The landmark GST overhaul is set to give a major boost to household consumption, credit expansion and overall economic growth, according to leading bankers.
On Wednesday, the GST Council approved sweeping changes to the indirect tax regime, slashing rates on nearly 396 items from household essentials like hair oil and corn flakes to life and health insurance premiums. The move simplifies the structure into a two-tier system of 5% and 18%, while retaining 40% for sin goods such as tobacco and luxury products. The new structure will come into effect on September 22, 2025.
Boost to Disposable Income and Demand
State Bank of India (SBI) Chairman said the inclusion of common-use household goods, earlier taxed at 12% and 18%, into the 5% slab will bring tangible relief for consumers. "This will translate into lower costs on essentials, higher disposable incomes and ultimately greater spending power. With higher demand, credit expansion will rise, driving economic growth," he noted. He added that the insurance sector will also benefit from lower premiums, leading to higher coverage and deeper penetration.
Credit Demand to Rise Across Sectors
Punjab National Bank (PNB) MD and CEO highlighted that the banking sector stands to gain substantially as credit demand is expected to surge in retail, MSME, agriculture and renewable energy segments. He said, "GST 2.0 is not only simplifying the tax regime but also fostering domestic demand, reducing core inflation and strengthening economic activity."
Positive Impact on Inflation and Compliance
The Chairman of the Indian Banks' Association said that reduced GST rates on mass consumption goods would help ease headline inflation. Businesses, too, would benefit from lower compliance costs and enhanced competitiveness. While the government has projected a revenue implication of Rs 48,000 crore, bankers believe this shortfall will be offset by stronger consumption and higher tax buoyancy.
Growth in Consumer Confidence and Lending
Shriram Finance Vice Chairman said the combination of lower GST rates, a favourable monsoon and the festive season would significantly lift consumer sentiment. "We expect a sharp rise in demand for credit, including commercial vehicle financing, backed by India's strong infrastructure push," he added.
Tamil Nadu Mercantile Bank's MD and CEO echoed the optimism, noting that improved affordability and festive cheer will drive demand for personal loans, auto loans, and consumer durable financing. "Banks are ready to meet this demand with tailored products while ensuring financial discipline," he said.
Long-Term Economic Gains
Bankers agreed that GST 2.0 will fuel consumption, ease compliance for businesses, and spur credit growth, thereby strengthening India's growth trajectory as it moves towards becoming the world's third-largest economy.
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