Dear Reader,
In a landmark announcement on Wednesday night, September 3, the Indian government delivered on its promise to rationalise the Goods and Services Tax (GST) by streamlining it to a two-slab framework from the present four-slab one. The GST Council proposed steep cuts in GST rates that will come into effect from 22nd September to usher in a good festive season. Indian businesses have lauded the well-timed implementation, given that India’s business and trade ecosystem annually gears up for this 30-45 days when consumer spending peaks.
To be sure, the verdict is positive for urban consumption. Lowering rates in day-to-day and mass consumption segments from milk and dairy to processed foods, small cars, lower-end hotels and farm products provides a booster shot to the segment where stress has been most visible. For instance, the automobile industry, a critical one in India’s manufacturing footprint, has seen sales growth slackening for some time in the entry-level and mid-segment vehicles. The sweeping GST reduction could see prices lowered by 7-10 percent in these segment (find sector impact details here) but some auto stocks may gain more than their peers. Read which ones and why here.
Industry veterans point out that the sense of urgency to implement GST reforms came in the wake of US tightening its tariff stranglehold on key manufacturing sectors such as textiles, auto components, chemicals and marine products, to name a few. GST relief in these sectors could apply balm to the pain partly by boosting domestic sales and also by lowering input costs. A host of services that are increasingly important to meet the needs of the common man such as health care and insurance have also seen cuts or complete exemption.
In today’s edition, the MC Pro team has analysed threadbare the impact of the GST bonanza across sectors. The full list is given below, and do go through them to get a ringside view of the impact on stocks, sectors and the economy.
To be sure, the expansion in consumption and increase in tax rates on some services should more than make good the projected revenue loss of about Rs 48,000 crore over time.
The moot question is: How long will it take to put consumption on the fast track? Can these cuts offset the challenges faced in export markets due to high tariffs and supply chain disruptions? Will a clearer tax structure improve business confidence enough to lure investments into the country?
As my colleague Ravi Ananthanarayanan points out, the best-case scenario is one where volume growth is spurred by the mass categories, with scale economies driving profit growth, while premium categories benefit from higher profitability due to retention of the benefit from lower tax rates. The second-order benefits could come from the organised sector gaining an upper hand, across industries, which could then lead to more investments, employment, in turn leading to better consumption. Lower taxes could also see a bigger shift from the unorganised to organised sector.
However, for this to unfold as expected, companies have to follow suit and pass on the benefits of lower taxes to the consumer, while also endeavouring to keep up earnings growth. On another note, the HSBC Purchasing Managers’ Index shows that August's composite growth was the highest in 17 years. GST cuts could provide short-term price relief but may paradoxically fuel stronger demand, creating complex challenges for policymakers, writes Manas Chakravarty here.
The government has delivered what it could, but whether this will be a game changer for economic growth is anybody’s guess. The equity markets that were optimistic and rallied in the run-up to the announcement, have begun to shed some gains in Thursday's trading. The focus will now shift to the fine print and actual translation of lower taxes into lower prices, higher volume growth and better corporate earnings.
GST RATIONALISATION IMPACT
Investing Views
What GST rate cuts for the ‘Common Man’ mean for consumer categories, companies
Which auto stocks stand to gain most from the GST reset?
GST boost for FMCG companies to drive demand recovery, sector re-rating
Consumer durables get a GST lift — Which players will lead the charge?
Which insurance players will be impacted most and least by GST exemptions?
GST rate cuts to benefit players across the healthcare sector
Cement companies to benefit from GST rate cut, favourable cost outlook
GST cut to benefit consumer-ware, QSR
Footwear and Apparel – will GST provide a fillip for the organised sector?
GST reforms: Push for natural ingredients in the flavours and fragrance industry
GST reforms provide a fresh impetus to clean energy transition
GST Reforms: Who wins big in the textile market shake-up?
Investing Insights
TBO Tek: Expanding into the US luxury travel market
Analysis and Commentary
GST rate cuts to boost urban consumption, give formal sector a leg-up
GST 2.0 — The common man cue can hardly be missed
Will the GST cut on cement save the faltering affordable housing segment?
Inflation risks loom as PMI data show strongest growth in 17 years
Sweeping GST cuts in auto sector to rev up sales, will earnings bump up too?
Insurers' business growth gets a GST booster, but benefits are limited
Are Indian stocks near fair value after global underperformance?
What else are we reading?
Chart of the Day | Industrial credit offtake remains challenging for banks
The real reason AI giants are targeting Indian students with free subscriptions
If AI lifts off, will living standards follow? (republished from the FT)
Long bonds’ synchronised decline (republished from the FT)
Economic Bullying: Why tariffs and sanctions hurt but don’t work
Aatmanirbhar Bharat and the rise of India’s manufacturing power
K Kavitha’s exit from BRS shows that even in political families, it’s a man’s world
China’s WWII victory parade has an Indian foundation
Markets
Bond yields expected to cool as net impact of GST revenues lower-than-expected
Tech and Startups
Indian GCCs retrain staff as AI engineers to combat talent shortage
Technical Picks: DIVISLAB, IDFCFIRSTB, DOMS, KEI, AAVAS, TECHM
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