GST Overhaul to Boost Consumption, Credit and Economic Growth: Bankers

The GST Council’s landmark reforms are expected to provide a major boost to consumption, credit expansion, and economic growth, according to senior bankers.

On Wednesday, the council approved a major simplification of the goods and services tax regime, reducing rates on several commonly used items, including hair oil, corn flakes, personal health and life insurance policies, and numerous other essentials.

The shift to a simplified two-tier GST structure—5 per cent and 18 per cent for most items, with 40 per cent applied to sin goods—is being hailed as a watershed moment in India’s indirect tax reforms. SBI Chairman CS Setty said the move would bring tangible relief to households, as goods previously taxed at 12–18 per cent now fall under the 5 per cent category, enhancing disposable income and boosting spending power.

"With higher disposable income, demand and credit expansion are likely to rise, driving economic growth. The insurance sector will also benefit through lower premiums, better coverage, and greater penetration," Setty added.

PNB MD and CEO Ashok Chandra echoed these views, noting that the reform will particularly benefit retail, agriculture, MSME, and renewable energy sectors, leading to increased demand for credit and financial services.

The GST 2.0 reform, effective September 22, 2025, will cover approximately 396 items, marking a major step forward in India’s indirect tax framework. Bankers said the initiative is likely to stimulate domestic demand, reduce core inflation, and foster economic growth through higher disposable incomes and improved compliance.

"Lower GST rates on essential items are also expected to soften headline CPI, making mass consumption goods more affordable," Setty noted. Businesses, meanwhile, will benefit from a simpler system, lower compliance costs, and improved competitiveness. The government anticipates a revenue impact of ₹48,000 crore due to the rate reductions, which is expected to be offset by higher consumption and stronger economic activity, positively affecting GDP growth and fiscal health.

Shriram Finance Executive Vice Chairman Umesh Revankar highlighted the potential short-term gains: "With more products now in lower GST brackets, demand is likely to surge, driving business credit needs, boosted by a good monsoon and the upcoming festive season. Consumer confidence, spending, and overall economic activity are set for a significant lift."

Revankar also noted that as the monsoon stabilizes by September, commercial vehicle financing is expected to pick up, further supported by India’s ambitious infrastructure investments.

Tamilnad Mercantile Bank MD and CEO Salee S. Nair added that increased affordability combined with festive optimism will likely drive demand for personal loans, auto loans, and consumer durable financing.

Bankers agree that the GST 2.0 reforms represent both immediate relief and long-term structural improvement, consolidating the tax system into a more citizen-friendly, growth-oriented framework that supports India’s journey toward becoming the world’s third-largest economy.

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