New Delhi: The GST Council's landmark decisions are expected to boost consumption and credit expansion, ultimately driving economic growth, according to bankers.
On Wednesday, the GST Council approved an overhaul of the goods and services tax regime, slashing taxes on several common-use items, from hair oil to corn flakes, personal health and life insurance policies and umpteen others.
As India continues to financially transform and drive towards becoming the third-largest economy, the shift to a simplified two-tier GST structure of 5 per cent and 18 per cent with 40 per cent on sin goods marks a landmark in its indirect tax reforms, State Bank of India (SBI) Chairman CS Setty said.
Household goods, earlier taxed at 12 per cent and 18 per cent, now fall under the 5 per cent category, which will provide tangible relief in the form of lower costs on essentials and higher disposable incomes, he added.
"With greater spending power, demand and credit expansion will rise, driving economic growth. In a similar vein, the insurance sector stands to benefit with lower premiums and thus better protection coverage and larger insurance penetration," he said.
Echoing similar views, PNB MD and CEO Ashok Chandra said the banking sector stands to benefit substantially from this reform, with expected increases in demand for credit and financial services, particularly in the retail, agriculture, MSME and renewable energy sectors.
The GST 2.0 reform, which will come into effect on September 22, 2025, for about 396 items, represents a significant enhancement to India's indirect tax framework.
This reform is anticipated to stimulate domestic demand for goods and services, contribute to the reduction of core inflation, and foster economic growth through increased disposable income and improved compliance, Chandra said.
Further, Setty said the reduction in GST rates on various items is also expected to soften headline CPI as mass consumption goods get cheaper.
Businesses too stand to gain from a simpler regime resulting in lower compliance costs and improved competitiveness, Setty, who is also chairman of the Indian Banks' Association, said.
The short-term revenue loss from lower GST rates is expected to be recouped through higher consumption and stronger economic activity, having a positive effect on GDP growth and fiscal health in the coming quarters.
The government expects revenue implications of Rs 48,000 crore due to the GST rate reduction.
The implications are both immediate and long-term, as this initiative consolidates GST into a truly citizen-friendly and growth-oriented GST 2.0, he added.
Shriram Finance Executive Vice Chairman Umesh Revankar said, "With more products now falling under lower GST brackets, demand is expected to grow sharply, creating a greater need for business credit, along with the positive effect of a good monsoon and the upcoming festive season. The stage is set for a significant jump in consumer confidence, spending, and overall economic activity".
As the monsoon stabilises by September, he said, "we expect a lift in commercial vehicle financing, further fuelled by India's push for large-scale infrastructure investments in the months ahead".
According to Tamilnad Mercantile Bank MD and CEO Salee S Nair, the combination of increased affordability and festive optimism will likely fuel demand for personal loans, auto loans, and consumer durable financing.
Banks are prepared to meet this demand responsibly, with products tailored to help customers fulfil their aspirations while maintaining financial discipline, he added.
On Wednesday, the GST Council approved an overhaul of the goods and services tax regime, slashing taxes on several common-use items, from hair oil to corn flakes, personal health and life insurance policies and umpteen others.
As India continues to financially transform and drive towards becoming the third-largest economy, the shift to a simplified two-tier GST structure of 5 per cent and 18 per cent with 40 per cent on sin goods marks a landmark in its indirect tax reforms, State Bank of India (SBI) Chairman CS Setty said.
Household goods, earlier taxed at 12 per cent and 18 per cent, now fall under the 5 per cent category, which will provide tangible relief in the form of lower costs on essentials and higher disposable incomes, he added.
"With greater spending power, demand and credit expansion will rise, driving economic growth. In a similar vein, the insurance sector stands to benefit with lower premiums and thus better protection coverage and larger insurance penetration," he said.
Echoing similar views, PNB MD and CEO Ashok Chandra said the banking sector stands to benefit substantially from this reform, with expected increases in demand for credit and financial services, particularly in the retail, agriculture, MSME and renewable energy sectors.
The GST 2.0 reform, which will come into effect on September 22, 2025, for about 396 items, represents a significant enhancement to India's indirect tax framework.
This reform is anticipated to stimulate domestic demand for goods and services, contribute to the reduction of core inflation, and foster economic growth through increased disposable income and improved compliance, Chandra said.
Further, Setty said the reduction in GST rates on various items is also expected to soften headline CPI as mass consumption goods get cheaper.
Businesses too stand to gain from a simpler regime resulting in lower compliance costs and improved competitiveness, Setty, who is also chairman of the Indian Banks' Association, said.
The short-term revenue loss from lower GST rates is expected to be recouped through higher consumption and stronger economic activity, having a positive effect on GDP growth and fiscal health in the coming quarters.
The government expects revenue implications of Rs 48,000 crore due to the GST rate reduction.
The implications are both immediate and long-term, as this initiative consolidates GST into a truly citizen-friendly and growth-oriented GST 2.0, he added.
Shriram Finance Executive Vice Chairman Umesh Revankar said, "With more products now falling under lower GST brackets, demand is expected to grow sharply, creating a greater need for business credit, along with the positive effect of a good monsoon and the upcoming festive season. The stage is set for a significant jump in consumer confidence, spending, and overall economic activity".
As the monsoon stabilises by September, he said, "we expect a lift in commercial vehicle financing, further fuelled by India's push for large-scale infrastructure investments in the months ahead".
According to Tamilnad Mercantile Bank MD and CEO Salee S Nair, the combination of increased affordability and festive optimism will likely fuel demand for personal loans, auto loans, and consumer durable financing.
Banks are prepared to meet this demand responsibly, with products tailored to help customers fulfil their aspirations while maintaining financial discipline, he added.
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