New Delhi: Consumption in India is set to receive a major boost of nearly Rs 1 lakh crore from September onwards, driven by the recent Goods and Services Tax (GST) rationalisation, according to a Bank of Baroda report. The bank estimates a net gain to consumption of Rs 0.7–1 lakh crore—equivalent to about 0.2–0.3 percent of GDP—with the potential for an even larger impact as savings from reduced cess translate into higher demand. The rationalisation has kept most daily household items, including FMCG products and durables, in the 5 percent GST bracket, thereby lowering the overall effective tax rate from the current 10–11 percent on consumption. With India’s taxable consumption base pegged at Rs 150–160 lakh crore, the move is expected to create significant momentum in household spending.
The report also highlights the potential inflationary benefits of the GST revamp. It estimates that the new tax structure could bring down headline inflation by 55–75 basis points over the next six months. Prices of food and beverages—9 percent of the CPI basket—may fall by 25–35 bps, especially on items such as prepared meals, snacks, oils, butter, and vanaspati. Since these are everyday consumables, the price drop is expected to give a strong push to real consumption demand, which in turn could support fresh investment and boost the economy further.
Core inflation is also set to benefit, with around 10 percent of the core inflation basket seeing an average price decline of 7.4 percent, potentially reducing core inflation by 30–40 bps. Bank of Baroda has consequently revised its headline CPI forecast down to 3.1 percent from 3.5 percent. Overall, the report underscores that GST rationalisation will ease inflationary pressures while giving a significant push to household consumption and fresh investments in the economy.
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