Modi's GST 2.0 is a big bet on the Indian consumer. Will it work?

Copyright © HT Digital Streams Limit all rights reserved. Ananya Roy 7 min read 29 Aug 2025, 02:23 PM IST The government said there would be only two major GST tariffs. This will eliminate the 12% and 28% pages. Most of the items in the 12% and 28% plate will move up to 5% and 18% respectively. (Beeld generated by twin AI) Summary facing US rates and flags domestic demand, the government reckons a great tax review to start the economy. We investigate which sectors want to win – and what can go wrong. In his Independence Day speech to the country, Prime Minister Narendra Modi promised a Diwali gift in the form of reforms for goods and services for goods and services. This announcement comes just as India experiences fresh pressure from abroad. With US President Donald Trump’s sharp 50% tariffs on Indian exports now in force, the revival of domestic demand has become critical. If the plan goes through, GST pages will be rationalized in a way that lowers the tax burden over most consumer goods. Reports indicate that the 12% and 28% pages will be scrapped, with almost all items in the 12% category falling to 5% or zero, and most of the 28% page items moving to the 18% bracket. Sin and luxury goods will remain heavily taxed at 40%, but even over time it can become cheaper as the compensation chess is phased out. This makes it more than just a tax adjustment; It is a bet on consumption. The government relying on lower GST at the point of sale to succeed where the cutting of income tax and financial relief failed: to relive domestic demand, give a fresh life to struggling sectors, and set the way for private investment. Although the full contour of GST 2.0 will only be clear to the GST Council meeting next month, investors already place their bets on which sectors will earn the most. From cars and FMCG to cement and finance, the impact can be far-reaching-if the daring pieces work. Auto sales and the much-needed push that has delayed the automotive industry lately. Even since Premium car sales performed properly, small cars dragged overall car sales. The management of Maruti Suzuki India has particularly voted on the need for the government’s intervention to make small cars more affordable. The promised GST cut seems to have answered the prayers. Maruti is also expected to benefit from the expected tax cut on hybrid cars. While small cars are falling in the 18% GST heel, the 8% drop in prices may be exactly what buyers need to trade from 2-wheelers to small cars. Maruti’s share appreciated 14% in the two weeks since the announcement. If the customers who are upgrading from 2-wheelers to small cars are replaced by new buyers in the 2-wheeler segment, players like Hero Motocorp and Bajaj Auto are expected to benefit. Similarly, Ashok Leyland and Eicher Motors would benefit from the GST on commercial vehicles from 28% to 18%. This on tractors is likely to decline from 12% to 5%, leading to a 6% decline in prices as the entire GST cut is passed on. It should increase sales for people like Mahindra and Mahindra. The Nifty Auto Index has appreciated 3.8% since the GST announcement on August 15, which has sharply exceeded the broad market’s 0.4% correction since then. Finally consume in focus? Consumption question was clumsy in India. After the pandemic, a K-shaped recovery gave way to a rural recovery of the monsoon rural, while mass-urban demand struggled. The Reserve Bank of India (RBI) has reduced the rates by 100 BPS this financial year, and the finance ministry announced massive cutting in income tax during the last budget. But more financial or fiscal pressure has not yet been able to move the needle on request. In this context, all hope is pinned to the GST cuts. It is hoped that the reduction in taxpoint taxes that cuts in income tax cannot do. NIFTY FMCG index has delivered about 12.5% ​​CAGR over the past five years, which has sharpened the 16.5% CAGR sharply underperformed by the broader market. As GST cuts result in prices falling 4-5%, this can lead to the long-awaited recovery in fast moving consumer goods (FMCG). In the recent quarters, we had evidence that the demand for FMCG is not inelastic. The price increases undertaken by FMCG majors have recently resulted in a fall in volumes, as consumers have moved to unborn inorganic players. So it is reasonable to expect that price cuts will lead to a collection in demand. Of course, consumers are expected to be discretionary purchases more elastic. Drops in prices are likely to increase the demand for air conditioners and refrigerators as for soap. Important beneficiaries include people like Voltas and Bluestar. This would give a much -needed bone to consumer leases, which have so far underperformed in 2025. A question in demand is also critical from a macroeconomic point of view. If consumption is faster, the cobwebs on private capital expenditure (Capex) are likely to clear up as well. Since Government Capex can only draw an economy so far (to keep fiscal caution in mind), a collection in private Capeex is crucial to supporting GDP growth. Increased consumer confidence and GDP growth in private captex would, in turn, benefit the banking and financial services (BFS) sector. With tension among lenders likely to be down in the next quarter or so, BFS shares look ripe for picking. Cement – Premiumization Play The cement sector has seen green shoots lately. After years of intense competition, price pressure and eventually, consolidation in the industry, prices returned to an increase. Despite the microtrend seen over the past few months when Monsoons led to prices struggling, the medium-term trend was positive. This supported the margins, while inorganic expansion helped the revenue growth for the big players. While the GST rationalization is reportedly reducing cement of the 28% tax plate to 18%, the demand for cement is inelastic. More than half of India’s cement question comes from home building. Cement covers 6% of the cost of building a new home, and 12-14% of the cost of renovation. If we assume that the entire cut is passed on to consumers, the price of cement is expected to be from about £ 350 per bag to £ 325. This will result in a fall of less than 1% in total construction costs. The GST cut will therefore probably not lead to more demand for cement. The GST cut will therefore probably not lead to more demand for cement. Instead, the demand for cement would be driven by private captex and the government’s pressure on affordable housing, transport and infrastructure. That said, the GST cut can lead to a shift in demand for cement at higher grade. This, in turn, would result in higher margins for manufacturers. As premium products reach deeper penetration, the growth of the top pain can also take pace. Industry experts believe the penetration of category A cement could expand from 40% to 55-60% with FY30. This should be especially beneficial for players in Indian India such as Ultratech and Ambuja. Warning The details of the promised GST reforms are not yet out. The GST council is expected to meet on September 3-4 to decide on the proposal. The Ministry of Finance indicated an impact of £ 50,000 crore, according to a note of Motilal Oswal. This contributes to less than 20 bps GDP. Considering that early reports highlighted a hit of 30-40 BPS on GDP, speculation was widely affected. The actual impact on the question will depend on which way the fine print tilts. If the government tries to make the loss of income by rising other taxes, the demand Push would be limited. Sectors such as real estate can also benefit from the GST cuts. But considering the sharp rally in such sectors over the past year, the scope of further upside is limited. Read profits for more such analyzes. Even in undervalued sectors such as consumption, consumers can postpone the demand for Diwali pending the GST rate cut. Ironically, this could lead to a hit to revenue growth in the quarter ended September 2025. The impact of the GST cuts would only appear at the beginning of Q3FY26. Until then, world factors, including rates, can keep the market markets. Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa disclosure: The author has shares of some of the businesses discussed. The opinions expressed are only for information purposes and should not be considered investment advice. Readers are encouraged to do their own research and consult a financial professional before making investment decisions. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More topics #gst #profit pulse #markets premium #nifty fmcg #fmcg shares #auto shares #portrayal read next story