The Government’s plan to simplify the Goods and Services Tax (GST) structure by replacing the existing four-slab GST system with a simpler two-slab GST system is set to bring considerable relief to consumers. Lower tax rates are expected to make a variety of goods more affordable, according to a new report. Bank of Baroda (BoB) said in its analysis that the move will directly benefit 11.4 per cent of India’s private final consumption expenditure (PFCE), of which taxable consumption is estimated to be Rs 150-160 lakh crore.
The public sector lender expects these changes to boost additional consumption by Rs 1 lakh crore, adding 0.2 to 0.3 per cent of GDP in the second half of FY26.
The government will bring down the 12 per cent slab to 5 per cent and the 28 per cent slab to 18 per cent, and the effective GST rate on goods and services to 14-15 per cent.
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Food items are likely to gain the most, with milk, cheese, oil, sugar, confectionery and processed foods moving into lower tax slabs, leading to direct savings for households, the report said.
In the non-food sector, consumer durables such as air conditioners, televisions, dishwashers and motor vehicles will come at a lower rate of 18 per cent.
According to the analysis, these changes are expected to improve demand in the durable goods sector, whose growth rate decelerated to 2.6 per cent in the first quarter of FY26 from 10.7 per cent a year ago.
The restructuring will also reduce input costs in industries such as construction and manufacturing, where lower tax rates will apply on items such as cement, tyres and auto parts.
This is expected to have an impact in the form of final goods and services becoming cheaper, which will help in controlling inflation.
The report estimates that 8.5 per cent of the overall CPI basket will be hit, while both core and wholesale inflation is likely to ease due to a reduction in intermediate costs.
From a financial perspective, the timing of the GST cut is considered significant, coinciding with the recent repo rate cut by 100 basis points by the Reserve Bank of India.
According to the public sector bank, both these moves are expected to boost demand for auto loans, personal loans and credit cards, with non-banking finance companies also expected to benefit from increased festive season demand.
The bank said that at a time when global trade tensions and high tariffs from the US are posing challenges to India’s economy, rationalisation of GST is a key measure to boost consumption.
With IANS inputs
