GST Reforms: A Cushion, Not a Cure

 

Not long ago, we lost Surf’s Lalita Ji—Kavita Chaudhary—immortalised by the line, “Surf ki kharidari mein samajhdari hai.” That campaign from the 1980s celebrated intelligence in consumption—an India that sought value, where every rupee had to stretch, forcing manufacturers to sharpen their act. Compare that with today’s Swiggy Uncle, Naresh Gosain sneaking a Gulab Jamun behind his wife’s back. That ad isn’t about thrift at all—it’s about indulgence, instant gratification and premiumisation.

Markets, as economists remind us, are giant information-processing machines. They respond to demand. If you take the Lalitaji-to-Swiggy arc as metaphor, our consumption has migrated from careful spend to aspirational spend. Lalitaji’s India wanted efficiency; Swiggy’s India wants convenience and small luxuries. Policy, however, is still struggling to catch up.

The Union Budget this year tried to sweeten the middle class with some tax relief. The idea: give people more cash, they’ll spend more. We’ve seen similar experiments before. In September 2019, the finance minister cut corporate tax rates—30% to 22% and 25% to 15% for new manufacturers. The Sensex jumped 7.1% in two days. But the private investment cycle didn’t budge. Now, from the ramparts of Red Fort, comes GST 2.0: simplification into three slabs, 5% and 18% for most goods and services, and 40% for sin goods like tobacco. The hope is that cheaper goods will mean higher demand.

The trouble is, high-frequency indicators don’t support this optimism.

Take two-wheeler sales, a classic barometer of middle-class and rural demand. In FY25, wholesales barely reached pre-Covid levels. July sales showed patchy growth: scooters up, entry-level motorcycles still lagging. In fact, Hero MotoCorp, India’s largest bike maker, only just matched its 2019 volumes. If GST cuts were enough to unleash demand, we’d expect a clear surge here—but the recovery remains uneven.

Look at FMCG rural volumes. NielsenIQ data shows rural growth still trailing urban markets; premium skincare and packaged snacks are driving growth, not staples. This confirms what Swiggy Uncle tells us: premiumisation is alive, but mass-market demand is fragile.

The middle 40% of households—spanning semi-urban and rural India—hold the key. As Rama Bijapurkar wrote in Business Standard, the long-term goal must be to transform this cohort into a high-productivity, high-efficiency demand-and-supply ecosystem. In other words, recreate Lalitaji: a consumer who demands value, forcing producers to innovate and deliver.

Cutting consumption tax for the masses is not the same as cutting corporate tax for companies. According to State Bank of India, GST rationalisation could add nearly ₹2 trillion in annual consumption—about 8% of household demand. In an economy where consumption accounts for nearly 60% of GDP, this could give a short-term boost, rippling into manufacturing and services.

The immediate trigger, of course, is external. With Trump tariffs at 50% on Indian exports, neither exporters nor U.S. importers can absorb the shock. Unless Indian exporters find new buyers, a significant chunk of manufacturing output will vanish. Lowering domestic consumption tax is meant to cushion this blow.

But cushions don’t repair broken bones. These are tactical fixes, not structural reforms. The 2019 corporate tax cut was a bolt from the blue, not part of a coherent strategy. GST rationalisation looks similar—a reactive step, not embedded in a long-term plan.

India’s growth problem boils down to two stubborn issues. First, the frictional cost of doing business: red tape, inconsistent policy, poor logistics, and legal bottlenecks. Second, the absence of secular demand—broad-based consumption that goes beyond the top 20% of households. Unless firms are compelled to serve the lower 30% of households, growth will always be narrow and fragile.

Tax tweaks cannot address either. At best, they offer a temporary cushion. At worst, they eat into fiscal space without delivering durable growth.

The story of Lalitaji and Swiggy Uncle is not just about advertising—it is about the evolution of demand. Lalitaji’s India demanded efficiency, forced producers to sharpen pencils, and grew stronger in the process. Today’s India indulges in premiumisation, but without inclusive growth, the demand base remains thin. Until policy focuses on building secular demand and lowering the cost of doing business, GST 2.0 will remain what it is: a Diwali gift pack for the industry, not a long-term growth strategy.


https://www.business-standard.com/opinion/columns/unlocking-india-s-mass-market-potential-needs-creative-policy-push-125082501344_1.html

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