The GST rate revision by the Government has raised many questions on fiscal sustainability and the consumption boost. The GST revision has reduced rates on 90 per cent of the categories, while the newly announced category of 40 per cent has some surprise entrants as well.
JM Financial pointed out that though this is likely to boost consumption, the capex slowdown and fiscal deficit challenges could be a concern
Some noticeable changes are the coal GST hike to 18 per cent from 5 per cent. The construction sector GST is hiked to 18 per cent from 12 per cent, and apparel costing more than 2,500 to 18 per cent from the prior 12 per cent.
A JM Financial report says that the revised GST rates across the categories are clearly focused on consumption growth, and the revenue loss could impact the capital expenditure in FY26.
Here is a look at the effect of the GST rate revision on consumption and fiscal deficit.
JM Financial on new GST rate: Major beneficiaries
As the government focuses on a consumption boost, the FMCG sector is seen as a major beneficiary of the GST rate revision. The majority of FMCG products, such as toothpaste, soap, oil, shampoo, butter, cheese, namkeens and more, have come under the 5 per cent GST slab from the previous 12 per cent rate.
JM Financial lists out the key beneficiaries- Agricultural products, fertilisers, equipment, cement, and the auto sectors are the other major beneficiaries of the GST cuts. GST rates on tractors, bio-pesticides, micro-nutrients and agricultural machinery have come down to 5 per cent from 12 per cent.
GST rates on cement and the majority of cars and motorcycles have come down from 28 per cent to 18 per cent.
JM Financial on new GST rate: Consumption growth
The latest GST rates revision comes after the $1 trillion direct tax exemption announced by the government earlier this year. The government is aiming for higher consumption by lowering taxes and leaving more money in the hands of people to spend. As a result, the private consumption in the first quarter of FY26 went up 7 per cent YoY.
JM Financial says that since the announcement of GST rationalisation, “the markets were already positioned in favour of consumption. The report says that an incremental move away from capex-oriented sectors cannot be ruled out.”
JM Financial on new GST rate: Fiscal deficit
According to the GST Council’s assessments, the GST rate rationalisation will be fiscally sustainable. Based on the FY24 patterns, the Council estimates that there will be a fiscal impact of Rs 48,000 crore.
JM Financial says that if the government doesn’t absorb the effect through a low capex in FY26, the GST revenue loss due to the revision will eventually stretch India’s fiscal deficit position above the target of 4.4% of GDP in the current fiscal year