GST Reforms 2.0: A Potential Economic Booster ? Latest Insights and Analyst Views

SUMMARY

In a significant push towards simplifying India's tax structure, Prime Minister Narendra Modi has signaled impending GST reforms aimed at rationalizing rates by Diwali (October 25, 2025). The proposed changes, often dubbed "GST 2.0," seek to collapse the existing multi-slab system into primarily two brackets: 5% and 18%, with a special 40% rate reserved for sin goods like tobacco, pan masala, and online gaming. This overhaul is expected to reduce tax burdens on middle-class consumers, MSMEs, and the agricultural sector, potentially stimulating consumption and economic growth.

UBS estimates that revenue loss of GST rationalisation would be to the tune of ₹1.1 trillion annually. Image: Shutterstock

Key Proposed Changes

The reforms involve eliminating the 12% and 28% slabs. Approximately 99% of items currently taxed at 12% will shift to 5%, while 90% of goods and services in the 28% bracket will move to 18%. Petroleum products will remain outside the GST ambit, and a new 40% slab will apply to demerit goods, potentially leading to higher duties on tobacco products amid debates between the Centre and states.

Specific highlights include:

• Tax cuts on small cars: The federal government proposes reducing GST on small petrol and diesel cars from 28% to 18%, benefiting manufacturers like Maruti Suzuki and Hyundai, and aiming to revive the segment's declining market share amid a shift to SUVs.

• Insurance premiums: Health and life insurance premiums may drop from 18% to 5% or even zero, providing relief to policyholders.

Items expected to become cheaper include daily essentials and consumer durables, while sin goods may see price hikes. Here's a breakdown:

Category	Items Likely to Get Cheaper	Items Likely to Get More Expensive
Consumer Goods	Toothpaste, umbrellas, sewing machines, pressure cookers, small washing machines, bicycles, readymade garments (over Rs 1,000), footwear (Rs 500-1,000), hair oil, processed foods, stationery (e.g., geometry boxes, notebooks)	Tobacco products (e.g., cigarettes, chewing tobacco) under 40% sin tax
Electronics & Tech	Mobile phones, computers	-
Vehicles	Passenger vehicles (especially small cars), two-wheelers	High-end cars (potentially under sin tax)
Health & Agri	Vaccines, agricultural tools	-
Others	Ceramic tiles	Luxury goods, online gaming

This shift is projected to lower retail prices by 4-5% on average, with a potential revenue loss of Rs 50,000 crore for the government, which could be offset through other fiscal measures.

Market Impact and Stock Surge

The announcement has already spurred market optimism, with India's Nifty index rising 1.3%—its best session in three months—driven by gains in auto and insurance stocks. Shares of Maruti Suzuki, Mahindra & Mahindra, Hero MotoCorp, and Bajaj Auto climbed 2%-9%, while insurers like ICICI Prudential, SBI Life, and LIC gained up to 5%.

Over 40 stocks across sectors are poised to benefit from lower prices and increased demand. Here's a sector-wise list:

Sector	Beneficiary Stocks	Potential Benefits
Autos	Maruti, Tata Motors, Ashok Leyland, Bajaj, Hero, TVS, Eicher, Mahindra, Escorts	GST drop from 28% to 18% for two-wheelers, small cars, and commercial vehicles; tractors from 12% to 5%; lower prices to boost sales.
Consumer & Durables	Voltas, Havells, Blue Star, Amber, Whirlpool, HUL, Britannia, Dabur, Emami, ITC, Varun Beverages, Patanjali Foods	Rate cuts for air conditioners (28% to 18%) and Ayurveda products (12% to 5%); enhanced consumption.
Cement	Ultratech, JK Cement	28% to 18% cut could reduce prices by 7.5-8%, improving demand and real estate margins by 40-50bps.
Banking/Finance	ICICI Bank, HDFC Bank, IDFC First Bank, Bajaj Finance	Higher credit growth from consumption boom; double-digit lending in 2HFY26.
Insurance	Niva Bupa, Max Life, HDFC Life, Star Health	Lower premiums to drive policy uptake.
Retail/Apparel	Relaxo, Shoppers Stop, Trent, Vedant Fashion, Bata, Metro	Increased spending on affordable goods.
Hotels	Lemon Tree, Indian Hotels, Chalet	Boost from tourism and consumption.
Others	Delhivery, Swiggy, Eternal, Titan	Overall economic uplift.

These reforms could ease CPI inflation by 50-60bps, though success hinges on managing revenue shortfalls.

Leading Analysts' Views

Analysts have largely welcomed the moves, viewing them as a catalyst for growth:

• Morgan Stanley notes that GST reforms, combined with lower interest rates into 2026, could propel equity benchmarks to new highs, enhancing consumption and triggering a re-rating of Indian equities.

  
  

• Kotak Institutional Equities estimates a Rs 2.4 trillion economic boost, primarily aiding autos and durables.

  
  

• CLSA highlights benefits for materials and durables like cement and ACs, potentially shifting from 28% to 18% and reviving demand.

  
  

• Goldman Sachs sees gains for consumer products in the 12% slab.

  
  

• UBS projects a Rs 1.1 trillion annual revenue loss but argues it could be offset by surplus cess and RBI dividends, with a larger multiplier effect on spending than tax cuts elsewhere. UBS also foresees reduced inflation and RBI easing to a 5.0-5.25% repo rate.

Next Steps

Finance Minister Nirmala Sitharaman will present the Centre's proposal at a two-day GoM meeting starting August 20 in New Delhi, chaired by Bihar Deputy CM Samrat Choudhary. If approved, the plan will go to the GST Council next month for finalization.

Overall, these reforms could mark a game-changer, fostering household spending and sectoral revival, though careful implementation will be key to balancing fiscal health. 8bit Market Research will continue monitoring developments.