The implications are both immediate and long-term
FinTech BizNews Service
Mumbai, September 4, 2025: The 56th meeting of the GST Council was held in New Delhi under the chairpersonship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. The GST Council inter-alia made the recommendations relating to changes in GST tax rates, provide relief to individuals, common man, aspirational middle class and measures for facilitation of trade in GST.
Here are views of the leading bankers on the GST 2.0:
Landmark Indirect Tax Reform
Shri C. S. Setty, Chairman, IBA & SBI:
As India continues to financially transform and drive towards becoming the third largest economy, the shift to a simplified two-tier GST structure of 5% and 18% with 40% on sin goods marks a landmark in its indirect tax reforms. It creates a clutter-free, next-generation GST that is simpler, more transparent, and citizen-centric.
Household goods earlier taxed at 12% and 18% now fall under 5% category, which will provide tangible relief in the form of lower costs on essentials and higher disposable incomes. With greater spending power, demand and credit expansion will rise, driving economic growth. In a similar vein, the insurance sector stands to benefit with lower premium and thus better protection coverage and larger insurance penetration.
The reduction is also expected to soften headline CPI as mass consumption goods get cheaper. Businesses too stand to gain from a simpler regime resulting in lower compliance costs and improved competitiveness.
The short-term revenue loss from lower GST rates is expected to be recouped through higher consumption and stronger economic activity, having a positive effect on GDP growth and fiscal health in the coming quarters.
The implications are both immediate and long-term as this initiative consolidates GST into a truly citizen-friendly and growth-oriented GST 2.0.
Strong Bearing On Festive Demand And Consumer Loan
Salee S Nair, Managing Director and CEO, Tamilnad Mercantile Bank:
"The launch of GST 2.0, with reduced slabs of 5% and 18% and significant relief on consumer durables such as ACs, TVs, refrigerators, and mobile phones, comes at an opportune time. As our Hon’ble Prime Minister rightly said, this Diwali will be a season for spending, and with lower taxes putting more money in the hands of consumers, we expect a surge in demand across categories.
At TMB, we see this reform not only as a catalyst for festive consumption but also as a driver of consumer financing. The combination of increased affordability and festive optimism will likely fuel demand for personal loans, auto loans, and consumer durable financing. We are prepared to meet this demand responsibly, with products tailored to help customers fulfill their aspirations while maintaining financial discipline. This GST reform, aligned with the PM’s call for spending-led growth, promises to make this festive season both joyous and economically vibrant."
India markets: GST rationalisation to be demand-accretive, modest fiscal cost
Radhika Rao, Executive Director and Senior Economist at DBS Bank
India’s Goods and Services Tax Council, with state representatives, approved a two-slab structure on late Wednesday, after PM Modi had signalled an overhaul of the mechanism last month. This involved rationalizing the current 4-5 tiers to two-tiers – 5% and 18% (plus a higher rate on a smaller pool of sin and luxury items), with the aim of lowering the tax incidence on essentials. With this change, most items in the 28% and 12% will be merged with lower tiers (18% and 5% respectively) and will take effect on Sept 22. Effective indirect tax on several FMCG goods stands to be lowered, cement (to 18%), auto (three and two-wheelers), household durable goods, farm inputs, besides education supplies and healthcare products like insurance. Sin tax of 40% will be applicable to high sugar drinks, luxury cars, tobacco etc. Current composition of the tiers suggests that nearly three-fourths of the revenues fall under the 18% bracket.
Lower GST rates will be positive for growth in the second half of the year and FY27, besides improving operational efficiency and expanding the size of the formal economy. Higher elasticity of demand for low-cost FMCG products and durables is likely to make the tax cuts consumption-accretive, with these concessions to provide a one-time boost to growth. Factoring in the likelihood of a strong 7% plus growth likely in first half of FY26, we had revised up our forecast here. A durable improvement in demand would thereafter return to employment and income prospects. The net fiscal implication is expected to be the tune of INR480bn (0.13% of GDP), after accounting for INR 930bn revenue loss but INR450bn is expected to be collected on sin/ luxury items. With the recent sovereign rating upgrade, we don’t expect any compromise on the fiscal deficit target. GST cuts would be disinflationary, partly countered by downward rigidity in prices/mark-ups to preserve margins. Pre-emptively, the government had called on suppliers not to increase prices ahead of the change. While watching the disinflationary impact, we maintain the inflation forecast for FY26, with pass-through likely to be evident in the tail end of the year and positive for FY27 (DBSf 4.3%).
Separately, the RBI reportedly met banks and market players ahead of the 2HFY bond issuance calendar. Regulatory changes have impinged on demand by local buyers, as investors await a recalibration in duration mix in 2H bond issuance calendar to spur incremental demand. Purchase of state government bonds (SDLs) has also hit a speedbump, not helped by a larger-than-anticipated borrowing size as well as widening spread vs the centre’s benchmark bonds. India’s GSec yield curve has bear-steepened in the past month, with diminished demand for long and ultra-long papers. This might require the central bank to increase the proportion of short-to-belly maturities in the upcoming borrowing calendar to attract fresh domestic demand.
GST Cut Could Create Disinflationary Impact Of At Least 100 Bps
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank:
“The GST rationalisation goes a long way in supporting the consumer demand and cushioning the downside risk to growth emanating from the tariff related uncertainties. The income tax cuts and GST rate cuts if fully passed through could potentially provide a stimulus of 0.6% of GDP on a pro rata basis in FY26 itself. Furthermore, the full pass through of GST cut could create disinflationary impact of at least 100 bps.”
