The government’s new GST reforms, announced by Prime Minister Narendra Modi on India’s 79th Independence Day, could reduce inflation and help consumers ahead of the festive season. Experts say the changes, expected to roll out by Diwali, may also give the Reserve Bank of India (RBI) room to lower interest rates as early as October 2025.
Economists and brokerages believe that lower indirect taxes on goods could reduce Consumer Price Index (CPI) inflation by 40 to 80 basis points. This drop in prices is likely to make products, especially consumer durables, more affordable, encouraging people to spend more in the second half of FY2026.
Morgan Stanley, in its report, projected CPI inflation could fall by about 40 basis points in the coming quarters. The expected relief is particularly timely because the festive season typically drives higher demand for consumer goods. Lower prices could help maintain steady consumption levels, supporting economic growth.
The proposed GST reforms are part of the government’s broader effort to make the tax system simpler and more efficient. By easing the indirect tax burden, the reforms aim to reduce costs for both consumers and businesses. Experts say this could also lower fiscal pressure on the government in the near term.
A potential rate cut by the RBI could further encourage spending. When interest rates fall, borrowing becomes cheaper, which can lead to higher demand for goods and services. Combined with lower GST rates, this could provide a double boost to consumption in India’s economy.
Overall, the GST changes are expected to have multiple benefits. Consumers may see immediate price relief, businesses could see improved sales, and the RBI may gain flexibility to adjust monetary policy to support growth. The festive season, which usually drives peak spending, could especially benefit from this combination of lower taxes and possible rate cuts.
If implemented effectively, these reforms could set the stage for a stronger economic performance in H2FY26 and help maintain stable inflation, supporting both households and businesses across India.
