- The Core
- Posts
- GST Reforms, Hidden Catch
GST Reforms, Hidden Catch
In partnership with
Good Morning. The Goods and Services (GST) tax reforms are great news on paper; already, certain industries, like automakers, are slashing prices. But dig a little deeper, and you’d know industries are bracing for trouble. Dealers and OEMs are wondering what to do with inventory taxed at higher rates, and the government isn’t going to pay compensation.
In other news, the 50% US tariffs could dent India’s GDP. Meanwhile, GST 2.0 “wait-and-watch” dampens August car sales.
CORE CONVERSATIONS
Behind The Cheer, GST Reform Brings Hidden Burden For Industries
The Goods and Services (GST) tax reforms have been looked at with cheer from several industries and will be implemented from September 22. Consumers are likely going to see the benefits of it soon, and spending will increase.
Car makers like Mahindra & Mahindra and Hyundai have already announced price reductions.
The rates have been simplified to 5% and 18%. A sin tax levied on products like cigarettes, big cars, and carbonated beverages will go into a 40% bracket.
Meanwhile, some things like clothing priced above Rs 2,500 and premium economy or business or first class flight tickets will cost you more.
While industries have overall welcomed the move, some specifics need to be ironed out. Questions remain about whether this benefit will trickle down to customers. Also, who takes on the burden of the tax passed on to a product that is already manufactured and is with the distributor?
Burden For The Industry
“What happens is that the moment the rate change happens on September 22, and the rate goes down to 5%, I'm obligated to charge 5%. So this tax rate, which is going to be at 5% on these products, will be at the retail level. At that point in time, I've already incurred a higher tax on my input side, which is at 12 or 18%,” said Krishnan Arora, head of indirect tax at Grant Thornton Bharat.
The Central Board of Indirect Taxes and Customs has already said that the government is not going to make compensations for this.
“Obviously, it looks like the balance available with them, the credit balance, will lapse. So that will be a cost incurred by the dealer or the OEM, and that may have to be passed on at some point in time to the ultimate consumer,” said S Ramesh, managing director at PwC.
Ramesh hoped that the government would come up with guidance on the matter, or else companies may have to go into litigation.
“This disruption, which is caused by the cessation of compensation sales on most of the items, is going to be a huge burden on the industry, which needs to be mitigated in some form or manner,” Ramesh said.
When GST was first introduced in 2017, industries had had time to manage stock, which isn’t the case now.
“What I'm hearing is that the industry would have been happy if they got a rollover period of about two, three months; they would have been able to manage a lot of things. But yes, we are looking at the positive intent,” said Arora.
What could help the industry, and are there past instances that manufacturers can refer to?
MESSAGE FROM OUR SPONSOR
A Private Circle for High-Net-Worth Peers
Long Angle is a private, vetted community for high-net-worth entrepreneurs, executives, and professionals across multiple industries. No membership fees.
Connect with primarily self-made, 30-55-year-olds ($5M-$100M net worth) in confidential discussions, peer advisory groups, and live meetups.
Access curated alternative investments like private equity and private credit. With $100M+ invested annually, leverage collective expertise and scale to capture unique opportunities.
CORE NUMBER
19.64 lakh Units
That’s how many vehicle retail sales in India grew in August, a 2.84% rise from 19.10 lakh units sold a year ago, and a 0.02% month-on-month increase, according to the Federation of Automobile Dealers Associations (FADA).
Passenger vehicles: 3,23,256 units, a slim 0.93% rise YoY.
Two-wheelers: 13,73,675 units, up 2.18% on festive demand.
Commercial vehicles: 75,592 units, up 8.55%.
Three-wheelers: 1,03,105 units, down 2.26%.
Why It Matters: The modest headline growth hides a slowdown in the second half of August. Many buyers delayed purchases after the GST 2.0 reform announcement, hoping for price cuts. Heavy rains and patchy supply also weighed on sales.
What’s Next: Dealers expect September to rebound sharply as festivals align with GST-driven discounts, unlocking pent-up demand. “August traditionally ushers in festive cheer… the only issue was conversion, which saw a slowdown due to the benefits of GST 2.0 kicking in September,” said C S Vigneshwar, president of FADA.
FROM THE PERIPHERY
US Tariffs Will Reduce GDP By 0.5%
India’s Chief Economic Adviser V. Anantha Nageswaran warned that the abrupt 50% US tariff could shave 0.5% to 0.6% off India’s GDP in FY26. If the tariff remains in force through the next year, he told Bloomberg TV, it could become a major risk to India’s growth momentum.
Fast Facts: The US announced an additional 25% levy linked to India’s oil imports from Russia, taking the total tariff to 50%. The new duty applies to two-thirds of India’s exports to the US, including textiles, gems and jewellery, shrimp, leather, carpets, and engineering goods. Key sectors like pharmaceuticals, IT services, electronics, energy equipment remain tariff-free, for now.
Pivot: On the positive side, Nageswaran noted that India’s recent GST reforms could lift the GDP by 0.2% to 0.3%.
India Keeps Russian Barrels Coming
India’s Russian oil intake remains steady despite US pressure to cut purchases. Indian Oil Corp (IOC) finance head Anuj Jain said that Russian crude continues to arrive at a $2–$3 per barrel discount to Dubai prices, making it economical.
The Backstory: Since the West turned away from Moscow after the 2022 Ukraine invasion, India has become the largest buyer of Russian seaborne oil, a stance that has drawn criticism from Washington, which has imposed tariffs on Indian exports.
Fast Facts: Jain clarified that a sharp drop in August imports—686,850 barrels per day versus 1.34 million in July — was not political but due to high inventories and thinner discounts. “We never stopped it… We are already buying for October, November,” he told Reuters at the APPEC conference in Singapore, signalling that Russian oil remains central to India’s energy strategy.
Thali Costs Ease In August
The cost of home-cooked thalis fell in August, with vegetarian plates 7% cheaper and non-vegetarian costing 8% lower year-on-year, according to Crisil’s Roti Rice Rate report. The decline was driven by a sharp drop in onion, potato, and pulse prices.
Turning Point: Onion prices fell 37% and potatoes 31% on improved production, while pulses dropped 14% due to higher stock levels. Non-vegetarian thali costs eased mainly because broiler chicken prices, which make up half the plate, fell 10%. However, higher vegetable oil prices (+24%) and a 6% rise in LPG limited the overall fall.
Flashpoint: Every month, veg thalis rose 4% and non-veg 2% in August. The moderation in thali costs mirrors easing retail inflation, which slipped to 1.55% in July, its lowest since 2017, with food inflation turning negative.
Off The Grid
India has cancelled grid access for nearly 17 gigawatts of delayed clean energy projects to prioritise projects that are ready or nearly ready, according to a Reuters report.
Origin: Big companies affected include Adani Green, ReNew Power, NTPC, Avaada, JSW Energy, and ACME Solar, mostly in Rajasthan, Gujarat, and Madhya Pradesh. The move comes as India struggles with limited transmission capacity while aiming for 500 GW of renewable energy by 2030. JSW Energy has filed a petition against the decision.
Critical Moment: By tightening rules, India is prioritising clean energy projects that are ready to supply power, so electricity actually flows smoothly and the grid doesn’t get clogged by delayed projects.
PODCASTS
Markets Fail To Hold Onto Gains
On Episode 672 of The Core Report, financial journalist Govindraj Ethiraj talks to C S Vigneshwar, President, FADA as well as Adam Wolfe, Emerging Markets Economist at Absolute Strategy Research (ASR).
Markets fail to hold onto gains, steel, auto stocks shine
India set to outstrip China in oil demand
Gold hits a fresh high, quick reminder, bullion is up 38% this year
How auto dealers are happy tax rates are down but they want to be compensated for higher priced inventory
Why foreign investors are selling for more than a decade now and the story from 1998 - 2016. A deep dive discussion
How Tesla’s US market share has hit an 8 year low
MESSAGE FROM OUR SPONSOR
How 1,500+ Marketers Are Using AI to Move Faster in 2025
Is your team using AI like the leaders—or still stuck experimenting?
Masters in Marketing’s AI Trends Report breaks down how top marketers are using tools like ChatGPT, Claude, and Breeze to scale content, personalize outreach, and drive real results.
Inside the report, you’ll discover:
What AI use cases are delivering the strongest ROI today
How high-performing teams are integrating AI into workflows
The biggest blockers slowing others down—and how to avoid them
A 2025 action plan to upgrade your own AI strategy
Download the report. Free when you subscribe to the Masters in Marketing newsletter.
Learn what’s working now, and what’s next.
THE TEAM
✍️ Zinal Dedhia, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas
🤝 Reach 80k+ CXOs? Partner with us.
✉️ Got questions or feedback? Reach out.
💰 Like The Core? Support us.
