India Inc's topline is also likely to rise by 6-7 per cent in the ongoing financial year, on the back of the recent cuts in goods and services tax (GST) rates.
The rate cuts are expected to propel consumption, which accounts for around 15 per cent of corporate revenues, says a Crisil Intelligence report that was made public on Friday.
The report points out that the timing of GST cuts is specifically good with respect to prevailing worldwide uncertainties as well as India's wedding and festival seasons, periods when generally consumer spending peaks.
The new GST rates are likely to bring prices down in major sectors such as fast-moving consumer goods (FMCG), consumer durables, and automobiles. Although the effect is direct for FMCG, durables, and cars, other sectors like construction will have to be watched out for. Nevertheless, the anti-profiteering provision of the GST regime could curb any meaningful impact on corporate margins.
In the auto industry, the GST cut in two-wheelers below 350 cc—accounting for about 90 per cent of the market—can increase sales by 100-200 basis points owing to enhanced affordability of scooters and motorcycles. This is likely to give a good boost to the entry-level motorcycle segment, which has suffered due to a steep price hike of 45-50 per cent during fiscal 2019. The segment, which had claimed 68 per cent of two-wheeler sales in 2019, dropped to 45 per cent in fiscal 2025.
For compact cars and small utility vehicles (CUVs), accounting for about 55 per cent of passenger vehicle volumes, the GST reductions will reduce prices by 8-9 per cent, possibly increasing sales volumes by 200 basis points to 4-6 per cent, compared to previous estimates of 2-4 per cent.
The farm inputs sector is also expected to gain from the GST reductions, enhancing business operations as well as consumer demand. Specifically, lowering GST on major raw materials such as sulphuric acid, nitric acid, and ammonia from 18 per cent to 5 per cent will improve working capital management, since lower input tax credit claims enable manufacturers to maximize liquidity. But retail sales volumes will not be affected as the revised inverted tax pattern guarantee that lower GST rates on raw materials do not influence final prices of finished goods.
Overall, the GST cuts are likely to boost the agricultural inputs sector by inducing growth, improved working capital management, and increased competitiveness. Reduced GST on raw material, lower retail prices for farmers, and improved market dynamics are all expected to propel sectoral growth.
In the construction sector, the GST reductions on major building materials are likely to reduce costs, spurring the industry. Lower material costs will lower urban and rural individual housing building (IHBs) construction costs, allowing householders to channel funds into bigger or better living spaces.
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