Indian firms to witness 7% growth after new GST rates
What's the story
Indian companies are likely to see a 6-7% growth in their revenues for the financial year 2025-26, thanks to the recent reduction in Goods and Services Tax (GST) rates. The prediction comes from a report by CRISIL Intelligence, as reported by ANI. The revised rates were announced following last week's GST Council meeting.
Profit margins
'Anti-profiteering rule' may limit companies' profit margin increases
The CRISIL report also noted that the 'anti-profiteering rule' in the GST regime could prevent companies from significantly increasing their profit margins due to the new GST rates. This is because this rule mandates businesses to pass on any benefits from tax rate reductions or input tax credits to consumers, rather than pocketing them as higher profits.
Consumption impact
Positive impact on national consumption expected
The CRISIL report highlights that the recent GST cuts are likely to have a positive impact on national consumption, which contributes 15% to companies' revenues. The research firm believes that this move by the central government comes at an opportune time as India prepares for the festive and wedding season amid global uncertainty over Trump tariffs.
Sectoral impact
Key sectors affected by lower GST rates
The CRISIL report notes that key sectors such as fast-moving consumer goods (FMCG), consumer durables, and automobiles will be the most affected by the lower GST rates. This is expected to reduce product costs for consumers. Several automobile manufacturers, including Tata Motors and Mahindra & Mahindra, have already announced plans to reduce passenger vehicle prices in line with these GST cuts.
Sectoral benefits
Aviation, automobiles, agriculture inputs, construction materials
The CRISIL report also assesses the impact of GST rate rationalization on major sectors such as aviation, automobiles, agricultural inputs, and construction materials. For instance, in its 56th meeting, the GST Council retained the tax on economy-class air tickets at 5% but increased it to 18% for premium economy and business class tickets.
Automotive impact
Changes in GST for automobiles
The GST Council has reduced rates on two-wheelers under 350cc from 28% to 18%, which is expected to boost automakers' sales by 1-2%. Other segments, such as small cars (under 1,200cc), will also see a reduction in GST to 18%, while SUVs above 1,500cc will see an increase in GST to a flat rate of 40%.
Agricultural impact
Boost to agriculture inputs and construction materials sectors
The CRISIL report anticipates that the GST cuts in the agriculture inputs sector will facilitate smoother business operations and boost consumer demand in specific sectors. In the construction materials sector, a reduction in GST is likely to lower prices and construction costs for urban and rural individual housing buildings (IHBs). This could allow homeowners to save money for larger or modified living spaces.