5 Sep 2025: The recent Goods and Services Tax (GST) reforms aimed at rationalizing tax slabs and boosting consumption could lead to a revenue loss of nearly ₹3,700 crore for the government, according to a report released by the State Bank of India (SBI).
The report, part of SBI’s Ecowrap series, analyzed the impact of lowering GST rates on small cars, two-wheelers up to 350 cc, and certain household goods. While the reforms are expected to boost demand and revive sectors hit by sluggish sales, the short-term fiscal impact could be significant.
Key Findings of the Report
SBI economists estimate that the revenue loss will primarily come from the auto sector, which accounts for a major share of GST collections. The report noted that the decision to cut GST on two-wheelers from 28% to 18% alone could result in an annual shortfall of ₹2,200 crore.
However, the report also highlighted that higher demand triggered by lower prices could partly offset the loss through increased volumes and improved compliance. “The reforms are likely to be revenue-neutral over a medium-term horizon as consumption demand picks up,” the report stated.
Impact on Economy
Industry experts believe the move will have a positive impact on consumer sentiment and may boost manufacturing activity. “Lower GST rates on mass-market products are a welcome move that can reinvigorate the automobile sector, which has faced muted growth for the past two years,” said an auto industry executive.
Economists argue that while the short-term revenue hit may put pressure on fiscal math, the government’s decision is strategically aimed at stimulating the economy ahead of the festive season.
Government’s Stance
Officials from the Ministry of Finance have acknowledged the potential revenue impact but maintained that reforms were necessary to simplify the GST structure. “Our focus is on encouraging consumption and improving compliance rather than maximizing revenue in the short term,” a senior official said.
Stock Market Reaction
The announcement of GST cuts earlier this week sparked a rally in auto and consumer goods stocks, with major players like Maruti Suzuki, Hero MotoCorp, and Bajaj Auto gaining over 3% in a single trading session. Analysts expect demand revival in rural and semi-urban areas to drive sales in the coming quarters.
Long-Term Outlook
SBI’s report suggests that if the reforms succeed in expanding the tax base and boosting compliance, the government could recover the lost revenue within 12–18 months. The move is also expected to strengthen India’s ease-of-doing-business rankings by simplifying the indirect tax regime.
Summary
SBI reports GST reforms may cost the government ₹3,700 crore in revenue but predicts long-term gains as demand rises, boosting auto sales, compliance, and manufacturing activity in the coming months.