New Delhi:The revenue of India Inc. will likely grow 6-7 per cent during the current financial year because of the reduction in the goods and services tax (GST) rates. The reductions will have a positive impact on consumption, which accounts for 15 per cent of the revenue of corporates, according to a Crisil Intelligence Report released on Friday.
The timing of the cuts is also apposite, coming amid continuing global uncertainties, and coincides with the festival and wedding season in India when consumption typically peaks annually, the report points out. The new GST rates will lower the prices of products in key sectors such as fast-moving consumer goods (FMCG), consumer durables and automobiles. While the passthrough in FMCG, durables and automobiles will be direct, for a few other sectors, such as construction, the impact will bear watching.
The anti-profiteering clause in the GST regime may, however, limit any material impact on the margin profiles, according to the report. In the automobile sector, the GST reduction on two-wheelers with engine capacities under 350 cc, which account for approximately 90 per cent of the market, should improve sales by 100-200 bps on account of improving affordability of both motorcycles and scooters.
This will provide a major fillip to the entry-level motorcycle segment that has been struggling on account of a sharp rise in prices (in fiscal 2025, up 45-50 per cent over fiscal 2019 levels). The segment accounted for 45 per cent of all two-wheeler sales in the country in fiscal 2025, down from 68 per cent in fiscal 2019, the report states.
In the case of small cars and compact utility vehicles, which collectively account for around 55 per cent of the passenger vehicle industry volume, the rate cut is expected to result in a 8-9 per cent price reduction, leading to a 200 bps in volume to 4-6 per cent, compared with our earlier estimate of 2-4 per cent, the report states.
The GST cuts in the agricultural inputs sector are expected to smoothen business operations as well as aid consumer demand for specific sectors. In the fertiliser sector, the reduction in GST on key raw materials such as sulphuric acid, nitric acid and ammonia to 5 per cent from 18 per cent will improve working capital management because lower input tax credit (ITC) claims enable manufacturers to optimise working capital.
However, sales volumes are expected to remain unchanged due to the input tax credit mechanism. The correction of the inverted tax structure means the decrease in GST rates for raw materials will not affect retail prices of finished products, the report explains.
Overall, the GST cuts are poised to have a positive impact on the agricultural inputs sector, with various segments experiencing growth, improved working capital management and increased competitiveness.
The reduction in GST on key raw materials, decrease in farmer retail prices and increase in are all expected to contribute to the growth of the industry. The reduction in the GST rate on the key construction material is expected to decrease its prices, thereby stimulating the construction sector. The price fall, in turn, will lead to lower construction costs for urban and rural individual housing buildings (IHBs), enabling homeowners to allocate savings towards larger or modified living spaces, the report states.
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