The GST Council’s decision to slash tax rates on everyday essentials and personal-use products ahead of the festive season is expected to revive domestic consumption, lift rural demand, and strengthen growth in the FMCG sector, industry leaders said on Thursday.According to news agency PTI, FMCG companies plan to pass on the benefits to consumers either by increasing grammage or cutting stock-keeping unit (SKU) prices, with analysts estimating price drops of 8–10% depending on brands, translating into 2–3% growth for the industry.

Calling the move “game changing”, Marico MD & CEO Saugata Gupta said, “By making essential consumer products more affordable, especially in the run-up to the festival season, these reforms will play a pivotal role in stimulating economic momentum and building long-term growth in the FMCG sector.”Dabur CEO Mohit Malhotra termed it a “timely and transformative move,” stressing that the cuts will make soaps, shampoos and toothpastes more affordable, while driving demand in rural and semi-urban markets.Godrej Consumer Products CFO Aasif Malbari welcomed the decision, stating the company was committed to passing on benefits to consumers. The All India Consumer Products Distributors’ Federation (AICPDF) said the reduction would improve distributor and retailer liquidity by Rs 4,000–5,000 crore, while boosting rural consumption by an estimated 8–10% in the next two quarters.

Shares of leading FMCG firms surged following the Council’s approval. Britannia, Dabur, HUL, Nestlé and Emami all logged strong gains on the BSE, while consumer durables and cement stocks also rallied. The GST cuts cover a wide range of items, from hair oil, shampoo, toothpaste and soap to food products like butter, dry fruits, ice cream, biscuits and beverages, with rates slashed to 5% from 12% or 18%. Cement will now attract 18% GST instead of 28%.As per PTI, Joy Personal Care Chairman Sunil Agarwal said rural India, already driving FMCG growth for six quarters, will see further demand strength. Industry executives added that retailers are bracing for strong festival sales rebound as companies implement revised prices on existing stock.Grant Thornton Bharat’s Naveen Malpani noted that the cuts could lead to price drops of 8–10% depending on supply chain efficiencies, further stimulating consumption.Industry experts believe the reforms will add 2–3 percentage points to FMCG sector growth, which is currently expanding at 10–12% annually, making the reform a “landmark step” ahead of the festive season.

The government has decided to seek approval from the International Monetary Fund (IMF) to redirect the levy collected from captive power plants (CPPs) to electricity consumers.

Already, a proposal has been approved that the CPP levy will be utilised to provide relief to consumers.

The issue was taken up in a recent meeting of the Economic Coordination Committee (ECC).

During discussion, the Power Division informed the ECC that while approval of the mechanism was being sought.

Its detailed modalities pertaining to transition, calculation and additional benefits to consumers would be finalised later.

The Finance Division was of the opinion that the levy would form part of the overall budget of the Power Division for the current financial year.

While remaining within the Memorandum of Economic and Financial Policies (MEFP) framework agreed with the IMF.

However, the Power Division maintained that the relief to consumers would only be possible if considered over and above the regular budget of the division.

The ECC directed the division to seek necessary clarification from the IMF.

The Petroleum Division backed the proposal and shared its views on the mechanism, which had already been incorporated.

The Ministry of Commerce proposed that the benefit be provided only to industrial consumers.

However, it was found contradictory to the Act, which stipulates that the levy shall be utilised to pass the benefit on to all categories of consumers.

The Law Division endorsed the proposal, stating that no further legal comment was required.

The National Electric Power Regulatory Authority (Nepra) had no objection and recommended that the mechanism for providing relief to consumers be made part of the monthly fuel cost adjustment (FCA) request submitted by the Central Power Purchasing Agency-Guarantee (CPPA-G).

The Finance Division and the Ministry of Industries & Production did not come up with their views despite multiple reminders and were given the opportunity to do so during the meeting.

The Ministry of Energy (Power Division) said that Parliament had enacted the Off the Grid (Captive Power Plants) Levy Act, 2025 to impose a levy on natural gas-based CPPs in order to facilitate their transition to the electricity grid.

Section 4 of the Act provides that the concerned divisions, under the Rules of Business, 1973, shall calculate the rate of the levy by considering the difference between the electricity tariff of the industrial B-3 category notified by Nepra and the self-generation cost of CPPs at the gas tariff notified by Ogra (Oil and Gas Regulatory Authority).

In accordance with the Act, the levy shall be set initially at a fixed 5% margin over and above the power tariff, which shall increase to 10% from August 1, 2025, 15% from February 1, 2026 and 20% from August 1, 2026. It will remain at that level thereafter.

Section 2 of the Act provides the legal basis for the imposition of the levy and empowers Ogra to determine the applicable tariff.

The mechanism for calculation of the levy for CPPs has been modeled on the similar provisions notified earlier.

Furthermore, the Act authorises the federal government to notify the categories of power consumers eligible to receive the benefit of the levy.

The Ministry of Energy (Power Division) explained the mechanism for passing on the benefit to consumers.

The proposed mechanism provides that the Power Division will ensure the remittance of the collected levy to the Finance Division at the close of each month.

Based on data compiled by the Power Planning & Monitoring Company (PPMC), the amount to be passed on to electricity consumers will be calculated.

PPMC will share this information with Nepra, with a request to adjust it in consumer tariffs.

Nepra will then include the benefit in the FCA and carry out necessary due diligence.

It was noted that the benefit of the levy, collected in January, would be given to electricity consumers in the billing month of March, based on consumption in January.

In light of the above, the approval of the ECC was sought for passing on the benefit to all electricity consumers and for authorising the Power Division to implement the mechanism in consultation with Nepra under Section 31 of the Nepra Act.

Nepra will evaluate the monthly data provided by PPMC to determine the per-unit rate of the levy to be passed on to eligible consumers as per the approved mechanism and notify its determination every month along with the FCA.

The Ministry of Energy (Power Division) solicited approval of the ECC for the proposal.

The ECC considered a summary titled “Relief to Power Consumers on Account of Captives Transition Levy” and approved the mechanism.

GST rate cuts announced by the Modi government have served as a booster shot for the Indian economy and markets, with consumption driven growth expected to aid the economy at a time when it is faced by 50% US tariffs.The comprehensive GST modifications announced by Finance Minister Nirmala Sitharaman, with revenue implications of Rs 48,000 crore, have been regarded by market analysts as a “consumption revival bombshell” that has energised the previously sluggish Sensex and Nifty, according to an ET analysis.

The market’s immediate reaction was significant, with the Sensex recording an increase of nearly 900 points, whilst the Nifty advanced by 1%, approaching a potential breakthrough above the critical 25,000 mark. These movements have sparked considerable interest in understanding the specific changes and their implications for the market.Speaking about the wider implications, Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, states: “The revolutionary GST reform has come better than expected benefitting a wide spectrum of sectors. The ultimate beneficiary is the Indian consumer who will benefit from lower prices. The potential big boost to consumption in an economy that is already in growth momentum will be big and may surprise on the upside.“Also Read | GST rate cuts from September 22! All you need to know about new tax rates for items – 75 FAQs answered

GST rate cuts: Auto sector a big beneficiary

The surge in automotive shares aligns with substantial tax benefits. According to Jefferies, the reduction in GST rates from 28% to 18% for two-wheelers below 350cc and small cars could trigger significant market growth, benefiting companies like TVS and Maruti. For M&M, the unexpected reduction in SUV taxation from 50% to 40%, including cess, presents a remarkable advantage.The rural market segment shows promising developments. Emkay’s study indicates that “tractors and agri-machinery that have witnessed a GST cut to 5% from 12%” will experience considerable demand growth. “Such sharp reduction directly lowers acquisition costs for farmers and boosts affordability,” presenting substantial opportunities for organisations like Mahindra & Mahindra and Escorts.According to the research organisation, “this strategic tax relief in the auto space could potentially offer a 5-10% boost in demand across categories,” explaining the current market momentum in automotive shares.In the stock market, automotive shares showed remarkable performance, with M&M recording a notable 6% increase. Other manufacturers including Eicher Motors, TVS, Bajaj Auto and Hero Moto experienced gains between 1-2%.

FMCG booster

The FMCG sector emerges as the second-largest beneficiary of the tax reduction, receiving more comprehensive relief than anticipated. According to Amit Agarwal, SVP-Fundamental Research at Kotak Securities: “The GST rate for almost all food items (biscuits, instant noodles, nutrition, namkeen, instant coffee, chocolates, ice cream, fruit juices, sauces and cheese) has been cut to 5% from 18%/12% and that for select daily essential personal care categories (soaps, shampoo, hair oil and toothpaste) has been reduced to 5% from 18%.“Jefferies indicates this development was “largely unanticipated,” resulting in “positive for consumer staples companies, notably Colgate, Britannia, Nestlé, followed by HUL, GCPL, Marico, Dabur, Patanjali.” The extensive range of products affected explains the increased investor attention towards FMCG stocks.Also Read | GST rate cuts bonanza! What is cheaper and dearer? Check full list of items in 0%, 5%, 18% & 40% slabs

Cement sector rejoices

The cement industry benefits from a substantial GST reduction of 10 percentage points, decreasing from 28% to 18%, addressing persistent investor worries. Jefferies elaborates on the significance: “The reduction in GST rate by 10ppt creates some volume upside but potentially also headroom for price hikes, where the sensitivity of the industry to a profit increase is high (1% pricing is 4-5%).”The combined advantages of increased volume and pricing flexibility explain why analysts predict an upturn in cement stocks, which have remained relatively stable until now.

GST rate cuts: Impact on Indian economy

The GST reforms carry significant implications beyond sectoral advantages, contributing to broader economic momentum. As Garima Kapoor, Economist and Executive Vice President at Elara Capital, states: “We expect GST related demand boost to add 100 to 120 bps to the GDP growth over next 4-6 quarters, thereby nullifying the negative impact of higher tariffs on exports to US.”According to Dr. Vijayakumar’s assessment, these changes could “boost India’s growth to 6.5% in FY 26 and perhaps 7% in FY 27 with impressive gains in corporate earnings,” establishing solid foundations for continued market advancement.The implementation arrives at an opportune moment as various policy instruments demonstrate positive alignment. As noted by Kapoor: “Today’s GST rate changes, along with RBI’s rate cuts, income tax rebates announced in FY26 budget and easing inflation are all levers for a consumption uptick in the economy. We remain constructive on the uptick in consumption demand in the economy as multiple policy levers turn favourable for the first time in a decade.“Nilesh Shah, MD of Kotak Mahindra AMC, indicated that the GST restructuring would help counterbalance the negative effects of US tariffs in subsequent quarters.Also Read | Prices of small cars, two-wheelers under 350cc, to come down significantly on GST cut; bigger cars in 40% slab

GST rate cuts: What should investors do?

The stock market responded favourably as investors recognised how reduced GST rates could boost consumer demand across various sectors. Jefferies anticipates “festive demand should see a positive boost,” whilst cautioning about “some negative demand impact in September.”The projected increase in consumption could generate cascading benefits for broader economic expansion. Analysts emphasise that swift transfer of tax benefits to consumers by companies would be crucial, potentially enhancing both consumer confidence and expenditure.“Lower taxes on essentials, FMCG products, autos and cement will leave consumers with more money in hand. This should directly boost demand, help traders and businesses see higher volumes, and may even favourably impact next quarter’s earnings. It also carries the potential to ease inflation.” said Shripal Shah, MD & CEO, Kotak Securities.These wide-ranging tax adjustments, encompassing both everyday necessities and substantial purchases, have led investors to consider this a fundamental transformation rather than a short-term measure. This perspective has driven widespread market gains across diverse sectors including automobiles, FMCG, white goods, cement, and insurance.(Disclaimer: Recommendations and views on the stock market and other asset classes given by experts are their own. These opinions do not represent the views of The Times of India)