Tax Reform Meets Festive Demand: GST 2.0 Seen Powering India`s Consumption Growth: Investment manager, smallcase - Wright Research
Investment manager on smallcase -- Wright Research, in its detailed outlook on the upcoming GST 2.0 reforms, highlights that India’s consumption cycle has likely bottomed out and is now on an upward trajectory. The combination of GST 2.0, rising rural incomes, and easing inflation could create ideal conditions for a broad-based revival in consumption.
However, the extent of this recovery will depend heavily on consistent policy implementation. Scheduled for finalisation by October 2025, just ahead of the festive season, the reform is expected to lower consumer prices, boost demand, and reinforce household spending.
Why GST 2.0 Matters
Among the anticipated changes, goods currently taxed at 12%—such as processed foods, footwear under ?1,000, and select wellness products—could move into the 5% slab. This would lower retail prices for millions of households and encourage consumers to shift from unbranded to branded products. In consumer durables, the possible reduction of GST from 28% to 18% on big-ticket items like air conditioners and large televisions would translate into roughly 8% lower retail prices, driving deeper penetration in Tier-2 and Tier-3 markets. A cut in cement’s current 28% rate would ease costs for both retail home improvement projects and larger construction activity. On the other hand, luxury and sin goods such as cigarettes and aerated beverages are expected to remain under higher tax burdens or attract additional cess, helping balance government revenues.
“GST 2.0 represents one of the most pro-consumption policy moves in recent years. By reducing prices in everyday categories and big-ticket durables alike, the reform could accelerate demand just as rural incomes and inflation trends are turning favourable,” said Sonam Srivastava, Investment Manager on smallcase and Founder at Wright Research.
Sectoral Outlook: Growth and Re-Rating Potential
Investment manager on smallcase - Wright Research sector analysis highlights that consumption staples are poised to deliver nearly 10% revenue growth in FY26, supported by input cost disinflation and renewed brand investment. Consumer durables are expected to achieve over 21% growth, although their trajectory will depend on the speed and effectiveness of GST reforms. Cement stands out with EBITDA forecast to rise more than 40% and profit growth of nearly 80%, a trend that could be further amplified by a rate cut. Meanwhile, internet platforms continue to be one of the strongest growth stories, with revenues expected to climb between 35–40% as digital adoption accelerates among MSMEs. Oil marketing companies also look well positioned, with falling crude prices and refinery upgrades boosting cash flows and improving valuations.
Multiple Levers for Consumption Revival
GST rationalisation is just one of three major levers that are likely to drive India’s consumption cycle. Rural incomes are already showing improvement thanks to strong kharif yields, higher procurement prices, and women-centric transfer programs. For the first time since 2021, rural wage growth has outpaced inflation, translating into higher disposable incomes. At the same time, falling consumer inflation is improving real household incomes across both urban and rural India, freeing up additional spending power for essentials and discretionary items. Together with GST-driven price cuts, these forces create a virtuous cycle of rising consumption.
Recent corporate results also support this trend. FMCG majors, quick-service restaurants, and paint companies have all reported volume recovery in the first quarter of FY26 after a difficult two-year stretch. Retailers, particularly those operating in tier-two markets, have seen faster sales improvement, while leaner cost structures following FY24 rationalisation are providing stronger operating leverage.
Autos, Technology and Financials: Broader Picture
The outlook for India’s automotive and two-wheeler industry is also upbeat. Passenger vehicle sales grew by nearly 5% in FY25, while two-wheelers saw robust rural demand. In FY26, two-wheeler volumes are expected to rise by 8–9%, supported by rising incomes and favourable policy. Over the longer term, the sector is projected to expand at an 8.8% CAGR through 2034, aided by electric vehicle adoption under the PM E-DRIVE scheme and continued export momentum.
In technology, IT services companies continue to face muted earnings growth, but attractive dividend yields and low investor expectations provide valuation support. Any second-half acceleration driven by Gen-AI monetisation or easing global interest rates could lead to a sector re-rating. Internet platforms, meanwhile, remain in high-growth territory, benefiting from the shift from scale to profitability. Financials are adjusting to moderating growth and normalising credit costs. While revenue growth is forecast at around 7.5% in FY26, private banks are expected to maintain stronger net interest margins than their PSU counterparts, with large universal banks relatively insulated from small-ticket credit risks.
GST 2.0 could be the spark that India’s consumption story has been waiting for. By collapsing tax slabs into a simpler structure, everyday essentials and big-ticket purchases alike may soon get cheaper, setting the stage for a festive-season demand surge. Add to that higher rural incomes, women-centric cash transfers, and cooling inflation, and the makings of a broad-based revival are in place. From FMCG and retail to durables, autos, and even cement, multiple sectors are positioned to benefit. The real kicker, however, will be execution—whether policy follow-through is smooth and companies pass on cost savings to consumers. If reforms are locked in by October 2025 as planned, India could be on the cusp of its strongest consumption upcycle in more than a decade.
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