Will Your Groceries, ACs & Cars Get Cheaper? Govt Plans GST Overhaul

From packaged food to consumer durables, a wide range of goods could soon become cheaper.

The government plans to rationalise GST into two primary slabs of 5% and 18% by September 2025, in what will be the biggest indirect tax reform since GST was introduced in 2017.
Nearly all products currently taxed at 12% are likely to move to the lower 5% rate.

This means items like processed and packaged food, butter, and ghee will see price reductions, directly benefiting households. Automobiles, home appliances such as air conditioners, refrigerators, and packaged beverages, currently in the higher slab, will also move to 18%, making them more affordable.

Relief for Households as Prices Fall
Brokerage house Emkay Global says the GST restructuring could bring a 50-60 basis point fall in inflation over a year, with the biggest relief in food and beverages.
“The largest impact—of ~40bps—will come from certain goods in the F&B category moving to the 5% slab (from 12% now),” the firm said. Consumers may also feel relief in buying vehicles, ACs, and packaged drinks, which will see lower tax incidence.

More Money in the Consumer’s Pocket
Lower GST rates are expected to put more disposable income in the hands of consumers, which in turn can drive demand in FMCG, autos, and home durables.
“All else equal, such tax changes should boost consumption in FMCG, consumer durables, autos, cement, and similar sectors, with even the Insurance sector seeing a gain,” Emkay noted.
This means households could find it easier to spend on big-ticket purchases like cars and appliances, while also saving on everyday food expenses.

What It Means for the Government
While good news for consumers, the reform poses challenges for government finances. Emkay estimates the rationalization could cost the exchequer over ₹1.2 trillion annually (~0.4% of GDP).

Assuming implementation from October 2025, the FY26 fiscal impact for general government finances would be about 0.2% of GDP, with states likely to bear a larger share of the revenue loss.

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To make up for this gap, the government may rely on higher dividends from the RBI and PSUs, as well as disinvestment in IDBI and LIC. However, if spending on rural schemes or infrastructure is cut back to offset the loss, the overall consumption boost could be limited.

Consumers Win, but Challenges Remain
For now, consumers stand to gain the most. Cheaper essentials and durables, coupled with inflation relief, could offer households much-needed respite. But the net benefit will depend on whether the government maintains its spending on welfare and infrastructure while implementing the tax cut.

As Emkay put it: “Policy intent to reform GST to a two-tier structure is a welcome move, especially as indirect taxes are regressive in nature.”

However, the overall boost to demand will depend on how the government manages the fiscal trade-off. If the Centre maintains fiscal targets by reducing allocations to capex or social sector spending, the net impact on aggregate demand could be limited.