GST rejig to give consumption a big push; food and durable goods to turn cheaper: BoB Report

The proposed overhaul aims to rationalise rates by migrating from the current four-tier structure to a simplified two-tier system.

According to an analysis by the Bank of Baroda, the major relief comes from lowering the 12 per cent slab to 5 per cent and the 28 per cent slab to 18 per cent. This means a host of consumer goods, particularly fast-moving consumer goods (FMCGs) and durable items, will become more affordable.

The report estimates that 11.4 per cent of Private Final Consumption Expenditure (PFCE) will benefit directly from GST rate rationalisation.

The bank pegs taxable consumption at Rs 150-160 lakh crore, with the reforms expected to add Rs 0.7-1 lakh crore to consumption, equivalent to 0.2-0.3 per cent of GDP from the second half of FY26.

"The effective tax rate is expected to come off to 14-15 per cent of taxable GST goods and services. This is estimated using our computed Rs 150-160 lakh crore taxable consumption group," the report estimates.

The report stated that food products will be the biggest beneficiaries, with milk, cheese, oils, fats, sugar, confectionery, and processed food expected to move from the 12 per cent slab to 5 per cent. These items account for a significant share of household budgets.

On the non-food side, durable goods such as air conditioners, LED/LCD televisions, dishwashers, and motor vehicles will see their GST rates decrease from 28 per cent to 18 per cent. The move is expected to revive demand in the consumer durables sector, which has been under pressure, recording just 2.6 per cent growth in Q1 FY26 compared to 10.7 per cent in the same period last year.

The GST rate restructuring is also expected to lower intermediate input costs in sectors such as construction and manufacturing, thereby reducing the prices of final goods. Items such as cement, tyres, and motor vehicle parts are expected to see rate cuts, providing a second-round effect on inflation.

Lower tax rates are also expected to exert downward pressure on inflation. The report estimates 8.5 per cent of the overall CPI basket will be impacted, with core inflation also facing downside risks. Wholesale Price Index (WPI) inflation is likely to moderate as intermediate costs will decline.

The report added that, from a banking perspective, GST reforms come at an opportune time, coinciding with a 100-basis-point repo rate cut by the RBI. The new GST regime, coupled with lower lending rates, is expected to spur demand for auto loans, credit cards, and personal loans. Non-banking finance companies (NBFCs) are also likely to benefit as the festive season demand kicks in.

Overall, the report sees GST rate rationalisation as a significant consumption booster at a time when global trade tensions and high tariffs by the US pose challenges to the Indian economy. (ANI)