GST Overhaul: New Rates Set to Boost Consumer Spending

Morgan Stanley, a global investment bank, has predicted a surge in consumer spending due to the newly rationalized Goods and Services Tax (GST) structure approved by the GST Council. The restructuring, effective from the start of the festive season, moves from a four-rate system to a simplified two-rate scheme of 18% and 5%, making goods and services more affordable.

According to Morgan Stanley's recent research report, the shift is set to trigger broad-based demand, especially among low-income households. The GST rate change comes after Prime Minister Narendra Modi's announcement of next-generation GST reforms aimed at simplifying the tax regime. The revisions include reduced rates for personal care and dairy products and lowered GST on certain vehicles and electronics.

The government projects the fiscal impact at approximately Rs 48,000 crore, or 0.13% of GDP, after adjusting for revenue changes. While the rates slashes could potentially reduce inflation, as Morgan Stanley estimates headline CPI may drop by 20-30 basis points by FY26, improved consumption could enhance tax buoyancy. The firm maintains a 6.7% GDP growth forecast for FY26 and anticipates another interest rate cut from the Reserve Bank of India.

(With inputs from agencies.)