GST 2.0 Reforms Set to Boost Consumption, Market Sentiment Improves

India's economy is poised for a significant shift as Prime Minister Narendra Modi announced the next generation of Goods and Services Tax (GST) reforms, dubbed GST 2.0, expected to be implemented by Diwali. These reforms are anticipated to drive consumption growth in the latter half of the fiscal year, with market experts expressing optimism about their potential impact.

Key Points of GST 2.0 Reforms

• Elimination of the existing 12% and 28% GST slabs
• Retention of the 5% and 18% tax rates
• Implementation expected by Diwali

Market Response

The announcement has already begun to influence market sentiment positively:

• The NSE Nifty 50 reclaimed the 25,000-mark after a 24-day lapse
• Improved market sentiment is attributed to potential GST rate cuts

Expert Insights

Milind Karmarkar from Dalal & Broacha PMS shared his perspective on the reforms:

• Expects a "definite consumption boost" following the implementation
• 65% of their portfolio is invested in consumption-driven sectors, including:
  • Pharmaceuticals
  • Finance
  • Hospitals
  • Retail
• Minimal exposure to export-driven and tech companies
• Anticipates strong performance in auto, apparel, and white goods sectors post-reforms

Consumption Growth Trajectory

While the reforms are expected to have a significant impact, Karmarkar notes:

• August and September may remain subdued
• Acceleration in consumption growth is expected thereafter

Additional Factors Contributing to Consumption

The expert also highlighted the role of recent tax slab increases:

• Provides taxpayers with more savings
• Expected to contribute to the anticipated consumption uptick

As India prepares for these substantial changes in its tax structure, businesses and consumers alike are watching closely. The GST 2.0 reforms, coupled with other economic measures, are set to reshape the country's consumption patterns and potentially drive economic growth in the coming months.