GST cuts one third of the consumption of households
The analysis of crisil of the investigation into household consumption expenses shows that of the 30 categories, 88% of the expenditure by an average Indian household, 11 categories-Bijna, have seen a third of household consumption-gst reductions. These include essence such as milk and milk products, as well as sustainableities such as television sets and cars.
“In cars we estimate that small vehicles at entry level price reductions of 8-9%can see medium-sized vehicles around 3.5%and premium models around 6.7%,” Joshi explained. “This will immediately encourage demand, especially at the bottom of the market, which is under pressure.”
Consumption to lead the growth as the investments are left behind
With private investments still weak, Joshi expects consumption that the most important growth motor will remain in FY26. He pointed out that GST cuts arrive at the same time as low food inflation and lighting of income tax, creating a “triple tail wind” for households.
“Consumption is the theme this year,” said Joshi. “GST reductions will work on core inflation, while food inflation was already low. This combination should stimulate demand in categories, ranging from processed foods to consumer sustainableities.”
Processed foods in particular are expected to see a strong traction when younger consumers shift to packaged and ready-made products. Beauty services and personal care will probably also benefit. However, Joshi warned that some households can use some of the savings to repay the debts, given a high debt to households.
Faster pass-through expects during the festive season
International experience shows that GST pass-through often happens gradually for consumers, but Joshi believes that the festive season of India will speed up the process. “Festivals are when companies push the sales aggressive. We expect that a significant part of the GST benefit will reach consumers in this period, whereby the rest will gradually flow in the coming months,” he said.
Focus on products from the middle class and entry level
The GST cuts are tilted to mass market categories. “Cars on entry level, which had a hard time, will see the highest reduction. Premium products are less sensitive to prices. So the benefits will be felt more by the groups with a middle and lower middle income,” Joshi noted.
This question shift is expected to benefit sectors, such as entry-level cars, processed foods, sustainable consumers and essential goods, in accordance with the wider focus of the government on supporting the middle class economy.
Limited tax risk despite loss of income
The government has estimated a turnover loss of RS 48,000 Crore as a result of GST rationalization. But Joshi believes that the long -term image is for tax purposes.
“Over time, compliance will improve, formalization will expand and taxing will rise,” he said. “Although this year can see a turnover pressure in the short term, higher consumption will partially compensate for the loss. In the medium term, GST rationalization is taxed for tax purposes.”
Structural reform with short -term benefits
Joshi emphasized that GST rationalization is primarily a structural reform to simplify tax rates-four tax plates in two-but the timing ensures a short-term boost. With the demand for households to rise and the sale of holidays around the corner, analysts expect a stronger push to the consumption-driven growth batum of India in FY26 and then.
(Disclaimer: recommendations, suggestions, views and opinions of the experts are their own. These do not represent the views of economic times)
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