Dear Readers,

Just two days from now, India’s entire tax structure will change. I am sure many of you are eagerly waiting for September 22 to begin your shopping. Interestingly, e-commerce companies have already announced their festival sales starting September 23. The reduction of 18% GST on many essential and daily-use products, which will either disappear or drop to 5%, is a welcome relief for consumers.


On one hand, this represents a direct loss of revenue for the government, which currently earns around 1.8 lakh crore per month from GST. On the other hand, since India is a consumption-driven economy, it is estimated that lower taxes will stimulate spending and, in turn, boost revenue. In my view, if GST can revive the currently sluggish demand, India Inc and the broader economy could receive a significant lift, which is much needed amid geopolitical tensions and global trade disruptions.

Here are the three factors I would like to elaborate on.

Banks, NBFCs gear up for a surge in credit demand

The financial sector is already positioning itself for a surge in credit demand. Lower taxes on autos, consumer durables, and household goods may unlock long-suppressed purchases, particularly in semi-urban India and the MSME belt. Retail loans, auto financing, and consumer durable credit are expected to climb, offering banks and NBFCs a new growth lever. Rural households, long constrained by affordability, may now stretch to small-ticket borrowings, giving lenders a reason to polish their loan products.


Insurance companies, meanwhile, face a paradox. Health and life policies are now cheaper on paper, thanks to lower GST, but the practicalities of input tax credits complicate matters. Exemptions, rather than nil-rates, prevent insurers from offsetting GST paid on distribution, technology, and office infrastructure. Margins could be squeezed even as demand rises, prompting a hunt for operational efficiencies. Smaller firms, in particular, risk liquidity stress if ITC refunds are delayed, potenti ally creating a fresh demand for short-term borrowing.


CFOs on the frontline

For finance heads, the reform is no mere decimal-point exercise. Chief finance officers (CFOs) are navigating the labyrinth of ERP updates, supply-chain recalibrations, and pricing strategies. Older inventory carries the old GST; new stock bears the new. Re-tagging millions of items is impractical, forcing firms to pass benefits at the billing stage. Retailers are experimenting with counter discounts or bundle incentives, while hotels are restructuring folios and booking systems to prevent a ta x tangle.


Cost pressures are adding another wrinkle. GST cuts, coupled with the loss of ITC on some items, may raise effective input costs. For low-value goods, the challenge is not the amount of the reduction but the mechanics of transmitting it to the consumer. CFOs are also bracing for temporary cash-flow issues as credits accumulated under higher rates remain locked while lower rates kick in, creating a mismatch.

Sectoral winners

The gains from GST rationalisation are far from uniform. FMCG and daily essentials stand to benefit most, as lower taxes boost affordability and stimulate household demand.


Automobiles and consumer durables may see renewed traction in middle-class and semi-urban markets. Real estate and construction materials could attract buyers in under-construction and affordable housing segments, while textiles, apparel, and footwear may enjoy a discretionary spending uptick, tempered by lingering input cost uncertainties.


Insurance, healthcare, and renewable energy stand out as potential structural winners. Lower taxation on health policies and medicines could broaden coverage, while cheaper solar panels and clean-tech components may catalyse investment and green infrastructure development.

Will the industry pass it on?

The government has acted decisively, rationalising slabs and trimming complexity. But whether India Inc. plays ball is another matter. Companies have long exhibited a cautious, sometimes stubborn psychology: if customers were willing to pay yesterday, why reduce prices today? Input tax credit losses and operational hurdles may reinforce the instinct to hoard rather than hand over the relief. In such a climate, the success of GST 2.0 depends not just on policy, but on corporate will. For the ref orm to ignite consumption rather than merely redistribute paperwork, industry must transmit the benefit quickly.

Please share your feedback, suggestions if any. You can reach me on amol.dethe@timesinternet.in and follow me on LinkedIn at ETBFSI Digest.

As usual, I am adding here the top 5 stories of the week, trust you will find them meaningful.

1. India’s organised wealth to grow 8x by 2047, massive scope for new players: Shriram Wealth CEO
2. How banks are tiding over low interest income after RBI rate cuts
3. UPI merchant payment limit raised to Rs 10 lakh; nears NEFT, RTGS
4. Gold loans booming: What’s driving borrowers to pledge their jewellery
5. India’s private credit market set for rapid expansion in 2025 from last year's $8 billion
   

Happy Reading
Amol Dethe,
Editor,
ETBFSI

(Editor's note is a column written by Amol Dethe, Editor, ETBFSI. Click here to read more of his articles exploring several buzzing topics)

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