GST Reform 2025 / GST reform will be 'nectar' for companies, earnings will increase

GST Reform 2025: According to the latest report of Crisil Intelligence, the reduction in GST rates in the current financial year is likely to result in a 6-7 per cent increase in the revenue of Indian companies. This reduction will boost consumer spending, which accounts for about 15 per cent of corporate revenue. However, anti-profiteering rules in the GST system may limit a large increase in the profit margins of companies. The rating agency pointed out that the reduction comes amid global economic uncertainties and India's festive and wedding season, when spending increases significantly.

Impact on key sectors

According to the report, the reduction in GST rates will reduce the prices of products in several key sectors such as fast-moving consumer goods (FMCG), consumer durables, automobile and construction, thereby boosting consumer demand.

1. FMCG, Consumer Durables and Automobiles

FMCG and Consumer Durables: Maximum retail prices of air conditioners and television sets larger than 32 inches are expected to fall by 7-8 per cent. Companies are likely to pass on the full benefit of the reduced rates to customers.

Automobiles: GST cut on two-wheelers with engine capacity less than 350 cc, which account for 90 per cent of the market, will increase the affordability of motorcycles and scooters. This could lead to a 100-200 basis point increase in sales.

2. Construction Sector

Reduction in GST rates on key construction materials will reduce their prices, thereby reducing the cost of Individual Housing Buildings (IHBs) in urban and rural areas. This will enable homeowners to spend their savings on larger or modified housing spaces.

3. Aviation sector

The 5 per cent GST rate on economy class air tickets remains unchanged, while the GST on premium economy, business and first class has been increased from 12 per cent to 18 per cent. Since economy class contributes 92 per cent to domestic airlines' revenue and business/first class passengers are less sensitive to prices, the increase will have limited impact.

4. Hospitality sector

The GST rate on hotel room rents up to Rs 7,500 is expected to be reduced from 12 per cent to 5 per cent. This will boost the hospitality, travel and transportation sectors.

5. Agri input sector

The GST cut will smoothen business operations in the agri input sector and boost consumer demand.

Importance of timing

The report calls the timing of this cut apt. The move will encourage consumer spending amid global uncertainty and India's festive season. The festive and wedding season will further boost consumer demand, giving a boost to the economy.