GST 2.0 promises household relief, festive cheer, and a much-needed lift for FMCG demand as the reform reshapes prices from food to toiletries
With the Goods and Services Tax (GST) council’s decision towards rationalisation of the current four-tiered tax rate structure into a two-rate structure, Diwali cheer has come early for the Indian middle class as a range of items related to daily essentials to big-ticket buys have seen the rates get slashed.
Just ahead of a crucial festive season, the sharp reductions in the tax burden on food and everyday essentials are being welcomed by the industry. Staples such as paratha, parotta, UHT milk, and paneer will no longer come under the scope of GST. A broad range of packaged foods that earlier attracted a 12 or 18 per cent GST, such as biscuits, cakes, jams, sauces, cornflakes, chocolates, ghee and dry fruits, will now be taxed at 5 per cent.
“Lower GST rates will encourage consumers to spend more, increasing market demand, which in turn will directly benefit small shopkeepers, retailers, and wholesalers. With rising consumption, industries will need to increase production, leading to more jobs and enhanced industrial activity,” highlighted Praveen Khandelwal, Secretary General, Confederation of All India Traders (Cait) and Member of Parliament from Chandni Chowk.
A Series Of Reliefs
The Centre has gone ahead with the reduction of GST from 28 per cent to 18 per cent on Air-conditioning machines, televisions above 32 inches (all TVs now at 18 per cent), dishwashing machines, small cars, and motorcycles equal to or less than 350 CC. Most all of the food items such as packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee will also now attract a 5 per cent tax rate.
“By reducing rates on daily essentials such as toiletries, packaged foods, and utensils from 18 to 12 per cent to 5 per cent, the reform will ease household budgets and stimulate demand. In agriculture, lowering GST on tractors, tyres, irrigation systems, and farm machinery to 5 per cent will cut input costs and directly benefit farmers,” noted Hemant Jain, President, PHD Chamber of Commerce and Industry.
The impact for families is immediate as these are the goods that are consumed across all income groups and majority are also available in smaller packs priced at Rs 5 to 20 in many cases. The companies which earlier reduced the quantity in smaller packs to handle the inflation and slowdown in demand will also try to restore the grammage.
“As part of the snacks industry, we generally maintain a limited finished goods inventory of two to four days. We are closely reviewing the overall impact of these reforms on input and output taxes, and will take a considered decision on price reductions for our family pack namkeens by the end of this month,” highlighted Rishabh Jain, Chief Financial Officer (CFO), Bikaji Foods International.
The reforms place the middle class at the core, easing indirect tax burdens on essentials. Reduction of GST from to 5 per cent on a host of common man items such as, hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles would boost demand going ahead.
“With the festive season just around, this action could trigger consumer sentiment moving more readily to an uptick in FMCG demand. Our best estimate is that consumers can expect an effective price decline for these essential goods of circa 7 to 13 per cent which is considerable in terms of household savings,” stated Vikram Marwaha, Joint Managing Director, DRRK Foods. While households cheer the lighter tax burden, industry players in textiles and agriculture see a structural correction long-awaited.
Clear Win For Textiles?
Correction of long-pending inverted duty structure for the manmade textile sector by reducing GST rate on manmade fibre from 18 per cent to 5 per cent and manmade yarn from 12 per cent to 5 per cent has come as a relief to the players in the textile.
“The government has accepted two major requests of the industry – the removal of the inverted duty structure by making the entire value chain from fibre onwards charged at one rate of 5 per cent and adopting a fibre-neutral policy, by equating the MMF and cotton fibre chains. The increase of the 5 per cent limit from Rs 1,000 to Rs 2,500 is also an extremely positive move,” explained Rahul Mehta, Chief Mentor, Clothing Manufacturers Association of India (CMAI).
However, Mehta added that in the entire value chain, garments above Rs 2,500 are the only products which are not at 5 per cent. CMAI has urged the council to remove this anomaly, and either place all garments, irrespective of the price, at 5 per cent, or fix a more reasonable and realistic price level.
Experts noted that by focusing on labour-intensive industries, farmers, agriculture, and health, the Council has clearly prioritised the real drivers of the economy. With the place of supply for intermediary services now aligned to the location of the recipient, Indian service providers can truly claim export status and avail benefits that were previously restricted, they added.
“Structural inefficiencies have been addressed with precision. The rationalisation of inverted duty structures in textiles and fertilisers through a unified 5 per cent rate is expected to unlock input tax credits, streamline production cycles, and enhance India’s global competitiveness,” highlighted Krishan Arora, Partner – Tax Planning and Optimisation, Grant Thornton Bharat.
From easing the middle-class budget to unclogging inverted duty structures in textiles and agriculture, the council has attempted to widen the arc of benefits across consumption and production. If implemented smoothly, the move could ignite festive spending, improve margins, boost formalisation, and position India’s economy on a more inclusive growth path.
