GST cuts boost consumption, may lift India’s GDP: Govt

By Manisha Sahu , America News World

Updated: October 19, 2025

With the implementation of the next-generation Goods and Services Tax (GST) reforms on 22 September 2025, the Government of India says that the tax cuts are being passed through to consumers, stimulating consumption — and that the jump in demand may now be visible in GDP numbers for the current fiscal year.

What changed

In a major overhaul dubbed GST 2.0, the tax structure was simplified from the earlier multi‐slab system (5 %, 12 %, 18 %, 28 %) to primarily two slabs — 5 % (merit rate) and 18 % (standard rate), with a special 40 % rate reserved for ultra-luxury or demerit goods.
As part of this reform, tax rates on hundreds of items — including everyday consumer goods, electronics, household articles, and smaller cars – were reduced.

Passing on relief to consumers

At a joint press conference held during the “GST Bachat Utsav”, Finance Minister Nirmala Sitharaman, Commerce & Industry Minister Piyush Goyal and I&B & Railways Minister Ashwini Vaishnaw stated the following:

– The government is monitoring 54 key items across the country to ensure the tax benefit is reaching end-consumers.

– “Not in one” of those items has the tax-benefit not been passed on, according to the ministry.

– Some items have even shown larger than expected price drops. For example:

Shampoo: GST rate cut from 18 % to 5 % → price drop ~12.36 % (expected ~11.02 %)

Face powders: price drop ~12.22 % (expected ~11.02 %)


– On electronics and consumer goods: Retail chains reported 20-25 % higher sales during the recent Navratri festival compared to last year. Vaishnaw highlighted that electronics manufacturing is now up in double digits.

– Some items are exceptions or partial: e.g., certain higher-end varieties of Portland Pozzolana Cement (PPC) have yet to reduce by full expected benefit.

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Impact on consumption and growth

The government projects that private consumption (the key driver of growth) will rise more than 10 % nominally in the current fiscal year, citing the GST reforms as a major catalyst.
Given that consumption in FY2024-25 was around ₹202 lakh crore (approximately 61 % of GDP) and investment around ₹98 lakh crore, any surge in consumption will pull up the overall GDP growth rate.
While the government has projected a GDP growth in the band of 6.3-6.8 % for FY2025-26, FM Sitharaman said she would not speculate on the final figure — but noted that the upward trend in consumption is clear.

Broader implications & trade-offs

– The tax cuts resulted in a revenue trade-off: while giving relief, the government expects some short‐term loss of tax yield; however, the higher consumption is expected to offset this through a multiplier effect.

– The reform simplifies the regime, reducing compliance burdens and making the tax structure more transparent.

– For businesses, especially in electronics, appliances, and small cars, the tax relief provides an opportunity to boost demand. Vaishnaw pointed out that India has overtaken a neighbouring country in smartphone exports to the US, linking demand to manufacturing growth.

– Consumer protection is under scrutiny: The ministry of consumer affairs has received 3,169 complaints about non-pass-through of GST cuts; 3,075 forwarded to tax officials; 94 resolved directly.


Challenges & watch-points

– While the 54 monitored items show broad pass-through, other product categories (especially high-end/stock driven items) may lag. For instance, low pass-through was seen in stationery items like pencils and exercise books.

– Inflation/price pressures from other sources (raw materials, logistics) may eat into the tax benefit if businesses don’t or cannot pass on full relief.

– The sustainability of the consumption boost beyond the festival season remains subject to underlying income growth, job creation and investment momentum. Sitharaman emphasised that the impact “will sustain beyond the festive season”.

– Monitoring and enforcement will be key: Ensuring businesses honestly pass on tax rate cuts rather than market the same price with thinner margins will matter.


What this means for consumers & businesses

– For consumers: On a basket of everyday items — toiletries, household items, some electronics, vehicles — expect lower price tags and stronger festive deals this season due to the tax-relief impetus.

– For businesses: The reform offers a tail-wind: higher demand, manufacturing ramp-up, and the chance to capture market share. But businesses that fail to pass on relief might face consumer backlash or regulatory checks.

– For investors and the economy: A higher consumption growth rate means more investment, more industrial activity, and potentially stronger growth for FY2025-26 than previously expected.


The Indian government has signalled that its GST 2.0 reforms are bearing fruit: the tax relief is reaching consumers (according to monitoring of 54 items), consumption is surging (especially in festive electronics and goods), and this is expected to feed into higher GDP growth. While there are caveats around full implementation and sustainability, the message is clear: the tax cuts are meant to not only lighten consumer burden but also act as a lever to reignite domestic demand in an environment of global headwinds.

For America News World, this backdrop is relevant because India’s domestic demand story impacts global trade flows, manufacturing chains, and investment flows — sectors in which U.S. and global businesses are increasingly linked to India.