The GST rationalisation, effective September 22, has been billed as a major consumption booster. But analysts caution that while households may benefit immediately, manufacturers are unlikely to commit fresh investments until demand recovery is visible and sustained.
“Despite an expected pickup in consumption in India, manufacturers are likely to assess the sustainability of demand before committing to significant capex,” said Aniket Jain, Lead Analyst & SVP (Capital Goods) at YES Securities. “A GST rate cut alone is unlikely to trigger a private capex recovery in the near term.” Jain added that risks to government capex are rising as foregone tax revenues could cap spending growth at single digits or even turn negative in FY27.
JM Financial struck a similar note. “For private capex to pick up momentum, the green shoots should have been visible by now,” said Hitesh Suvarna. “Against that backdrop, GST cuts — while supportive for consumption — have relatively less intensity of good to do compared to the scale of the problem. The market should temper expectations that this alone can shift the private capex cycle.” JM estimates the fiscal hole from GST cuts at about Rs 48,000 crore, enough to dull the crowd-in signal investors look for in government spending.
Why GST doesn’t equal capex
YES Securities’ modelling suggests the immediate effect will be on consumption, not investment. Using a marginal propensity to consume of 0.75 and a multiplier of 1.89, the brokerage estimates a demand boost of about ₹87,400 crore — equivalent to a 30 bps lift to GDP — but one that will materialise gradually, with most of the impact visible only in FY27.
Pramod Gubbi, Managing Partner at Marcellus Investment Managers, said companies will wait before making big-ticket investment calls. “In the near term — about six months — a capex uptick is unlikely. Companies will first assess demand elasticity, because the main motive of GST was to tackle the slowdown in consumption. The more important factor is whether consumption patterns change materially. It is a wait-and-watch mode to see if volume picks up in a sustained way.”
Analysts outlined why GST cuts don’t automatically translate into investment.
Firstly, a tax cut does not create order books, and manufacturers will only act when volumes rise consistently. Secondly, faster refunds and reduced inverted duties free up liquidity for exporters and manufacturers, but these funds may go toward debt reduction or dividends instead of capex. Thirdly, while lower GST could potentially improves margins, anti-profiteering rules and inventory adjustments mute immediate reinvestment. Most importantly, only if demand sustains and pushes utilisation above 80% do companies usually add capacity, and many sectors are still below that threshold.
Besides, foregone tax revenues could restrain government capex, weakening the crowd-in effect private players rely on.
Selective bright spots
Analysts do see pockets where GST can accelerate investment selectively: renewables through better project returns, defence from freed-up budget headroom, textiles with corrected inverted duties supporting productivity upgrades, and real estate where cheaper cement and inputs could revive stalled projects.
Still, the consensus remains that a broad private capex cycle will hinge on more than GST relief. As Gubbi summed it up, “This doesn’t require a private capex response right away. Sustained demand recovery is the real trigger.”
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