India’s GST reform benefits durables, but far from a game changer

We expect durable goods manufacturers, such as the auto sector, will be among the largest beneficiaries of the latest Goods and Services Tax reform. Non-durables will likely receive a smaller boost, while investment-facing sectors will feel indirect support from higher production demand down the line.

Using our Global Economic Model and Global Industry Model, we simulated a reduction on the economy-wide effective expenditure tax rate. In this demand-driven framework, we found that durable goods will be among the main beneficiaries.

At a more granular level, different tax rate reductions mean that some goods and services will receive a bigger boost than others. The pace and extent of pass-through to consumers, which differs by nature of the products, will also determine the effectiveness of the tax cut.

Existing structural issues mean the GST reform alone cannot sustainably raise growth prospects over the long run. Poor infrastructure, governance weakness, and policy uncertainty constrain domestic investment, as well as FDI inflows. Declining national savings rates also mean domestic funding source is limited.