GST 2.0 Reforms - Sectoral Impact - Sept 2025
Consumption boost amidst continued reforms
2-slab structure to ease compliance and working capital requirement
GST council approves new structure
GST Council confirmed discontinuing 12 per cent and 28 per cent slabs, leaving only two primary rates of 5 per cent and 18 per cent, plus 40 per cent for sin/demerit goods. These measures will get effective from September 22 (first day of Navratri), which is the beginning of the festive season. It will be the last day for compensation cess on all products except tobacco.
Clean structure with less complexities
~75 per cent of total taxes are likely to be collected at 18 per cent rate now. Over the past 7-8 years, GST effective rate (given exemptions/ zero-rated goods) falls to around 10 per cent (from almost 15 per cent). Several inverted duty structure issues have been corrected which should help in better working capital for smaller firms.
Fiscal stimulus to boost consumption
Based on FY24 consumption data, government estimates ~Rs 930bn of revenue loss (~1.8tn for full-year; 0.5 per cent of GDP), with net impact of Rs 480bn (~1tn for full-year) post considering benefit from increase in rates for certain products from 28 per cent to 40 per cent The benefit of this cut should start accruing over coming months.
Source: Government of India, GST RNR Committee, Axis Bank Research estimates, HSBC Mutual Fund
Key sector impact and assessment
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Source: Government of India, HSBC Mutual Fund
Economic momentum to continue
Renewed push to drive consumption
Our Take
- We continue to remain positive on Consumption, especially discretionary consumption
- Over the past few years, Consumption sector was already seeing tailwinds with shift from unorganized to organized, premiumization, convenience, middle class aspirations, digitalization/ smartphone penetration, nuclearization, etc.
- Since the beginning of 2025, we see low inflation, rate cuts, good monsoons and harvest season, government’s social welfare schemes, easing RBI regulations resulting in better system liquidity and now GST cuts giving additional levers for consumption growth
- In our view, as consumption demand may improve further, strong corporate balance sheets and higher capacity utilization levels should kick-start the private capex cycle
- Overall, we remain positive on India’s long-term growth outlook with strong government push towards reforms, led by 3 key pillars of Consumption, Capex (both government and private) and Financialization
Source: Government of India, HSBC Mutual Fund
Important information
Note: Data and estimates as on Sept. 4, 2025 or as latest available.
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