The government of India is working on a major revamp of the Goods and Services Tax (GST) regime, which may result in price reductions on an array of vital and consumer products such as milk, butter, footwear, and air conditioners (ACs). The overhaul will increase consumer buying power before the festive season and strengthen economic growth by reducing the tax on daily products.
Key Changes and Impact
Under the new proposed GST regime, the existing four-slab tax structure (5%, 12%, 18%, and 28%) will probably be streamlined into two main rates: 5% and 18%. The rationalization seeks to significantly lower tax rates on a number of items regularly used by consumers.
Notably, most items currently charged at 12% including butter, condensed milk, ghee, and other milk products are likely to shift to the 5% GST slab. Packaged drinks, processed foods, and other daily consumables are also likely to get similar tax relief. This shift will probably reduce the price of dairy and food items for a large majority of households and make them more popular, thus boosting consumption.
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Likewise, under ₹1,000 footwear and some clothing items could also be transferred to the lower 5% rate, softening prices in these mass consumer categories. This reduction would likely be extended to other daily-use products such as tooth powder, fruit juices, noodles, and snacks, increasing access to cheap essentials.
Consumer Durables and Larger Goods
The reform is not only for day-to-day products but also includes consumer durables like air conditioners, TVs (small screens), small automobiles, and two-wheelers. GST on air conditioners will be brought down from 28% to 18%, which could reduce the prices by as much as ₹2,500, which can drastically boost demand during summer months and the coming festive season.
Also, GST on small cars can be reduced from 28% to 18%, according to industry players who feel this will revive a slow car sector grappling with high expenses and falling sales.
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Experts point out that these GST reforms will serve as a stimulus for domestic consumption, particularly timely since inflationary pressures had earlier compelled urban consumers to reduce spending. By lowering the burden of taxes on essentials and consumer durables, the government aims to boost demand and benefit various industries such as FMCG, automobiles, and consumer electronics.
Citi Research estimates that around 20% of products that are taxed at 12% will shift to 5%, and this can reduce revenue by a quantum estimated at around ₹50,000 crore or 0.15% of GDP. This is, however, viewed as a sectoral stimulus aimed at stimulating the economy with increased disposable income in the hands of consumers.
Timing and Outlook
The new GST rates are likely to come into effect during Diwali 2025 and make the festive season a “Diwali Bonanza” for consumers. The Prime Minister Narendra Modi had underscored this reform in his Independence Day speech, underscoring the government’s resolve to lighten the economic burden of common citizens.
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In summary, the GST reforms will likely make milk, butter, shoes, ACs, and many other products more affordable, providing relief to consumers and stimulating economic growth through enhanced consumption in the coming months.
