India File: GST 2.0 shakes up weddings, wardrobes and wallets

H and M Hennes and Mauritz AB

09/09/2025 05:56

India File is published every Tuesday. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.

Sept 9 - By Nidhi C Sai, Editor Online Production, with global Reuters staff

India's festive season is near, but for its roughly 1 billion consumers it promises to be bittersweet as the country's biggest tax shake-up in eight years determines how they will shop, spend, and celebrate.

From wardrobes for weddings to cars and electronics on showroom floors, GST 2.0 is rewriting price tags and reshaping consumer priorities. In this week's focus, we unpack the winners, the losers, and what it all means for India's golden quarter of consumption.

Also, the country's tea industry faces a climate crisis, with shrinking harvests, rising costs, and falling exports threatening its global market share. Scroll down for more on that.

THIS WEEK IN ASIA

* Japan PM hopefuls prepare leadership bids, markets recoil

* China's e-commerce companies are getting singed by a price war

* Nepal lifts social media ban after anti-corruption protests leave 19 dead, curfew imposed

* Indonesian finance minister's removal unnerves investors, rupiah tumbles

* Dairy duty: Indonesia presses businesses to find a million cows

PRICIER CELEBRATIONS

The overhaul of India's goods and services tax, dubbed GST 2.0, could not have come at a more crucial juncture for Asia's third-largest economy.

India is not only fending off blows from punitive U.S. tariffs on its goods exports but is also gearing up for the all-important festive season. The golden quarter for consumer spending, which has accounted for up to 30% of annual spending in previous years, kicks off later in September.

For the millions of Indians preparing to celebrate Diwali - the Hindu festival of lights - and the five-month wedding season, small-ticket items and budget fashion will become cheaper due to tax cuts, which come into effect on September 22. But some premium items will become costlier due to tax increases.

Clothes priced below 2,500 rupees ($30) will now attract just a 5% levy, handing a win for homegrown names such as Aditya Birla and Raymond RAYL.NS, which cater to value-conscious consumers.

"Immediately from September 22, we will pass on (the tax benefits to consumers)," Raymond Group CFO Amit Agarwal told Reuters, adding that roughly two-thirds of Raymond's apparel falls under the 2,500-rupee mark.

But step into a Zara ITX.MC, H&M HMb.ST or Levi's LEVI.N store, and many items are priced above that level. A new 18% tax on higher-end apparel is expected to slow their sales growth.

Premium wear makes up about 18% of India's $70 billion apparel market, according to Datum Intelligence, powered by brand-conscious youth and a swelling affluent class. The GST rejig could slow that momentum.

The sting will be felt most during the millions of weddings India hosts between October and February. It is typically a boom time for designers, caterers, and entire supply chains. Wedding outfits rarely cost less than 2,500 rupees, meaning nearly every ensemble will attract the higher tax.

The Clothing Manufacturers Association of India didn't mince words, calling the tax move a "death knell for the industry" and warning it could compel "parents to make inferior clothing for their favourite child on their favourite day".

Click here for more industry reactions.

AUTOS SHIFT GEARS

If fashion is bracing for impact, automakers are revving up. The government has cut taxes on small cars to 18% from 28%, a timely boost for a sector that's been stuck in neutral. And taxes on big SUVs and luxury cars will be a flat 40%, versus as high as 50% earlier.

Sales have been sluggish, with top car makers reporting a four-month decline through August. Mahindra & Mahindra MAHM.NS even scaled back shipments amid softening demand.

But lower taxes, coupled with the usual seasonal discounts during the festive season, could turn the tide. Maruti Suzuki MRTI.NS, Hyundai HYUN.NS, and Tata Motors TAMO.NS are all eyeing a revival in showroom traffic, hoping to convert mere onlookers into buyers.

Over the weekend, several automakers announced price cuts across key models to pass on the benefits of the new GST structure to consumers.

Read more on how the tax cuts are steering car buyers back into showrooms this festive season.

According to CLSA estimates, the government expects to collect 1 trillion rupees less in GST this year - about 0.3% of GDP. Add to that the April income-tax cut, which gave consumers another 0.3% of GDP in relief, and households now have 0.6% of GDP in extra disposable income.

The anticipated spending ramp-up will help the government  offset the revenue impact of the GST cuts, some analysts say.

"The consumption boost in lieu of the GST rate rationalisation will more than neutralise any possible revenue impact," said Soumya Kanti Ghosh, chief economist at the State Bank of India.

Whether you are splurging or holding back, how is GST 2.0 impacting your festive buys? Write to me at nidhi.csai@thomsonreuters.com.

MARKET MATTERS

India's tea plantations, especially in Assam and Darjeeling, are facing a growing crisis as rising temperatures, erratic rainfall, and prolonged dry spells are shrinking harvests and disrupting production.

Tea pickers are now managing far lower yields due to punishing heat, with the prized second flush of Assam tea, known for its rich aroma, particularly vulnerable.

Last year, India's tea output dropped 7.8% to around 1.3 billion kg, pushing prices up by nearly 20%. Despite rising domestic consumption, which surged 23% over the past decade, exports are shrinking. Meanwhile, production costs are ballooning due to increased use of irrigation, pesticides, and early pruning to combat the climate impact.

Industry experts warn that without sufficient government support, India's share in the global $10 billion tea market could shrink further, potentially tightening global supplies and boosting prices.

Reuters journalists Tora Agarwala and Rajendra Jadhav uncover the full story.

THIS WEEK'S MUST-READ

Images of Indian Prime Minister Narendra Modi holding hands with Russian President Vladimir Putin at a summit hosted by Chinese President Xi Jinping seemed to confirm what many experts have already concluded - the U.S. has stumbled in its effort to draw India into its diplomatic orbit.

Successive U.S. administrations have sought to cultivate the historically non-aligned India as a strategic counterweight to China and Russia.

But as the images of Modi in Tianjin underlined, U.S. President Donald Trump appears for now to have undercut that goal with a series of actions.

Read the full analysis here from Reuters journalists Trevor Hunnicutt, David Brunnstrom and Matt Spetalnick.

($1 = 88.0240 Indian rupees)

India's tea production growth falters as consumption rises https://reut.rs/3VnSt01

 (Reporting by Nidhi C Sai; Editing by Muralikumar Anantharaman)

 ((Nidhi.CSai@thomsonreuters.com; +91 7045655251))