Government hopes GST overhaul will revive sluggish consumption amid global trade tensions
Within days of Prime Minister Narendra Modi’s announcement on goods and services tax (GST) reductions, Indian shoppers began taking advantage of the new savings.
In Mumbai, Udit Thakkar, 27, and his fiancée visited car showrooms, hoping to buy a new vehicle. “This feels like the perfect time,” he said, expecting to save Rs150,000 ($1,688) on a car worth Rs2 million thanks to the government’s latest tax relief measures.
The Diwali season — traditionally India’s biggest shopping period — is seeing renewed energy this year due to the GST overhaul, which simplifies tax classifications and aims to stimulate demand across the world’s most populous nation.
🎁 Modi’s “GST Savings Festival” Promises $28 Billion Boost
Last month, Modi announced a nationwide “GST Savings Festival”, calling it a $28 billion gift for Indian households. He also urged citizens to buy Swadeshi — locally made goods — to strengthen domestic industry amid global trade tensions and U.S. tariffs of up to 50% on exports.
According to Aastha Gudwani, Chief India Economist at Barclays, the new tax structure could bring a strong rebound in consumption:
“We expect this year’s festive season demand to surpass earlier projections,” she said.
Sales of big-ticket items such as cars, appliances, and electronics are expected to lead the recovery.
🚗 Automobile and Retail Sectors See Strong Gains
Early signs suggest that the auto industry is experiencing a major uplift. Analysts at Nomura reported that retailers saw sales growth between 25% and 100% during the week after the new GST rates took effect.
Maruti Suzuki, India’s largest automaker, sold 75,000 vehicles in a single week and continues to receive around 18,000 bookings daily. Bookings and inquiries have nearly doubled from last year, while other automakers like Tata Motors, Hyundai, and Hero MotoCorp are expecting double-digit growth this festive season.
🏨 Tourism and Hospitality Sectors Benefit from Lower Taxes
In Goa, billboards featuring Prime Minister Modi thank the government for slashing GST rates, including reducing taxes on budget hotels from 12% to 5%.
According to Jack Ajit Sukhija, President of the Travel and Tourism Association of Goa, the changes are already boosting business:
“These rate cuts are a massive boost for the hospitality industry,” he said.
The government has also reduced taxes on food products (from 5% to zero) and air conditioners (from 28% to 18%), encouraging more consumer spending.
The Hotel Association of India added that savings on essential goods are likely to increase leisure and hospitality spending, helping to strengthen overall economic growth.
⚖️ Trade Tensions and Debt Still Challenge Growth
However, not all analysts are convinced the tax cuts will completely offset external pressures. Reserve Bank of India Governor Sanjay Malhotra warned that while GST reforms will help, they “cannot fully neutralize the effects of global trade tensions.”
India’s export-heavy sectors — including textiles and gems — are struggling under the weight of U.S. tariffs. Meanwhile, companies like Hindustan Unilever report slower growth, citing temporary disruptions as distributors clear out old stock with outdated prices.
Some small retailers also face challenges in passing benefits to consumers because of unsold inventory.
“We received no prior notice, so we still have a lot of old stock,” said Raju Shah, a Mumbai shop owner.
💳 Consumers Still Cautious Despite Tax Relief
While tax cuts for high-income earners were expected to increase spending, economists say much of the extra income is being saved rather than spent due to high household debt and economic uncertainty.
Aastha Gudwani from Barclays noted:
“The hope was that higher disposable income would boost consumption, but much of it likely went into savings.”
🎉 Festive Spirit Returns, but Price Sensitivity Remains
At a Maruti Suzuki dealership in Mumbai, decked with fairy lights and garlands for Diwali, sales have exceeded expectations, with bookings up 60–70% compared to last year.
Even so, dealers say price competition remains fierce.
“If I offer a car at Rs500,000, the customer will still look for Rs490,000 somewhere else,” said one sales manager.
The festive glow may not erase all economic challenges, but India’s GST reforms appear to be rekindling consumer optimism just in time for Diwali 2025.
