One Year of GST 2.0: Where the Rate Cuts Held — and Where Commodity Prices Ate the Gains

Reform

GST 2.0 — effective 22 Sep 2025

One year on

Gains partly eroded

Clear winner

Automobiles

Squeezed

Apparel & mid-market hotels

A year ago, GST 2.0 pared the rate structure and stripped out cess on most goods, and prices fell across cars, packaged foods and consumer goods. Twelve months on, the picture is more mixed: the relief was real, but a wave of input-cost inflation has quietly clawed a large part of it back.

The clear winner: automobiles

Autos are where the reform landed cleanest. Consumers paid less, demand accelerated, and sales hit new highs. Per ICRA, automobile retail reached about 29 million units in the 11 months to August 2026 — up 20% year on year — with passenger vehicles up 22%, two-wheelers 20%, commercial vehicles 19% and tractors 23%. Industry voices described the rationalisation as a genuine boost to consumption sentiment, though some of the recent growth also rode a softer base from the previous year.

The price story shows both the benefit and its dilution. Two illustrative models:

One held its cut; the other has quietly drifted back up — a neat snapshot of how the gain is holding in some places and fading in others.

FMCG: a cushion, not a surge

In fast-moving consumer goods, GST on several essentials was cut to 5% from 12% or 18%, prompting average price cuts of around 10% at first. Since then, companies have raised prices by 6-7% to absorb higher raw-material, energy and logistics costs — some of it tied to inflation from the West Asia conflict. The net effect, by one industry estimate, is that consumers are still about 2-3% better off, though another round of hikes closer to Diwali is possible if input-cost inflation persists.

Analysts frame it as an affordability boost rather than a demand surge: the rate cut cushioned cost inflation more than it lifted category consumption. Premium and discretionary products saw some incremental demand, but subsequent mid-to-high-single-digit price increases diluted the gains.

Who got squeezed

Not every segment benefited — and two are worth flagging because the effect was structural, not just cost-driven.

Why the relief faded

The common thread across food, consumer goods and autos is input-cost inflation. Higher commodity, energy and logistics costs — compounded by global disruptions — have pushed prices back up, offsetting a meaningful slice of the tax cut. In other words, GST 2.0 did its part on the tax line; the erosion came from everything else moving in the wrong direction at the same time.

What businesses should take from it

• Model rate and ITC together. A cut to 5% without credit can hurt more than it helps — check your blocked input taxes before assuming a saving.
• Mind classification thresholds. The apparel ₹2,500 line shows how a threshold can flip a product from 12% to 18% — price and tag accordingly.
• Plan pricing around input cycles. If you passed on the full GST cut, build in how you'll handle the next commodity-led hike without eroding trust.
• Keep your GST masters current. Rates, HSN and ITC eligibility have all shifted since 22 September 2025 — stale masters cause wrong invoices and disputes.

Disclaimer: This article reports and analyses market and industry commentary as at the date of publication. Figures and views are as reported by the cited sources and are for general information only — not legal, tax or investment advice. Please consult a qualified professional — talk to efiletax — before acting.