New Delhi: The Union Bank of India’s recent report has lauded India’s Goods and Services Tax (GST) 2.0 as a powerful ‘GST booster shot’ aimed at driving consumption-led growth. The updated GST framework, implemented on September 22, brings major relief across various sectors including FMCG, MSME, textiles, automobiles, healthcare, insurance, electronics and construction.

By rationalising tax slabs, simplifying compliance procedures, and addressing longstanding issues such as the inverted duty structure, the new GST rates are expected to trigger a broad-based sectoral transformation.

Daily essentials like packaged foods, personal care products and everyday items have seen their GST reduced from 12-18% to just 5%. Companies are anticipated to pass on price cuts of 4 to 6%, enhancing affordability and fuelling rural demand. Staples such as paneer, chapati and khakhra have been moved to the zero-tax category, making these essential foods even more affordable.

The textile industry, which has faced challenges due to US tariffs, stands to benefit greatly from these changes. GST on synthetic yarn, staple fibre and non-woven fabrics has been cut to 5%, while garments priced up to Rs 2,500 now attract a reduced GST of 5%, down from 12%. This correction of the inverted duty structure is expected to relieve working capital constraints for spinners and weavers, enhancing their competitiveness. However, garments costing above Rs 2,500 will see an 18% GST rate, potentially impacting middle-class buyers. The sector overall is poised for stronger demand and healthier cash flows.

Automobiles, including two-wheelers, small cars, buses, ambulances and auto parts, now face a lower GST of 18%, down from 28%. This reduction is anticipated to make vehicles more affordable, with compact cars already experiencing price cuts of up to Rs 2.5 lakh and two-wheelers expected to become cheaper by Rs 8,000 to Rs 15,000. Demand in rural areas is predicted to rise by 12-15%. In addition, MSME suppliers within the auto supply chain could save nearly Rs 6,000 crore annually. However, luxury SUVs and premium motorcycles have been placed in a higher 40% GST bracket to balance revenue collection.

The electronics and consumer durables sector is also set to benefit, with large appliances such as air conditioners, refrigerators and dishwashers seeing a GST cut from 28% to 18%, potentially reducing prices by 8-9%. This move aims to boost festive season sales and increase affordability in Tier II and Tier III cities. Smaller appliances, including mixers and microwave ovens, are also set to become more accessible due to the tax rationalisation.

In healthcare and insurance, the reforms offer huge benefits. GST has been removed on 33 essential drugs, including those for cancer and rare diseases, while health and life insurance policies are now fully exempt from GST. The tax on medical devices and diagnostic kits has been reduced from 12-18% to 5%, likely lowering treatment costs and encouraging wider insurance coverage.

The construction sector is expected to see cost reductions with GST on cement falling from 28% to 18%, and materials like particle boards and sand lime bricks now taxed at just 5%. This change could enhance project viability and spur growth in infrastructure and housing.

Overall, GST 2.0 provides comprehensive structural relief across vital industries, with reforms expected to accelerate economic growth by boosting consumption, simplifying compliance and strengthening MSMEs. Luxury and sin goods have been shifted to a 40% GST slab to safeguard government revenue.