some other delivery services are already in the 18 percent slab.
Consumer pushback is mixed. Reliance’s Mukesh Ambani calls it a “booster,” but many disagree. As Times of India editorial noted: “GST reductions won’t boost growth unless businesses pass on benefits fully.” With the CGST Act’s enforcement mechanism discontinued, companies may selectively pass on gains only if it
helps demand.
Treatment costs with a slashing of 12 percent tax to 5 percent on all drugs as the chemists have been told to pass on the benefit even on existing stock. Prices would see a nominal drop – about Rs 3 for a Rs 50 per strip.
Clothing, footwear priced under Rs 2500 being moved to the 5 percent slab may see a Rs 125 benefit per piece. But how it would be passed on is jigsaw as most large retailers club it in buy two get three or five package. The dual rate for products costing above Rs 2500 at 18 percent needs sorting out. The socialistic logic of differentiation in terms of price has its problems. The next GST Council should take a holistic look
and reengineer it to the basic rate for brand sustainability and higher sales.
As per the reset taxes expected savings for the consumers are substantial and hopefully help business penetration. But businesses seemingly have reservation. The CGST Act requires companies to pass on
benefits, to make goods and services cheaper, but registration of cases for breach of the rule was discontinued in April. Firms may slash price if it boosts demand and profits else would prefer the higher prices.
Consumption Falls
Private consumption accounting, 61 percent of GDP, has been sluggish. But discretionary spending has been weak. Car sales and eating-out trends are not bright. The expected windfall in higher tax collection from sales of cars, bikes, trucks, tractors may not be there during the festive season like the last year. The sale of air conditioners and larger TVs are also expected as taxes may come down by Rs 3000 approximately. Would that lure buyers?
Total Tax Review
The sin goods at 40 percent needs a review. Aerated drinks in the segment hits many genuinely small domestic company products. Sugar, the base of these products, already has 5 percent tax. Nonalcoholic
toddy and neera get exempt from GST. On the other hand, 12 percent of GST applies to soya, milk, coconut water and fruit pulp drinks. Many alcohol drinks are at 18 percent. Gradually petrol has to be
included for a lower transportation and business costs. Simplification of electricity duty and stamp duties
levied separately by each state are necessities. So has to be property registration and house taxes for
ensuring a one-tax Bharat.
About Rs 93000 crore revenue is at stake with these cuts. If demand picks up gains could be more. The
finance ministry expects that despite all likely gains it would have Rs 48000 crore deficit this year. That too would be possible if the lower taxes ensure lower prices.
Sliding Rupee to save Exports!
The cuts would have minimal impact on exports. Falling rupee is supposed to be the biggest undoer of Donald Trump tariffs. Many exporters are looking for rupee sliding to Rs 104 a dollar to keep their cash flow bulging. One positive impact of Commerce Minister Piyush Goyal’s expected diversified rise in exports.
There are in-built hurdles. While overall GDP growth rises to 7.8 percent in the June quarter (6.5 percent in 2024), real private consumption falls to 7 percent from 8.3 percent. Several national and international challenges can cut growth by 1 percent. Also there is problem of RBI ability maintaining foreign currency assets as stock market sees dwindling foreign portfolio investments and falling rupee-dollar parity.
India’s net foreign direct investment plummets 98 percent to $35 million in May, driven by increased repatriation and decreased gross inflows. While gross inflows experienced an 11 percent year-on-year decline to $7.2 billion, repatriation surged by 24 percent to $5 billion.24 Jul 2025 with relaxation for
repatriations up to one million dollar a year.
Despite GST being made a genuinely simple tax and at a proper timing, politically, before the beginning of a new season of state elections and festive business, which was clamouring for relief, a culmination would be possible with removal of small hitches that has come out with the new GST cuts. The reform has to
continue.
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