Daijiworld Media Network - New Delhi

New Delhi, Aug 18: India’s proposed Goods and Services Tax (GST) reforms could deliver a major boost to consumption while easing retail inflation, according to global investment bank Morgan Stanley.

In a report released on Monday, the bank estimated that the overhaul could add 0.5–0.6% to GDP annually and lift growth by 50–70 basis points.

The projections follow Prime Minister Narendra Modi’s Independence Day announcement of “next-generation” GST changes, described as a festive-season gift to citizens. The Finance Ministry has since proposed a simpler two-tier structure, with most goods and services under 5% and 18%.

Under the plan, items currently taxed at 12% would shift to 5%, while many in the 28% slab would move to 18%. Analysts say the move would benefit lower-income households the most, as indirect taxes weigh more heavily on them.

Morgan Stanley said the reforms could trim inflation by around 40 basis points. While governments may face initial revenue loss, the bank expects stronger growth and higher collections over time to offset the impact.

Markets have reacted positively, with auto, FMCG and consumer durables stocks rallying on hopes of stronger demand. Brokerages estimate the reforms could trigger a consumption-led boost worth about Rs 2.4 trillion during the festive season.

The GST Council is expected to finalise the new rates in September, with rollout likely before Diwali. Economists view the reforms, combined with recent tax reliefs and monetary support, as part of the government’s broader pro-growth strategy.