One year after the Indian government trimmed the Goods and Services Tax (GST) on a wide range of products, the initial boost to consumer spending is being eroded by rising commodity prices. Data from rating agencies, industry bodies and company statements show that while some segments, notably automobiles, have retained much of the benefit, others such as fast‑moving consumer goods (FMCG), apparel and mid‑market hotels are seeing price pressures that narrow the net gain for buyers.
Automobile sector retains most of the upside
Automobiles emerged as the clearest winner from the GST rationalisation. The reduction of several tax slabs and the removal of cess on many goods lowered the on‑road price of many models, prompting a surge in demand. ICRA data indicate that retail sales of vehicles reached 29 million units in the 11 months ending August 2026, a 20 percent increase over the same period a year earlier. The growth was broad‑based: passenger‑vehicle registrations rose 22 percent, two‑wheelers 20 percent, commercial vehicles 19 percent and tractors 23 percent.
Jitin Makkar, senior vice‑president and group head of corporate ratings at ICRA, said the GST rate rationalisation “delivered a notable consumption sentiment boost” over the past 11‑12 months. The momentum was also reflected in manufacturer dispatches, according to data from market‑research firm Siam. Director‑general Rajesh Menon noted in August that “the broader demand environment remains fundamentally healthy,” although he cautioned that the latest month’s growth was helped by a lower base in the prior year.
Vehicle pricing illustrates both the immediate benefit of the tax cut and its later dilution. The Maruti Alto K10 STD (O) fell from Rs 4.2 lakh to Rs 3.7 lakh after the September 2025 rate change and has held that level since. The Mahindra Scorpio‑N Z2 dropped from Rs 13.9 lakh to Rs 13.2 lakh, but its current price has risen to Rs 13.6 lakh, reflecting upward pressure from raw‑material and logistics costs.
Mixed outcomes for FMCG, apparel and hospitality
Fast‑moving consumer goods saw a more nuanced picture. The GST on several essential items was cut to 5 percent from 12 percent or 18 percent, prompting an average price reduction of about 10 percent when the change took effect. However, companies have since lifted prices by 6‑7 percent to offset higher raw‑material, energy and logistics expenses, including inflation linked to the West Asia conflict.
Mayank Shah, chief marketing officer at Parle Products, said consumers remain “better off by 2‑3 percent,” but warned that another round of price hikes could be needed around Diwali if input‑cost inflation persists. Nestle India described the GST reduction as providing a “positive impetus to consumption,” yet Ronak Shah, a consumer‑sector analyst at Equirus Securities, argued that the reform delivered “more of an affordability boost than a direct demand surge.” He added that the GST cut acted as a cushion against cost inflation rather than generating a substantial increase in category consumption. Premium and discretionary FMCG items did see incremental demand, but subsequent mid‑to‑high‑single‑digit price hikes diluted those gains.
Apparel was largely left out of the relief. GST on clothing priced above Rs 2,500 was raised from 12 percent to 18 percent, affecting festive and occasion wear. Rahul Mehta, chief mentor at the Clothing Manufacturers Association of India, observed that the “GST 2.0 reforms or reductions have not really impacted prices to a great degree.” He expects apparel costs to climb 8‑10 percent this festive season, though consumer‑facing prices may increase by a lower 5‑7 percent as manufacturers, brands and retailers absorb part of the burden.
Hospitality experienced an unintended squeeze. Mid‑market hotels moved from a 12 percent GST rate with input‑tax credit to a 5 percent rate without the credit, meaning that while the headline tax rate fell, key inputs such as food, linen and utilities remained taxed at higher rates. The result has been a compression of margins for operators in that segment.
Overall, the data suggest that the GST rationalisation succeeded in generating a short‑term lift in consumer sentiment, especially in price‑sensitive categories like automobiles. Yet the durability of that lift is being challenged by external cost pressures that have forced many firms to raise retail prices, thereby eroding the net benefit to shoppers.
Analysts caution that if commodity‑price inflation continues, further adjustments—either through additional GST tweaks or targeted subsidies—may be required to preserve the purchasing power gains that the reform initially promised.
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