On GST rate cuts, Finance Minister Nirmala Sitharaman said that the move will put ₹2 Lakh Crore in the hands of common people while underlining that the GST revenue touched ₹22.08 Lakh Crore in 2025, up from ₹7.19 Lakh Crore in 2018. Savings in household expenses due to GST rejig is expected to spur consumption. Impact of GST rate cuts is not just limited to consumption as it has implications for savings and investment.
Consumption has attracted the attention in the GST rate cuts as the share of Private Consumption in nominal Gross Domestic Product (GDP) in India is 61.4 per cent for FY25, up from 60.2 per cent in FY24. This was the second-highest level in the last 20 years. Therefore, emphasis on Private Consumption in India becomes apparent as the GST rate cuts could cushion Trump tariff blow.
Preliminary details which emerged in last 10 days reflect that GST cuts have proved positive for many sectors. Automakers were the first to report positive signals. On the very first day of Navratri festival, car companies reported surge in enquiries and bookings. Maruti Suzuki, the largest carmaker in India, recorded retail sales of more than 25,000 units which was not seen in the last 35 years. Tata Motors recorded 10,000 deliveries, Hyundai Motor recorded 11,000 dealer billings, the highest single-day performance in the last five years.
While observing total impact, it needs to be considered that entire amount of ₹2 Lakh Crore will not go into consumption. Nominal GDP for FY26 is projected to be ₹357 Lakh Crore, up from ₹330 Lakh Crore for FY25. ₹2 Lakh Crore extra money with consumers forms 0.56 per cent of the nominal GDP for FY26. In this background, GST cuts do not appear quite significant. If this extra money of ₹2 Lakh Crore is seen in the background of India’s retail market, then it is about 2.44 per cent as India’s retail market reached ₹82 Lakh Crore in 2024 (up from ₹35 Lakh Crore in 2014) with a growth of 8.9 per cent in the decade.
From consumers’ point of view, entire amount of savings due to GST cut may not be available for consumption. Part of this saving is likely to be diverted to repay existing debt, and into savings. India’s household debt stood at 42.0 per cent as per the SBI Research report (Issue 8 dated June 10, 2025). This report highlighted that it is relatively low for India as compared to other Emerging Market Economies (EMEs) for which the corresponding percentage was 49.1 per cent. The report also underlined that household debt has increased over the past three years. But it needs to be seen in the background that ‘the increase is driven by a growing number of borrowers rather than an increase in average indebtedness.’ The report also pointed out that the rise in the Household debt is not worrisome at all as two-thirds of the portfolio comprised of prime and above credit quality. –
Disaggregated analysis of the nature of individuals’ borrowings has relevance for consumption. The SBI report as cited earlier gave disaggregated picture: 45.0 per cent share of individuals borrowings comprised loans for consumption only, i.e., credit cards, consumer durables, and personal loans. 25.0 per cent share of individuals’ borrowings meant for asset creation that included home loans and vehicle loans. The remaining 30.0 per cent comprised mainly agriculture loans, business loans and education loans. A report from CareEdge Ratings of June 2025 had highlighted that Gross financial liabilities of households rose to 6.2 per cent of GDP in FY24, nearly doubling over the past decade.
Individual borrowings for consumption such as consumer durables, vehicle loans, etc. are directly relevant to sectors for which GST cuts have been announced, e.g., for consumer durables, the GST rate has been reduced from 28.0 per cent to 18.0 per cent.
Sectoral Deployment of Bank Credit (August 2025) data released by the Reserve Bank of India on September 30, 2025 shows that the credit growth in Personal Loans segment (credit cards, vehicles, unsecured loans, etc.) had decelerated to 11. 8 per cent from 13.9 per cent a year ago. In August 2024, the Housing Loans’ growth was 13.1 per cent which came down to 9.7 per cent in August 2025. Growth in Credit Card outstanding also came down to 4.4 per cent in August 2025 as against 19.9 per cent in August 2024. Growth in Other Personal Loans came down to 8.1 per cent in August 2025 as against 12.3 per cent in August 2024. Hence, the boost was needed, and GST cuts are likely to help in this regard.
Savings for Consumers due to GST cuts are also likely to become a part of household savings too. Household savings are showing downward trajectory when observed as a percentage of GDP. In FY24, household savings in India came down to 18.1 per cent of the GDP as per CareEdge Ratings (June 2025). But Household Savings have gone up in rupee terms with the growth in the GDP of Indian economy.
From Table 1, it is apparent that Household savings as a percentage of Gross Domestic Product (GDP) has fallen to a five-year low by the end of FY24 whereas household financial liabilities have surged to five-year high. In absolute rupee terms, Household Savings have increased to ₹54.6 Lakh Crore in 2023-24, up from ₹38.5 Lakh Crore in 2019-20. As per the response from Department of Economic Affairs, Ministry of Finance to an unstarred question in Rajya Sabha dated August 5, 2025, Household Savings have gone up in last five years: ₹38.5 Lakh Crore in 2019-20, ₹45.1 Lakh Crore in 2020-21, ₹47.4 Lakh Crore in 2021-22, ₹50.1 Lakh Crore in 2022-23, and ₹54.6 Lakh Crore in 2023-24.
To ensure that the benefits on account of GST cuts are passed on to the consumers, the government has placed even E-Commerce Platforms under vigilance. To make consumers aware of GST cuts across various items, advertisements are appearing in print media on GST Bachat Utsav. These moves have created awareness among consumers. Already, the National Consumer Helpline has received about 3,000 GST related complaints since GST rate cuts became effective. The Central Board of Indirect Taxes and Customs will take action on these complaints.
To conclude, it can be said that extra money in the hands of consumers due to the GST rejig will boost the consumption while part of that amount will also be used by consumers to reduce debt and augment savings. GST 2.0 will boost consumption, and initiate the virtuous cycle. GST collection for September 2025 surged to ₹1.89 Lakh Crore, a 9.1 per cent annual increase. For August 2025, gross GST collections stood at Rs. 1.86 Lakh Crore. Nirmala Sitharaman has rightly described the GST rate rationalisation as a “classic example of a virtuous cycle” that could drive higher consumption, fresh investments, job creation, and a wider tax base – ultimately paving the way for further tax cuts in the future.
Dr. Anil Kumar Angrish- Associate Professor (Finance and Accounting), Department of Pharmaceutical Management, NIPER S.A.S. Nagar (Mohali), Punjab
Disclaimer: Views are personal and do not represent the views of the Institute.
