GST 2.0 — Sector Wise Impact on Demand, Inflation & Growth

The GST Council’s 2025 rationalization has reset slabs into a simpler structure, with many items moved into 0%, 5%, and 18%, and a special 40% slab for luxury/sin goods. This move has very different implications across sectors.

1. FMCG & Packaged Foods

Rate change: Earlier taxed at 12–18%, most staples like biscuits, noodles, soaps, toothpaste, shampoos, and packaged snacks are now at 5%.

Demand elasticity: High - small price drops matter to rural and low-income households. Consumption volumes will jump, especially in rural India.

Inflation impact: Significant moderation in CPI food basket, since FMCG goods are heavily consumed.

GDP impact: Boost to private consumption (largest part of GDP). Multiplier effect as FMCG companies expand distribution and production.

Who gains: Consumers keep most of the savings; FMCG companies benefit indirectly through higher volumes.

2. Dairy (Milk, Paneer, Ghee, Butter, Cheese)

Rate change: Paneer, ghee, butter, cheese down from 12%/18% → 5%; UHT milk and certain breads made 0%.

Demand elasticity: Very high — daily staples, households are extremely price-sensitive.

Inflation impact: Strong downward pressure on food inflation (dairy alone is ~6% of CPI).

GDP impact: Higher rural purchasing power and increased demand feed into agri and dairy supply chains, supporting farmer incomes.

Who gains: Consumers and dairy farmers both; co-operatives like Amul see volume growth.

3. Consumer Durables & Electronics

Rate change: Large appliances (TVs, ACs, refrigerators, washing machines) down from 28% → 18%.

Demand elasticity: High — these are discretionary purchases often postponed due to cost. Lower rates unlock pent-up demand.

Inflation impact: Limited CPI effect (durables are not everyday items), but WPI for manufactured goods moderates.

GDP impact: Stronger manufacturing activity, retail trade revival, and push to “Make in India” in electronics.

Who gains: Consumers gain affordability; companies retain some margins but drive growth via volumes.

4. Automobiles (Two-Wheelers, Entry-Level Cars, Auto Parts)

Rate change: Most vehicles/auto parts cut from 28% → 18%; luxury & ultra-premium cars taxed at 40%.

Demand elasticity: Moderate–high for two-wheelers and small cars; limited for luxury. Lower rates stimulate aspirational purchases in middle-class and rural households.

Inflation impact: Minimal CPI effect (low weight), but strong moderation in WPI as auto is a core industry.

GDP impact: Huge — autos contribute ~7% to GDP and have a wide supply-chain impact. Lower GST supports manufacturing, jobs, and exports.

Who gains: Companies and dealers keep a share of margins; consumers benefit in affordability. Luxury buyers continue to pay more.

5. Cement & Construction Materials

Rate change: Cement and allied products reduced from 28% → 18%; some construction inputs to 5%.

Demand elasticity: Moderate — demand tied to housing and infra projects, but lower costs make projects viable.

Inflation impact: Core WPI inflation eases sharply (cement is ~8% of WPI core). Lower housing input costs may soften real estate prices.

GDP impact: Very high — infra and housing drive growth through multiplier effects across steel, cement, labour, and services.

Who gains: Developers and cement companies retain significant benefit, but downstream affordability improves.

6. Textiles & Footwear

Rate change: Many garments and footwear moved from 12%/18% → 5%; man-made fibres rationalised.

Demand elasticity: High -clothing and footwear are highly price-sensitive.

Inflation impact: CPI clothing component moderates, helping households.

GDP impact: Labour-intensive industry expands output and jobs, especially in MSME clusters (Tirupur, Surat, etc.).

Who gains: Consumers through cheaper products; MSMEs gain from better margins and volumes.

7. Insurance & Healthcare

Rate change: Life and health insurance premiums down from 18% → 0% (exempt). Many life-saving medicines/devices also 0% or 5%.

Demand elasticity: Moderate — not as price-sensitive as FMCG, but lower premiums improve affordability.

Inflation impact: Services inflation moderates as premiums drop.

GDP impact: Long-term boost by expanding financial protection and improving health security, freeing household savings for other consumption.

Who gains: Consumers — all savings passed directly. Companies don’t retain benefit.

8. Agriculture Inputs & Farm Equipment

Rate change: Fertilizers, pesticides, drip systems, tractors/implements reduced from 12–18% → 5%.

Demand elasticity: High — farmers respond quickly to lower input costs.

Inflation impact: Rural CPI eases as input costs decline, reducing farm distress.

GDP impact: Productivity gains in agriculture and rural purchasing power lead to broader consumption growth.

Who gains: Farmers directly; companies gain via higher adoption rates.

9. Luxury & Sin Goods

Rate change: Carbonated/caffeinated sugary beverages, pan masala, tobacco, yachts, ultra-luxury cars now at 40%.

Demand elasticity: Low — luxury demand is relatively inelastic; tobacco is addictive. Consumption won’t fall much, but revenue for govt stays high.

Inflation impact: Minimal effect on CPI, as these are niche.

GDP impact: Neutral to slightly negative, but serves redistribution (govt keeps revenue, discourages harmful use).

Who gains: Government retains revenue; consumers continue to pay.

The Big Picture

The new GST structure is a dual strategy:

• Consumers win in essentials (FMCG, dairy, insurance, textiles, healthcare) -putting cash directly into household budgets and lowering inflation.

• Companies win in big-ticket sectors (cement, autos, durables) - improving margins and volumes, spurring investment.

• Government protects its base with a 40% slab on luxury and sin goods, preventing revenue erosion.

Overall, this is a pro-consumption, pro-growth tax reset: CPI inflation cools, rural demand strengthens, investment-heavy sectors get a shot, and GDP gets a dual push from private consumption + infrastructure expansion.