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Key Points

The government is shifting its economic strategy from capital expenditure to consumption-led growth starting with the FY26 Budget. GST 2.0 reforms approved in September 2025 simplify the tax structure by reducing slabs from four to three. These changes will particularly benefit MSMEs and boost both rural and urban consumption. The increased demand is expected to eventually revive private capex, which has been weak for years.

Key Points: GST 2.0 Shifts Focus from Capex to Consumption-Led Growth

  • GST slabs reduced from four to three with 12% and 28% categories eliminated
  • New 40% slab for sin goods while essentials get Nil GST rate
  • Reforms expected to boost rural and urban consumption demand
  • Consumer discretionary and durable sectors to be major beneficiaries
2 min read

With GST 2.0, Govt's focus shift from capex oriented spending to consumption-led growth: Report

Government's GST rationalization moves from infrastructure spending to boosting consumption through tax relief, benefiting MSMEs and consumer sectors from September 2025.

"The government has now shifted gears from Capex-oriented spending to consumption-led spending - Axis Securities Report"

New Delhi, September 4

The government's announcement of GST rationalization under GST 2.0 has set the stage for a major shift in the country's economic strategy.

According to a report by Axis Securities, the focus has now moved from capex-oriented spending to consumption-led growth, starting from the FY26 Budget onwards.

It stated "The government has now shifted gears from Capex-oriented spending to consumption-led spending".

The report highlighted that the past decade was defined by development-focused schemes, with large-scale infrastructure projects such as roads, bridges, and metro systems serving as benchmarks of the ruling party's success. This capex push had been central to the government's policy agenda.

However, with the February 2025 Budget, the attention turned towards boosting the purchasing power of rural households and the middle class through tax relief measures, signaling a new consumption-driven economic regime.

The GST 2.0 reforms are seen as another big step in this direction. The 56th GST Council meeting, held on 3rd September 2025, approved a landmark move to rationalize the GST structure by reducing the number of slabs from four to three.

The 12 per cent and 28 per cent categories have now been scrapped, bringing most items under the 5 per cent and 18 per cent slabs. A 40 per cent slab has been created for sin goods, while certain essential categories have been placed under a Nil GST rate to directly spur consumption.

These changes will come into effect from 22nd September 2025, coinciding with the first day of the Navratri festival.

The report noted that the rationalization is expected to particularly benefit MSMEs and SMEs, while also providing a boost to both rural and urban consumption.

With higher discretionary income in the hands of people, the consumer discretionary sector is likely to see strong demand. In addition, the reforms are expected to aid credit growth, which has remained sluggish since FY25.

The report added that some of the key sectors that could be key beneficiaries are, Consumer Durable, Building Materials, Automobiles, Retail, Cement, FMCG, and Real Estate.

Overall, the report highlighted that GST 2.0 will not only strengthen the government's initiative of driving consumption but will also have a cascading impact on the economy.

As per report, the increase in demand is expected to eventually provide a much-needed push to private capex, which has been weak for several years.

- ANI

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Reader Comments

R
Rohit P
This is a smart move by the government. After years of infrastructure focus, boosting consumption is exactly what our economy needs right now. MSMEs will benefit tremendously!
A
Arjun K
While consumption boost is good, I hope this doesn't mean neglecting infrastructure development. Both are crucial for sustainable growth. Need balanced approach.
S
Sarah B
As someone working in retail sector, this is excellent news! Lower GST means more affordable products and hopefully increased footfalls in stores. Perfect timing before festive season 🎉
V
Vikram M
The timing with Navratri is strategic. Festive shopping will get a huge boost. Hopefully this translates to better sales for small businesses and more jobs in retail sector.
M
Michael C
Implementation will be key. Hope the GST Council ensures smooth transition for businesses. The simplification from 4 to 3 slabs is much needed reform.
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Ananya R
Rural households really need this support. Lower prices on essential goods will make a big difference in villages. Hope the benefits reach the actual consumers and not just middlemen.

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