Will Your Shopping Get Cheaper This Festive Season? Here's What Morgan Stanley Said On GST 2.0

Global investment bank Morgan Stanley has said that the recent rationalisation of the Goods and Services Tax (GST) structure, approved by the GST Council, is likely to give a major boost to consumption during the upcoming festive season.

In its latest research report, the firm highlighted that the government has simplified the GST system by moving from four tax slabs to a two-rate structure. 

What Morgan Stanley Said On GST 2.0?

Under the new system, there will be a standard rate of 18 per cent and a lower merit rate of 5 per cent. A special demerit rate of 40 per cent will continue for items like tobacco and luxury goods.

“We expect the improved affordability to give a fillip to consumption, especially as the new GST tax structure is effective from the start of the festive season,” Morgan Stanley said. The firm added that the indirect tax cut will particularly benefit low-income households, helping to lift demand across the economy.

The new GST rates will take effect from September 22. This move also fulfils Prime Minister Narendra Modi’s Independence Day announcement about next-generation GST reforms aimed at simplifying the tax regime and making goods and services more affordable for consumers.

Also Read: GST Rate Changes 2025: Will Your Dream House, Flat Get Cheaper?

The government has estimated the net fiscal impact of this rationalisation at Rs 48,000 crore, or about 0.13 per cent of GDP. This calculation factors in revenue forgone of Rs 93,000 crore and fresh gains of Rs 45,000 crore from the new 40 per cent slab.

Products To Get Cheaper

A wide range of products will now become cheaper. Everyday essentials and consumer goods like hair oil, shampoo, toothpaste, and shaving cream will see GST reduced from 18 per cent to 5 per cent.

Dairy items such as butter and ghee will now attract 5 per cent instead of 12 per cent. Importantly, individual health insurance and life insurance premiums have been fully exempted from GST.

In the auto sector, small cars, two-wheelers under 350cc, and three-wheelers will now face 18 per cent GST instead of the earlier 28 per cent. Household items such as air conditioners and large television sets will also see their rates cut from 28 per cent to 18 per cent.

Inflation May Ease Slightly

Morgan Stanley noted that these measures may slightly ease inflation. “Headline CPI could see a downside of 20-30 basis points in FY26, aided by lower retail prices across categories,” the report said.

The bank expects that higher consumption will eventually boost tax revenues, offsetting short-term losses. It has maintained its GDP growth forecast for FY26 at 6.7 per cent and expects one more repo rate cut by the Reserve Bank of India later this year.