GST overhaul to shift towards a dual-slab structure, aimed at boosting mass consumption and easing fiscal concerns
New Delhi
The Goods and Services Tax (GST) rationalisation, which will take effect from September 22, marks a major policy shift intended to stimulate growth through consumption-led strategies, according to a report released on Friday by Emkay Global. The move comes as indirect taxes, by nature, are regressive, and the reform is expected to rebalance India’s fiscal framework.
The new structure, approved by the GST Council, will replace the existing four-tier system with two slabs—5 per cent and 18 per cent—alongside a 40 per cent rate applicable to luxury and sin goods, mainly intoxicants. The government estimates a net revenue loss of ₹480 billion (0.14 per cent of GDP) and a gross revenue loss of ₹930 billion. However, the introduction of a sin/luxury tax category is expected to add ₹450 billion in revenue.
Emkay’s report noted that although states may face a larger fiscal hit, the cessation of the compensation cess—worth nearly 0.5 per cent of GDP—creates a de facto demand boost, as that revenue was not permitted for fiscal budgetary flows. Such tax changes would add over 0.6 per cent of GDP to domestic demand annually, supporting mass consumption in FMCG, consumer durables, autos, and related sectors, the report stated.
The rationalisation is also expected to ease fears of fiscal slippage in the bond market. According to the report, buffers may emerge from higher non-tax revenues, supported by larger RBI and PSU dividends, along with potential stake sales in IDBI and public sector banks.
Emkay highlighted that the reform strengthens the long-standing theme of consumption over capex, positioning the economy for near-term demand-driven growth while maintaining fiscal stability.
