Commodity Prices Erode Gains as GST Rate Rationalisation Takes Toll

Automobiles have emerged as the standout performer in the post-GST rate rationalisation era. With sales continuing to rise despite higher commodity prices slowly eroding some of the gains made since the tax overhaul.

The Maruti Alto K10 STD (O), which cost Rs 4.2 lakh before the rate reduction, fell to Rs 3.7 lakh after September 22, 2025 and remains at that level. Similarly, the Mahindra Scorpio-N Z2 declined from Rs 13.9 lakh to Rs 13.2 lakh but now costs Rs 13.6 lakh.

According to Rajesh Menon, Director General of Siam, the broader demand environment remains fundamentally healthy, with last month's growth supported by a lower base of previous year. Vehicle prices illustrate both the original benefit and its subsequent dilution. The automobile industry has benefited from the GST rate reduction, with sales continuing to rise.

However, the impact on fast-moving consumer goods has been more mixed. While some products have seen price cuts, others have experienced a reversal of gains. Parle Products' chief marketing officer, Mayank Shah, noted that consumers are still better off by 2-3% despite the changes in tax rates.

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On the other hand, certain sectors have been affected by the GST rate reduction. Mid-market hotels saw their tax rates decrease from 12% with input-tax credit to 5% without it. Resulting in squeezed margins due to higher taxed inputs remaining unchanged.

The apparel sector was also impacted, with GST on clothing priced above Rs 2,500 increasing from 12% to 18%, affecting festive and occasion wear.

Despite the mixed impact on fast-moving consumer goods, the automobile industry continues to be a bright spot in the post-GST rate rationalisation era. With sales continuing to rise, it remains to be seen how this trend will unfold in the coming months. Nestle India's performance has also been affected by the changes in tax rates.

With prices rising by 6-7% to manage higher raw-material, energy, and logistics costs.

West Asia, a key player in the region's automotive market, has seen its sales increase despite the challenges posed by higher commodity prices. The company's CEO, Ronak Shah, has acknowledged that the industry is facing headwinds but remains optimistic about future prospects.

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Jitin Makkar, senior vice-president and group head of corporate ratings at ICRA, noted that the GST rate rationalisation has had a notable impact on consumption sentiment over the past 11-12 months. The broader demand environment remains fundamentally healthy.

The outcome of the GST rate reduction has been more mixed in fast-moving consumer goods.

The GST rate reduction has had an unintended impact on certain sectors.