Textiles, two-wheelers see consumption dip after GST 2.0 reforms

. Two-wheelers and bicycles grew 18 percent, compared with 23 percent previously.

Despite a marginal rise in headline GST collections in November, sectoral data reveal a mixed consumption pattern, with textiles and two-wheelers showing a slowdown even as government sources say the 22 September GST reforms will yield a “bigger multiplier effect” in the months ahead.

India’s sweeping GST 2.0 changes were intended to boost consumption through rate rationalisation and simplification. Gross collections for November rose 0.7 percent year-on-year to Rs 1.70 lakh crore, while net collections climbed 1.3 percent, excluding the compensation cess.

Government sources emphasised that year-on-year comparisons must consider the removal of the compensation cess. “Compensation cess was always transitory, meant for servicing back-to-back loans, which concludes in FY26. Once you adjust for cess, GST growth is a green shoot,” the government source added.

Sector-wise data for September–October 2025 — the first two months after the GST overhaul — show textile supply value rose 8 percent, down from 12 percent last year. Two-wheelers and bicycles grew 18 percent, compared with 23 percent previously.

By contrast, other sectors registered robust expansion: buses and passenger cars (+20 percent), medical devices (+19 percent), cement and stone products tied to construction (+19 percent), pharmaceuticals (+13 percent), tractors (+17 percent), and leather goods (+18 percent). The “others” category jumped 28 percent.

“The textile numbers are likely reflecting export headwinds, while two-wheeler consumption is down because affordability has shifted towards smaller cars,” a government source said on December 1.

The overall consumption picture is mixed. Domestic consumption, as measured by taxable supplies, fell 2.3 percent, while IGST from imports rose 10.2 percent, indicating increased demand for imported goods.

“Imports also feed domestic consumption, so the rise in IGST still reflects buying activity,” the government source said. “The dip in domestic consumption is temporary and partly the result of the GST rationalisation cycle. As rates stabilise and money remains in the hands of consumers, the demand-supply balance will open up.”

Taxable supplies — a proxy for consumption — grew 8.6 percent in Sep–Oct 2024 but accelerated to 15 percent in the same two months of 2025. Prepared food consumption rose from 11 percent to 17 percent, while buses and cars increased from 12 percent to 20 percent, pointing to early demand-side buoyancy.

Government sources said states are seeing tangible revenue gains post-reform. “Some GST rates moved up from 28 percent to 40 percent, and states are net gainers after GST rationalisation,” he said. In November, state-wise growth included Haryana 17 percent, Kerala 8 percent, Karnataka 3 percent, Maharashtra 4 percent, Assam 18 percent, and Gujarat and Tamil Nadu 1–2 percent.

“The GST numbers give us confidence of a bigger multiplier effect in a few months,” the government source said. “Any reform takes time to settle. We are seeing optimism, and the Laffer curve is playing out — lower effective tariffs should spur more consumption.”

The Laffer Curve illustrates how tax rates and revenues interact: beyond a certain point, higher rates can reduce activity and compliance, lowering revenue, while moderate rates can encourage production and consumption, generating higher revenue. Government sources attribute the current trends to tariff rationalisation, GST rate shifts, and a consumption boost as disposable income rises.

“The figures are sustainable. We’ve created a simpler and more sustainable tax system for the medium term,” the government source said.