India is on the edge of a significant economic recalibration with the introduction of GST 2.0, a reform that will redefine the indirect tax landscape in the country. In addition to the headlines of reduced prices, this structural overhaul is all set to come into effect on September 22, 2025 that presents discerning investors with a rare chance to understand how market nuances can be used in their wealth creation strategies. This is not just an adjustment in taxes but rather a catalyst that requires re-thinking of where the actual economic gains will be made.
GST Transitioning
The new tax structure essentially simplifies the current system in India which used a complex four slab system (5%, 12%, 18%, 28%) to a simplified system which now comprises of a 5% merit rate on essentials, 18% standard rate on most goods and services and a 40% demerit rate on luxury goods and sin goods.
Uplifting Farmers & Agriculture
| Items | From | To |
| Tractor Tyres & Parts | 18% | 5% |
| Tractors | 12% | 5% |
| Specified Bio-Pesticides, Micro-Nutrients | 12% | 5% |
| Drip Irrigation Systems & Sprinklers | 12% | 5% |
| Agricultural, Horticultural or Forestry Machinery for Soil Preparation, Cultivation, Harvesting & Threshing | 12% | 5% |
The most basic items such as milk, paneer and personal health and life insurance will now attract a 0% GST, enhancing its affordability and coverage. This reform is estimated to inject a significant tailwind to the economy, including an estimated 0.7-0.8% increase in household spending power relative to GDP, a possible downward move in inflation by up to 1.1 percentage points, and a real GDP growth to be uplifted by 6.5% to 6.7% in FY26.
Relief in Healthcare Sector
| Items | From | To |
| Individual Health & Life Insurance | 18% | Nil |
| Thermometer | 18% | 5% |
| Medical Grade Oxygen | 12% | 5% |
| All Diagnostic Kits & Reagents | 12% | 5% |
| Glucometer & Test Strips | 12% | 5% |
| Corrective Spectacles | 12% | 5% |
Affordable Education
| Items | From | To |
| Maps, Charts & Globes | 12% | Nil |
| Note Books, Exercise Books, Crayons & Pencils | 12% | Nil |
| Exercise Books & NoteBooks | 12% | Nil |
| Eraser | 5% | Nil |
Support against External Coercions
Moreover, GST 2.0 will act as a strategic buffer and will increase domestic demand against the external pressures such as United States’ 50% tariffs on Indian exports.
True Impact GST Cut
Nevertheless, the key question for the rational investors will be the same as that of Warren Buffett: who is really getting the benefits of tax cuts? Buffett posited that the effect of changes in taxation depends on the business franchise or the pricing strength of a particular corporation.
The companies in the price-competitive industry that have weak franchises are frequently forced to transfer the tax advantages to their consumers in the shape of reduced prices, and the companies with strong and unregulated franchises usually capture these advantages in the form of increased profits.
Save on Electronic Appliances
| Items | From | To |
| Air Conditioners | 28% | 18% |
| Television (above 32”) (including LED & LCD TVs) | 28% | 18% |
| Refrigerators | 28% | 18% |
| Dish Washing Machines | 28% | 18% |
This is especially relevant in light of the fact that anti-profiteering provisions made in India have expired on April 1, 2025 which previously mandated businesses to pass on tax benefits. Under this regulatory sunset, the market forces driven by the pricing power will henceforth determine the way the GST rate reductions trickle in the economy.
Market Celebration
A closer look at particular industries shows that they follow different patterns. The Fast-Moving Consumer Goods (FMCG) industry is being hailed as a game changer with daily essentials like toothpaste, biscuits, soaps and packaged food becoming cheaper.
Save Big on Daily Essentials
| Items | From | To |
| Hair Oil, Shampoo, Toothpaste, Toilet Soap Bar, Tooth Brush, Shaving Cream | 18% | 5% |
| Butter, Ghee, Cheese & Dairy Spreads | 12% | 5% |
| Pre-packaged Namkeens, Bhujia & Mixtures | 12% | 5% |
| Utensils | 12% | 5% |
| Feeding Bottles, Nipples for Babies & Clinical Diapers | 12% | 5% |
| Sewing Machines & Parts | 12% | 5% |
It is probable that the volumes and profitability of companies like Colgate, Britannia, Nestle India, Dabur, Hindustan Unilever, Godrej Consumer, Marico will increase significantly as the price difference between branded products and the unorganised substitutes is reduced, increasing the speed at which the consumer market can be formalised.
In the same vein, the automobile industry sees a high level of demand spur, especially of farm equipment, small cars and motorcycles (350cc and under), which were now taxed at 18% rather than 28% on Mahindra & Mahindra, Maruti Suzuki India, Eicher Motors, Hero MotoCorp and V.S.T. Tractors are well placed to serve this new renewed affordability and the demand during the festive season. On the other hand, the luxury clothing that is priced at above 2,500 rupees and carbonated beverages will continue to face higher taxation, reflecting a ‘mixed bag’ impact.
Automobiles made affordable
| Items | From | To |
| Petrol & Petrol Hybrid, LPG, CNG Cars (not exceeding 1200 CC & 4000mm) | 28% | 18% |
| Diesel & Diesel Hybrid Cars (not exceeding 1500 CC & 4000mm) | 28% | 18% |
| 3 Wheeled Vehicles | 28% | 12% |
| Motor Cycles (350 CC & above) | 28% | 18% |
| Motor Vehicles for transport of goods | 28% | 18% |
Simply put, GST 2.0 is not only a change in prices, but a major re-alignment of market forces in the Indian economy. For discerning investors, a deep understanding of pricing power and particular sectoral forces, rather than just superficial dynamics, will be key in the determination of the long-term winners that will be best placed in capturing and retaining the huge economic benefits of this ‘Diwali gift’ to the country.
(Note: This is for Informational purposes only and does not constitute investment advice)
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