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A sharp jump in sales, especially of electronics and consumer goods; reduced prices for key daily-use items; all adding up to a significant push to consumption which may even reflect in the GDP numbers for financial year 2025-26 — these were some of the key gains, highlighted by the government Saturday, attributed to GST 2.0 reforms rolled out September 22.
At a joint conference named “GST Bachat Utsav,” held by Finance Minister Nirmala Sitharaman, Commerce and Industry Minister Piyush Goyal, and Information & Broadcasting Minister Ashwini Vaishnaw, the government’s message was that the benefits of GST rate cuts are reaching the end-consumers and these cuts have resulted in consumers increasing their purchases, which in turn, is going to be a driving force for investment.
Sitharaman said the tax reduction isn’t limited to this season and the consumption story will continue. When asked whether the rise in consumption is due to pent-up demand or revenge purchases, she said: “It is important for us to understand that these tax reductions are required from the point of view of making the system a lot more nimble. Better collections mean you have greater fiscal room to give back something. So, now that the collections have improved…and we are touching close to Rs 2 lakh crore gross collections per month, there is a reason for us to cut the rate also and pass on the benefit to the consumers,” she said.
The Finance Minister said that the central GST (Goods and Services Tax) formations across the country are monitoring prices of 54 daily-use items since the GST 2.0 rollout on September 22 and the tax benefit has been passed for all items except some varieties of cement.
“…54 items are being closely monitored. Not in one has the tax benefit not been passed, not even in one item…there are, of course, one or two items like high-end cement, the Portland variety, on which there is an expected rate of passing on should happen, but it is less than that rate. It’s called PPC or Portland Pozzolana Cement, probably that one category which is far lesser than what should have been expected to be passed on…except for Portland variety of cement of 1 or 2 brands, all cement companies have reduced (prices), so are milk and milk-related items,” she said.
“So on these 54 particular items for which we have been getting inputs from the zones, we are convinced that on every such item the benefits are being passed on,” she added.
Under the next-generation GST reforms, multiple slabs — 5 per cent, 12 per cent, 18 per cent and 28 per cent — were replaced with a broad two-slab structure: a merit rate of 5 per cent and a standard rate of 18 per cent, in addition to a special demerit rate of 40 per cent for sin and demerit goods.
The reforms were announced by Prime Minister Narendra Modi in his Independence Day speech, following which the GST Council, having representatives from the states and Centre, met in the capital on September 3 to give its nod to GST 2.0 that became effective September 22.
Vaishnaw said there have been record sales for electronics this Navratri which, in turn, has affected electronics manufacturing, adding that even food prices are seeing a downward trend.
“Data from retail chains shows that there has been an increase in sales by 20-25 per cent compared with Navratri last year. For the last four months, food (items) are seeing deflation. Food prices are reducing because of the reforms in GST…demand is increasing for electronic goods which is directly impacting electronic manufacturing, which is now growing at double-digit CAGR, it is expanding very rapidly and today electronics manufacturing is giving employment to about 25 lakh persons directly. For the smartphones that go to the US, this year India has surpassed our neighbour in exporting smartphones to the US,” he said, adding that the second semiconductor plant started production last week.
With this increase in consumption, Vaishnaw said, these numbers may reflect in GDP figures also. “If we see last year’s GDP number (for India), the GDP size is Rs 335 lakh crore, out of which Rs 202 lakh crore is consumption and investment is of Rs 98 lakh crore. Consumption rises in a natural way every year as income grows, as country grows, but because of the GST reforms, consumption will be significantly increasing and it’s very likely that the consumption will increase more than 10 per cent this year, which means extra consumption is likely to be of Rs 20 lakh crore this year compared to last year,” he said, later clarifying that the 10 per cent growth is anticipated in nominal terms.
The increase in consumption is expected to drive a corresponding rise in investments, reinforcing the growth momentum and demonstrating how GST reforms have strengthened the link between consumption and investment in the economy, he said.
When asked about the resultant impact on GDP growth figure, which the government has projected to be 6.3-6.8 per cent for the ongoing financial year 2025-26, Sitharaman said she would not speculate on the growth number but the upward trend of consumption, one of the key engines of growth, is clear.
On criticism from the Opposition that the GST reforms are merely a course correction, Sitharaman said the government set the course for GST and implemented it. “The Opposition neither brought GST nor even dared to attempt it. What we are doing today is not a correction, but a conscious decision, a reflection of cooperation between the Central Government and the GST Council to pass on greater benefits to the people. During the Congress era, they didn’t even attempt a course correction. They kept the income tax rate above 90 per cent,” she said.
Commerce & Industry Minister Goyal said that the indirect tax system impacts 140 crore Indians, and the decision to provide relief of Rs 2.5 lakh crore through both direct and indirect tax measures is unprecedented.
He said the multiplier effect of these reforms is already visible in investment, business, and industry, and as soon as the GST announcement came in, foreign investors quickly realised that this would fuel a demand surge. Asked if some e-commerce firms have not passed on the benefits of GST cut to consumers, Goyal said that normally all companies have passed on the benefits and, additionally, they have announced cash bonuses and discounts also. “But if any site or platform has not passed on the benefits…consumer affairs (department) can take action …all industry and businesses have assured me that full benefit will be passed on to consumers,” he added.
On whether the tax changes have come in the backdrop of the India-US trade deal negotiations, Sitharaman said that was not the case as the GST reforms have been in the works for the last one-and-a-half years. “…whoever thought of any tariff war at that time, and several groups of ministers were working on this for one-and-a-half years, and several groups of these GoMs met again, post the Government of India’s package, which was sent to the GST Council, which was sent to the group of ministers. So these are discussed at various levels at various times. So nowhere close to the tariff war. This had to happen. This was waiting to happen for quite some time. It has happened now…”
On the potential revenue loss for states, Sitharaman said the Centre and states are equal partners. “All of us are sitting there together. Any revenue loss, the way in which it has been put, is a loss for the Centre also. Any reduction in the earnings is a reduction in the earnings of the Centre also…so the Centre is not sitting with an additional bag of resources to be able to fund states if they’re not doing well. All of us are equally in it,” she said.
Sitharaman shared granular data of the price changes for several items after the GST rate cuts.
For instance, while shampoo saw the GST rate come down to 5 per cent from 18 per cent, she said the average actual decrease in prices has been 12.36 per cent even as they had expected a benefit of 11.02 per cent.
Similarly, for talcum powders the reduction has been 11.77 per cent while the intended benefit was 11.02 per cent, prices of face powders have reduced by 12.22 per cent while the expected benefit was 11.02 per cent. For clinical diapers, the expected benefit was 6.25 per cent but the actual decrease in price is 10.38 per cent, she said.
Reduction has been seen for other items like table, kitchen and other household articles of iron, steel and copper, including household utensils. “The expected weighted average (benefit) to be passed on would have been actually justified to be 6.25 per cent, but what has been actually passed on is 10.24 per cent,” she said.
For toys like tricycles, scooters, and pedal cars, the intended benefit was 6.25 per cent but the actual decrease in price is 8.93 per cent. For solar cookers, the benefit was 6.25 per cent, and 6.96 per cent has been passed on, she said, adding that the price reduction has been significant for umbrellas, where 6.25 per cent would have been justified, but 9.19 per cent reduction has been actually passed on.
She also cited numbers for the automobile sector sales, saying that three-wheeler dispatches grew by 5.5 per cent year-on-year to 84,077 units which is up from 79,683 units in September 2024. She further said that two-wheeler sales were up at 21.6 lakh units in September. As per Society of Indian Automobile Manufacturers (SIAM) data, this is up 6.7 per cent year-on-year. The passenger vehicles dispatches, Sitharaman said, were 3.72 lakh in September (up 4.4 per cent YoY), while tractor sales more than doubled in September to 1.46 lakh units from the previous month’s level.
The Finance Minister said the GST reforms have involved three sets of measures — rate cuts, reduction in slabs from four to two, and simplification of the registration process. “…above all, the classification related issues which led to a lot of questions and confusion in the minds of people and which also took a lot of courts’ time have all been ironed out. So having done that, and having done that well in time for Deepavali, in fact, launched it on the first day of Navratri, I feel the people of India have received it well.”
