India’s GST Council has approved the most significant reform since 2017, replacing the four-tier tax structure with two slabs of 5% and 18%. GST rates have been cut on essentials, agriculture, healthcare, and consumer durables, easing costs for households, MSMEs, and farmers while supporting private consumption. The package also includes faster registration, quicker refunds, and correction of inverted duty structures to improve competitiveness and compliance.

While GST rates rationalisation could lower net fiscal revenues by ~30 bps of GDP in FY26 (~10 bps at the Centre and the balance at the states), it is expected to lift demand by ~40 bps of GDP, providing an upside to our FY26 real GDP growth forecast of 6.2%. It is also likely to ease CPI inflation by ~30–50 bps in FY26, supporting a softer trajectory and creating space for the RBI to cut policy rates.