A Roadmap for Consumer-Led Growth
The Indian economy’s GST reforms 2025 are ushering in a new era of consumer-led growth, backed by a slew of reforms and policy support from the Indian Government, the most prominent being:
- GST Reforms Two – A Multiplier Impact, more consumer demand, larger corporate expansion spending, a big boost to India’s Agri, MSME sector and middle class.
- Phase-wise planned CRR cut of 1% starting from September 2025 – More liquidity shall be injected in the system with a combined impact of 2.5 lakh Crore.
- Repo Rate cut of 1% that started from February 2025 – affordable credit to corporates and retail borrowers, high banking volume and low cost, more demand for goods and services.
- Income Tax Slabs revamp in the Budget 2025 – More consumable or investible income in the hands of taxpayers.
The impact of the Repo rate cut and Income Tax slabs is very well reflected in India’s HSBC PMI Manufacturing Index increased to 59.3 for August 2025, the highest growth in the last 17.5 years. HSBC PMI Service Index for India surges to 62.9, which reflects the highest growth since 2010.
These reforms are aimed at giving purchasing power to consumers by putting more consumable income into the hands of consumers, affordable products, high liquidity, and cost-effective, easy availability of credit.
The GST impact on the Indian economy is expected to be a masterstroke in the next growth phase, with a multiplier impact across industries. This is expected to lead to more inclusive growth as high consumer demand motivates corporate sector investment spending, which is long been pending. These reforms will lead to widespread consumer demand, support the Agri and MSME sector, small traders, the middle class, generate employment, and give multi-pronged support to overall economic growth.
New GST Slab Rates 2025: Key Changes and Their Significance
These changes will eliminate the GST’s multiple slabs of 5%, 12%, 18%, and 28% in favour of a broad two-slab structure with a merit rate of 5% and a standard rate of 18%, as well as a special demerit rate of 40% for super luxury, sin and demerit goods and services.
| Sector |
Key GST Reform |
Expected Impact |
| Daily Essentials & FMCG |
GST cut from 18% to 5% on items like soaps, shampoos, toothpaste, processed foods & kitchenware |
Lower consumer prices, higher consumption volumes for FMCG brands |
| Automobiles & Auto Parts |
GST on small/hybrid cars & 2-wheelers reduced to 18%; large vehicles taxed at 40% |
Vehicle affordability improves; boost in festive-season demand; benefit for automobile sector. |
| Consumer Electronics & Appliances |
GST lowered from 28% to 18% on TVs, ACs, washing machines |
Reduced prices expected to boost sales ahead of festivals and refresh demand drivers in retail |
| Insurance |
GST exempted on individual life and health insurance policies |
Likely decrease in premiums; supports “Insurance for All” goal and promotes coverage adoption |
| Cement, Construction & Textiles |
GST cut to 18% on cement; reduced rates for textile inputs like man-made fiber to 5% |
Lower input costs could spur construction activity and boost competitiveness of textile producers |
| Agriculture & Rural |
GST reduced to 5% on fertilizers, tractors, tractor parts, and agricultural machinery |
Enhances affordability of machinery, improving farm productivity and rural demand |
| Luxury & Sin Goods |
New 40% tax slab for luxury and sin goods like high-end vehicles, tobacco, aerated drinks |
Higher taxation discourages consumption; helps maintain revenue neutrality while rationalising slabs |
Sources: The Times of India, Reuters, Business Standard, The Economic Times
https://economictimes.indiatimes.com/news/economy/policy/gst-2-0-gets-the-green-light-what-gets-cheaper-and-costlier-from-september-22/articleshow/123681657.cms
https://timesofindia.indiatimes.com/business/india-business/gst-council-meeting-live-updates-gst-rate-cut-reforms-fm-nirmala-sitharaman-new-gst-tax-rates-cheaper-costlier-list-impact/liveblog/123688578.cms
https://indianexpress.com/article/business/gst-council-approves-two-tier-tax-implemented-september-22-10228654/
https://www.reuters.com/world/india/winners-losers-indias-sweeping-gst-overhaul-2025-09-04/
GST Impact on Indian Economy and Middle Class Consumers
Lower tax rates will apply to about 400 regularly used items, including food products, oil, toiletries, air conditioners, large television sets, certain consumer durables, compact vehicles, motorcycles, auto parts, eyeglasses, cement, and cancer and life-saving medications.
Almost 99% of items in the 12% tax slab are now subject to the 5% GST rate. Roughly 90% of items with a 28% tax rate are now subject to an 18% tax rate.
In a major move, the council agreed to exempt individual health and life insurance premiums from the current 18% tax, bringing the GST rate down to zero. This also includes family-floater policies. The impact of GST on middle class India is expected to be significant, as reduced taxes and exemptions directly improve affordability for households.
Since its last two terms, the government has been doing heavy lifting in terms of huge infrastructural spending and being an enabler in terms of providing physical and digital infrastructure, launching several social schemes aimed at increasing inclusivity and providing employment, food safety, insurance cover, housing, etc. Now these reforms will be a game changer, and large corporate investment spending is expected in view of significant growth in consumer spending due to enhanced spending power and within-reach products.
The
new GST slab rates 2025 shall kick in from 22 September 2025, coinciding with the start of Navratri and the onset of India’s festive season, a period marked by maximum consumer spending. Businesses launch Diwali bonanza sales in expectation of maximum turnover in the third quarter of the financial year. This time, festive season coupled with GST Diwali bonanza by government is expected to bring a Diwali gift for Indian economy in terms of high GDP growth. Every household shall immerse themselves in this newly grabbed affordability and enjoy the festivals to the fullest, which may even mitigate tariff-related impacts.
