Big Booster For Consumption: Industry Leaders Hail GST Rate Cuts

Industry leaders across sectors have lauded the simplified two-tier goods-and-services-tax structure. Several top executives from multiple companies, speaking to NDTV Profit, appreciated the government's move aimed at boosting consumption for various sectors.

The GST Council has reduced the tax rates to 5% and 18%, eliminating the existing four-tier structure. The revised GST rates will come into effect from Sept. 22. The government has removed the 12% and 28% tax slabs. However, the ‘sin goods’ like tobacco and related products, including cigarettes, will attract a hefty 40% tax.

Amit Agarwal, Group CFO of Raymond, a leading player in India’s textile and apparel industry, hailed the move.

“It is a big booster for consumption. People will have more disposable income. And in the categories which we play, especially the discretionary category, there will be more consumption,” he said during a conversation with NDTV Profit.

The revised framework reduces GST rates on essential textile products, including fabrics, from 12% or 18% to a uniform 5%. Additionally, the GST rate on apparel priced below Rs 2,500 has been slashed from 12% to 5%, while garments above this threshold will now attract a tax rate of 18%.

The inverted duty structure, where input taxes were higher than those on finished products, has long been a pain point for the textile industry. Agarwal pointed out that the apparel segment still faces challenges.

"The output has now moved down from 12% to 5% up to Rs 2,500. I think we will have a little bit more accumulation on the apparel side. But as far as apparel is concerned, I think we were expecting to see a refund,” he noted.

He was cautious about the export market, acknowledging that the boost in domestic sales would be unlikely to fully offset the ongoing pain faced by export-oriented companies due to US tariffs.

Sandip Ghose, CEO of Birla Corporation, observed that rate cuts on cement and other building materials will help consumers to invest more in their properties.

"What has happened with consumer goods' rates coming down is that there will be more money in the hands of the individual home builders to invest in their properties," Ghose said.

He was quick to dismiss concerns of companies attempting to gain from the tax cut. He remarked that the government is "going to be very, very strict on profiteering".

However, he cautioned that the initial phase of the implementation might see a temporary slump. "I anticipate that in the next 10-15 days, there will be a drop in demand," he explained.

The real long-term benefit for companies, he believes, will come from higher volumes and improved absorption of overhead costs.

Yashish Dahiya, Group CEO of PB Fintech, emphasised that the GST reduction is a landmark decision for the insurance sector. "The most important message going out of this is that health and term insurance are now a priority sector for the government," he said.

"The messaging of this is very, very important. Health and term insurance, which are critical for the social security of the consumer, are being seen as products by the government, where they will not charge GST anymore,” he added.

While acknowledging that the full reduction may not be directly passed on to consumers due to other costs, Dahiya maintained that the core benefit lies in the government's endorsement of these products. "I don't think consumers buy products like health or term insurance because they are 5% more expensive or cheaper. The material fact is the message that the government believes it is important for you and is no longer charging GST on this product,” he said.

B Thiagarajan, managing director of Blue Star, highlighted that the inclusion of all ACs under the 18% slab created a significant opportunity.

“We never anticipated that all the air conditioners would be brought under an 18% slab. The next part is connected with disposable income. For a consumer, he is having cut across many categories. So, on both accounts, this is indeed a very unprecedented step which will propel the industry,” he said.

He revised his company’s growth forecast for the current fiscal year from a cautious 10-15% to 20%.

“When the summer season failed, we felt that the growth of 10% to 15% was possible with great difficulty. With this GST cut, 20% growth is definitely possible. It is going to spark demand,” he said.

RG Chandramogan, chairperson of Hatsun Agro Product, one of India’s leading dairy companies, hailed the GST reduction as a game-changer for the sector. “We asked for some rain, but this is a cloudburst,” he said.

He explained the dual benefits of the tax reform. A portion of the tax savings would be passed on to consumers in the form of lower prices, while the remaining half would directly benefit farmers.

"We are already working on passing almost half the benefit to the farmer and half the benefit to the consumers," he said.

"This is going to be a bonanza for consumers and this will stimulate a bigger demand for products and services. And also, the farmer will benefit in a big manner," he added.