August 19, 2025

India’s government is pulling out all stops to lift consumer spending at a time when inflation is low but consumption remains weak. After tax cuts and subsidies, the latest move is tweaking GST rates, especially aiming at small-ticket discretionary goods, FMCG, and consumer durables like air conditioners. Will this spice up the economy? Venugopal Garre, MD of Bernstein, weighs in. "Consumption has been one of the weak spots of the economy for a couple of years," Garre says. He points out that the government has focused on boosting spending through subsidies, middle-class tax cuts, and now GST adjustments. "India’s overall tax burden, both direct and indirect, is relatively high. With inflation currently low, this is a timely step to lift consumption from subdued levels." But don’t expect a magic wand. He adds, "I wouldn’t call it a dramatic change in the consumption trajectory, which usually depends more on broader economic strength." What about the money side? Should we worry about the government’s fiscal deficit? Garre replies, "At the start of the year, I was surprised the budget projected a lower-than-expected fiscal deficit. When inflation is low and growth is sluggish, some fiscal push is good. Flexibility is key. The impact on the deficit depends on the GST benefits scale. Some premium goods still carry compensatory cess, so net consumer benefit is unclear. My estimate: at least a $10 billion-plus positive transfer to consumers. Some of this may be offset by lower capital spending, but overall, fiscal deficit impact should be manageable at about 10 basis points." So, which goods get the real boost? "The focus is clearly on the middle class, especially small-ticket discretionary items and FMCG," says Garre. These segments react fast to price cuts, so volume and stock gains could follow. Premium and luxury goods will likely remain unaffected. From an investment viewpoint, what should you watch? Garre explains, "This is a three-month story, with the festive season showing clear effects. FMCG firms should benefit overall, though premium FMCG may lag behind. Consumer durables like air conditioners—currently taxed at 28% GST—could drop to 18%, helping makers. Even without rate changes, more disposable income will boost durables. Retail and quick-service restaurants (QSRs) should see an uptick too. The auto sector is less certain, but smaller cars and two-wheelers might gain from any rate cuts." So, as lights twinkle this festive season, small and medium consumer goods may shine brightest! Investors, keep your eyes peeled for short-term opportunities in FMCG, durables, and retail. The government’s mixing the right masala — will it cook up a consumption feast? Time will tell!

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Tags: Gst tweaks, Consumption boost, Fmcg, Tax cuts, Consumer durables, Festive season,