GST 2.0: India Shifts Gears to Boost Economic Growth

The Indian government has unveiled GST 2.0, marking a strategic pivot in economic policy from a capex-heavy focus to a model driven by consumption. This major shift aligns with predictions from a recent Axis Securities report, highlighting the change beginning with the FY26 Budget.

For the past decade, development-centric schemes have defined India's economic landscape. Massive infrastructure projects, serving as markers of government success, have underscored this approach. However, with the February 2025 Budget, the emphasis shifted towards tax relief for rural and middle-class households, signaling a new consumption-based economic framework.

The GST 2.0 reforms, approved in the 56th GST Council meeting on 3rd September 2025, streamline the tax structure from four slabs to three, effectively removing the 12% and 28% categories. From 22nd September 2025, most items will fall under 5% and 18% slabs, with a 40% slab for 'sin' goods and Nil GST on essential items, aiming to stimulate consumption.

This rationalization is anticipated to particularly aid MSMEs and SMEs, enhancing urban and rural spending power. The consumer discretionary sector is poised for increased momentum, potentially revitalizing sluggish credit growth observed since FY25.

The Axis Securities report identifies sectors such as consumer durables, building materials, automobiles, retail, cement, FMCG, and real estate as significant beneficiaries. GST 2.0 is not only set to fuel consumption but is also projected to trigger an uptick in private capex, crucial for long-term economic vitality.

(With inputs from agencies.)