GST 2.0 Impact: Insights from SBI Research Report – Aug 19, 2025
The government’s new GST reform, dubbed GST 2.0, is expected to boost India’s economy by ₹2.4 lakh crore in additional demand, according to brokerages like Jefferies, Morgan Stanley, and Kotak Equities. They estimate this could lift GDP growth by 50–70 basis points and reduce inflation by 40–60 basis points, giving a strong consumption push, especially during the festive season.
The reform simplifies GST slabs to 5% and 18%, with a 40% levy on luxury and sin goods. Nearly all products in the 12% bracket will move to 5%, while most in the 28% bracket will fall to 18%. This will lower prices for several goods, improving consumer sentiment.
Stock markets welcomed the move, with Sensex and Nifty rallying, particularly in auto, consumer staples, and cement sectors. Jefferies highlights two-wheelers, small cars, hybrids, cement, and air conditioners as key beneficiaries. Companies like HUL, Britannia, Maruti, Ashok Leyland, Ultratech, Voltas, Delhivery, Lemon Tree, Swiggy, HDFC Bank, and Bajaj Finance may gain.
However, Morgan Stanley warns of short-term risks as buyers may delay purchases until GST clarity, and dealers with high inventories could face margin pressure. Despite this, analysts believe the reform will strongly boost consumption and economic growth in the medium term.
GST Reforms 2025: SBI Predicts ₹1.98 Lakh Crore Consumption Boost, Warns of Revenue Loss
GST Reforms: SBI Sees Big Boost in Spending, But Warns of
Revenue Loss
The Goods and Services Tax (GST) system in India may soon
get a big change. Right now, GST has four main tax slabs – 5%, 12%, 18% and
28%. According to a new proposal, these could be reduced to just two – 5% and
18%. In addition, there could be a very high “sin tax” of 40% for goods like
cigarettes, tobacco, and aerated drinks. This new structure is being called GST
2.0.
The State Bank of India (SBI) Research team studied
the impact of this change. Their findings show both positives and negatives.
The Positives – More Consumption, Lower Inflation
SBI believes that if GST is simplified, people will spend
more because many items will become cheaper. They estimate that consumption in
the economy could rise by ₹1.98 lakh crore (almost 2 trillion rupees).
When combined with recent income tax cuts, the total boost to demand could be
as high as ₹5.3 lakh crore, which is about 1.6% of India’s GDP.
This change could also help in controlling inflation.
Everyday items like food, clothing and household goods may fall under the lower
5% tax slab instead of 12%. As a result, prices may go down. SBI estimates that
overall inflation (CPI) could reduce by 20–25 basis points (0.20–0.25%),
while food inflation could fall by 10–15 basis points. This will give
relief to common households.
Another benefit is simplicity. With fewer slabs, the
tax system becomes easier for businesses and consumers to understand. It also
reduces disputes and confusion.
The Negatives – Loss in Government Revenue
However, there is also a cost. SBI estimates that the
government may lose ₹85,000 crore every year because tax collections
will go down on many items. Some other banks and research firms have given even
higher estimates. For example, HSBC says the loss could be ₹1.43 lakh crore,
and UBS says around ₹1.1 lakh crore.
Even though this sounds worrying, SBI points out that there
are ways to handle it. First, when people spend more, the government will
automatically collect more GST from the increased demand. SBI calculates that
this extra spending could itself bring back around ₹52,000 crore in GST
collections.
Second, the government has a compensation cess fund.
This fund, which is collected from taxes on luxury and sin goods, is expected
to have a surplus of ₹45,000 crore by March 2026. This can be used to
cover part of the loss.
Finally, the Union Government has in the past collected much
more tax than it had estimated. In fact, in the last four years, tax
collections were higher by an average of ₹2.26 lakh crore per year. This
shows that the government has some room to manage the shortfall.
Overall Outlook
Experts are divided on the impact. SBI is optimistic that
the benefits – more spending, lower inflation, and a cleaner tax system – will
outweigh the revenue loss. Other analysts like HSBC and UBS are more cautious,
saying the government must prepare for a larger hole in its income.
Still, most agree that GST 2.0 will be a big reform
that could give India’s economy a fresh push. For ordinary people, it may mean
cheaper goods, more money left in hand, and a simpler tax system.
Source- Ecomic Times
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