GST slabs cut from four to two, with rates now at 5% and 18%, plus a 40% sin tax.
Key items like cement, day-to-day consumer goods, moved to lower rates, boosting infra and consumption.
Economists expect stronger demand and up to 120 bps GDP growth lift.
Benchmark indices leapt over 1% in opening trade on 4 September as investors cheer the rationalisation of rates under GST 2.0, which is expected to spur consumption across a broad swathe of sectors.
The Nifty 50 gained around 1.1% in early trade, hovering near the 25,000-mark while the Sensex also surged by an equal quantum, moving around 81,450 points.
In line with expectations, the GST Council, chaired by Finance Minister Nirmala Sitharaman, announced a sweeping overhaul of the tax structure last night, scrapping the earlier four-slab system. The Goods and Services Tax has now been simplified into two principal slabs of 5% and 18%, with a 40% sin tax. The 12% and 28% brackets have been removed, with many products migrating to lower rates in an effort to ease the burden on households.
“The GST rate changes look favourable, especially since there is an across-the-board decline in daily-use items, including services such as hotel tariffs below ₹7,500. Importantly, cement has seen a cut from 28% to 18%, which should prove a significant boost for the infrastructure sector,” said Garima Kapoor, Economist and Executive Vice President, Elara Capital.
Kapoor added that measures to lighten the compliance load on taxpayers will aid ease of doing business. “Today’s GST cuts, combined with the RBI’s rate reductions, income-tax rebates in the FY26 Budget, and easing inflation, are all levers for a consumption uplift. We expect the GST-related demand boost to add 100 to 120 basis points to GDP growth over the next four to six quarters, offsetting the drag from higher tariffs on exports to the US,” she said.
With multiple policy levers turning favourable for the first time in a decade, Kapoor struck a constructive note on consumption demand in the economy.
Early cues from GIFT Nifty echoed the optimism, with futures up 150 points, or 0.6%, ahead of the open, signalling a gap-up start for domestic markets. Riding the momentum of GST rationalisation, consumer staples, autos, insurance, cement, hotels, travel and consumer durables were in the spotlight today.
"By cutting rates across a wide spectrum, from everyday essentials and insurance products to big-ticket purchases like automobiles and home appliances, the reforms touch virtually every corner of household consumption. This move not only leaves more disposable income in the hands of consumers but also sets the stage for a broad-based boost to demand," said Pranab Uniyal, Head - HDFC Tru (Investment Advisory) of HDFC Securities.
The expected consumption uplift can create a multiplier effect on overall economic growth, Uniyal added.
