GST 2.0 Reforms May Boost Consumption by Rs 5.5 Lakh Crore, Offset Revenue Loss: SBI Report
New Delhi, August 20: A recent SBI Research report has projected that the proposed GST 2.0 reforms could lead to a substantial increase in consumption expenditure, estimated at Rs 5.5 lakh crore in the financial year 2025–26. This surge in spending could result in an additional GST revenue gain of approximately Rs 52,000 crore, which would more than compensate for the anticipated revenue loss of Rs 45,000 crore from the proposed tax rate cuts under GST 2.0.
As per agency report, the study outlines that GST 2.0 is expected to deliver multiple benefits including increased consumption, enhanced tax revenue, lower inflation, and higher GDP growth. While the average annual revenue loss from the proposed changes is projected at around Rs 85,000 crore, the report emphasizes that this could be significantly offset by the shifting of demerit goods from the 28 percent tax slab to a higher 40 percent slab, thereby increasing tax collections in other areas.
Despite the average revenue loss projections, the SBI report notes that consumption alone could grow by Rs 1.98 lakh crore. When combined with the effect of tax rate rationalisation, this could translate into an overall consumption expenditure boost of Rs 5.31 lakh crore, or roughly 1.6 percent of India's GDP.
Some financial analysts had previously raised concerns that the government might resort to increased borrowing to make up for the revenue shortfall, which could impact fiscal deficit targets. However, SBI Research dismissed these concerns, stating that the fiscal deficit target for FY26 is unlikely to be breached. It suggested that the debt market's apprehensions regarding GST-related fiscal slippage appear somewhat exaggerated.
On the inflation front, the report highlighted that GST rates on essential items such as food and clothing could be reduced from 12 percent to 5 percent. This move is expected to lower the Consumer Price Index (CPI) inflation by 10 to 15 basis points, with a significant 60 percent impact attributed to food items alone. Additionally, rationalising GST rates on services could lead to a further reduction of 5 to 10 basis points in CPI inflation, contributing another 25 percent to the total disinflationary effect.
In total, the report estimates that the cumulative effect of GST 2.0 reforms could reduce CPI inflation by 20 to 25 basis points, providing relief to consumers and stabilizing prices across essential sectors. Notably, over the past four years, the central government has collected Rs 2.26 lakh crore more than the estimated tax revenue on average, suggesting a strong revenue buffer that can support these reforms.
The findings suggest that GST 2.0 could play a critical role in driving consumption-led growth while maintaining fiscal discipline and moderating inflation, positioning the Indian economy on a more robust and inclusive path forward.
