GST reform looms, markets eye the winners

Summary: On Independence Day, Prime Minister Modi remarked that there would be a double Diwali gift for businesses in the form of a much-awaited GST reform. While nobody knows how the reforms will pan out, Motilal Oswal has released a report on its possible impact. Here are the report’s highlights.

For years, India’s Goods and Services Tax (GST) has been criticised for being too complicated, too heavy on certain goods, and too uneven in its impact. Now, the government is considering an overhaul that could reshape how Indians spend and how companies price their products.

On Independence Day, the government announced its intent to simplify GST and reduce distortions. The official statement, however, stopped short of offering specifics; no tax rates were mentioned. Instead, it promised “next-generation reforms” and a rationalisation of the structure.

That has left room for speculation. Multiple media outlets, citing unnamed officials, have reported that the government may move toward a two-slab system of 5 per cent and 18 per cent, with a higher rate of about 40 per cent for luxury and sin goods. None of this has been confirmed by the GST Council.

Still, the possibility of lower rates has companies and investors taking notice. A recent report by Motilal Oswal (a financial services firm) maps out the industries (and stocks) that could benefit if those changes do come through.

The road for automakers

Automobiles are among the most heavily taxed products in India. Passenger cars and commercial vehicles now face a 28 per cent GST rate, on top of a “compensation cess” that can reach 22 per cent.

If that rate were cut to 18 per cent—as media reports suggest—affordability would improve sharply. Companies like Maruti Suzuki, Tata Motors and Ashok Leyland could see sales revive as prices come down and buyers return to showrooms.

Cement and construction

Cement, too, sits at the top of the tax ladder. Moving it from 28 per cent to 18 per cent could lower retail prices by nearly 8 per cent, according to Motilal Oswal. That may not sound like much, but in India’s price-sensitive housing market, it matters.

Lower costs could ease the burden on homebuilders and align with the government’s infrastructure ambitions.

Everyday goods, from soap to biscuits

The effect on household staples is less clear. Most packaged foods, such as biscuits and butter, are taxed at 12 per cent, while personal-care items like shampoo and soap sit at 18 per cent.

If the 12 per cent category were eliminated, some items could move lower, others higher. For companies like Hindustan Unilever and Britannia, the bigger benefit might come indirectly, as consumers save on big-ticket items, they may have more to spend on everyday goods.

Insurance and healthcare

Insurance premiums, currently taxed at 18 per cent, have been flagged for relief. Media reports suggest the government is considering a cut to 5 per cent or even zero for health insurance, particularly policies for senior citizens.

That could boost penetration in a market where only a fraction of households carry adequate health cover. Companies like HDFC Life and Star Health are among those that would benefit.

Hotels and tourism

Hotel stays are taxed at 12 per cent for rooms under Rs 7,500 a night, and 18 per cent above that. If the 12 per cent band disappears, mid-market rooms could be pulled into either 5 per cent or 18 per cent, depending on how the Council decides.

Operators like Indian Hotels and Lemon Tree could see occupancy rise if tariffs shift lower.

A small step for shoes

Footwear has had a turbulent tax journey. Shoes priced up to Rs 1,000 were taxed at just 5 per cent until 2022, when the rate was raised to 12 per cent. Footwear above Rs 1,000 is at 18 per cent.

If the budget segment is rolled back to 5 per cent, organised players like Relaxo and Bata could gain an edge over unorganised rivals.

The bigger picture

For now, much of this remains conjecture. The government’s official language is cautious, and the GST Council will ultimately decide.

But even the possibility of lower rates has set off debate. Cheaper cars could spur auto loans. More affordable insurance could widen health coverage. Lower cement costs could ease homebuilding. Each trigger feeds another, creating a consumption flywheel.

Whether India’s policymakers pull that trigger – and by how much – will determine how transformative the GST overhaul really is.

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