According to a report by the Bank of Baroda (BOB) released on September 10, 2025, recently rationalization of Goods and Services Tax (GST) is expected to improve India’s economy. Consumption is estimated to increase by ₹ 0.7-1 lakh crore by September 2025. This growth, which is equal to 0.2–0.3% of GDP, is due to a decrease in GST rates. Most daily essential commodities, including FMCG and consumer durable items, now levy 5% tax. India’s effective tax rate on taxable consumption basis of ₹ 150-160 lakh crore is expected to be reduced from 10–11% to 10-11%, which will increase domestic expenses, especially before the festive season.
The change in GST effective from September 22, 2025 is also expected to reduce inflation. BOB estimates that the headline CPI will decrease by 55-75 base points in six months, with prices of food and beverages-CPI will fall to 9%-25-35 basis points of baskets. A significant decline in the prices of items like prepared food, snacks, oil and butter will be seen, which will promote real consumption demand. Core inflation, which affects 10% of the CPI basket, can be reduced by 30–40 basis points due to a 7.4% average price decrease, allowing the BOB to modify its headline CPI forecast to 3.5% to 3.1%.
The report states that low prices can promote new investment, especially in the areas of consumer goods. Due to further increase in demand with savings from low cess, rural and urban consumption, especially in agriculture and durable items, is likely to grow.
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