GST 2.0 Reforms Set to Create New Diwali Shopping Records, Say Economists | How Tax Cuts Are Powering India’s Festive Boom

GST 2.0 Reforms: A Festive Boost for Diwali Shopping? 

As India readies itself for Diwali 2025, one of the biggest drivers of consumer demand this season won’t just be the festival euphoria — it could well be the newly minted GST 2.0 reforms. Economists and market watchers widely believe this tax changes may unleash pent-up demand, lower retail prices, and push this year’s Diwali spending into record territory.

But how realistic is that outlook? What are the channels, the caveats, and the long-term implications? Let’s unpack the story.

 

What Is GST 2.0 — A Quick Refresher

Before jumping into forecasts, it’s worth recapping what GST 2.0 entails, how it differs from the old system, and why it’s especially timed ahead of the festive season.

The reform package in nutshell

The government in September 2025 announced a major rationalization of GST slabs, narrowing down the multiplicity of slabs to primarily 5% and 18%, while carving out exemptions (0%) for essentials and health/life insurance. 

Goods and services that earlier attracted 12%, 18%, or even 28% rates have been re-categorized. Many household staples, packaged goods, personal care items, and some discretionary items now fall into lower taxed categories. 

Insurances — health and life — previously bearing GST have been moved to full exemption (0%) in many cases.

The government has also simplified compliance, accelerated refunds, pushed for re-labelling and display of revised prices, and coordinated with states to align SGST rules. 

Observers expect that while the reforms will cut government revenue in the short run (some estimates talk of ₹40,000–₹50,000 crore), they will stimulate consumption and formalize more economic activity. 

These structural changes make this Diwali not just a seasonal event but a natural experiment of tax-driven stimulus.

 

Why GST 2.0 Could Be a “Game Changer” for Diwali Demand

Here are the key channels through which GST 2.0 reforms may supercharge Diwali sales:

1. Effective price cuts & purchasing power boost

The most immediate effect is that many goods will become cheaper, or at least the tax burden will be lower. This leaves more real income in consumers’ hands, especially for the middle- and lower-income groups that are more price sensitive.

Economists argue that households may now afford multiple items instead of a single one. 

Food inflation and fuel inflation have cooled, with headline CPI inflation falling to an eight-year low of 1.54% in September 2025. 

Observers suggest that the lower prices disproportionately benefit lower and middle-income groups — who are more likely to spend, instead of saving. 

Thus, the drop in the tax burden is not just symbolic — it translates into extra disposable income, which during a festival is likely to flow into purchases rather than being hoarded.

2. Accelerated demand for big-ticket items

Festive seasons often see delayed purchases — people waiting for the “best deal.” With GST cuts in place before the shopping season fully ramps up, many consumers are pulling forward purchases of appliances, electronics, vehicles, etc.

Reports already suggest vehicles and two-wheeler sales are seeing sharp upticks. In Lucknow, two-wheeler sales during Diwali rose ~20% YoY, attributed to lower GST rates.

 

Electronics, air-conditioning, refrigerators and TVs — categories that previously bore higher GST slabs — now see notable rate reductions.

According to trade bodies, some automakers are revising prices downward, leading to a surge of bookings and upgrades. 

So, the price sensitivity in high-value goods is likely to trigger a more aggressive demand cycle than in past years.

3. Psychological and behavioral nudge

Tax cuts carry a psychological boost: they send a signal that “now is the time to buy.” In behavioral economics terms, consumers are nudged into purchasing decisions rather than postponing them. 

A spike in transaction volumes around the cut announcement is already being observed. On September 21, digital payments aggregated ₹1.18 lakh crore; by September 22 that leapt to ₹11.31 lakh crore. 

The reform acts as a prompt, converting latent demand — items people had on their wish lists — into actual purchases, especially during a festival with emotional weight. 

Retailers and e-commerce platforms are launching campaigns, discounts and marketing narratives around “GST savings festival” to amplify the effect. 

Thus, tax reform is functioning like a festive promo itself.

4. Formalization, compliance and supply chain efficiency

Beyond direct price cuts, GST 2.0 helps reduce frictions in the system, which can indirectly lower costs and improve availability:

Better coordination between central and state GST systems helps reduce delays in refunds, compliance burdens, and disputes. 

Simplified slab structure and lower administrative complexity reduce costs for SMEs, helping more small retailers participate more confidently in the festival trade. 

A more formal regime discourages tax evasion and encourages transparency — over time, this can push more trade into the formal economy and widen the taxable base. 

These systemic improvements, while less glamorous than price cuts, help smooth the path for a bigger, more sustainable consumption surge.

 

Forecasts & Projections: How High Could Diwali Spending Soar?

Estimating festive spending is tricky, given many variables (income growth, credit availability, retailer execution). But based on early signals and analogous years, here is what economists and trade bodies are anticipating.

What earlier years tell us

In Diwali 2024, online sales grew nearly 49% YoY. 

Offline retail in urban India is estimated to have recorded ~₹2.19 lakh crore in festive spending, up ~18% over previous. 

Meanwhile, many forecasts for 2025 already predict the festive + wedding season trade could exceed ₹7 lakh crore. 

Ecommerce GMV during this period is projected to cross ₹1.15 lakh crore, possibly the highest in five years. 

These benchmarks set a high bar, and with GST 2.0 in play, some analysts believe the ceiling could be much higher.

What economists are estimating now

The SME Futures article suggests the reforms are lighting up Diwali sales, especially for small and medium retailers. 

Some trade bodies estimate that the reforms could unlock

consumption of ₹2 lakh crore across the economy. 

In Andhra Pradesh, the pace of savings and demand is projected in promotional schemes — e.g., the Amaravati shopping festival is part of the “Super GST — Super Savings” drive.

Economists quoted in news reports expect that this Diwali could break all previous records in terms of volumes and value. 

A rough projection scenario

Here’s a simplified, illustrative projection:

Segment	Base 2024 (approx.)	Uplift factor (due to GST 2.0 + sentiment)	Projected 2025
E-commerce GMV (festive window)	₹1.15 lakh crore	+25–40%	₹1.4–1.6 lakh crore
Urban offline festive spend	₹2.19 lakh crore	+20–30%	₹2.6–2.9 lakh crore
Broader festival + wedding trade	~₹7 lakh crore	+15–25%	₹8.0–8.8 lakh crore

Combining these, one might expect Diwali / festive quarter spending to cross ₹8–9 lakh crore in many geographies. Of course, regional variances (tier-2 cities, rural markets) may grow even faster if the tax benefits reach them fully.

In short: the possibility of a new all-time high in Diwali consumption is very real.

 

Which Sectors Will Benefit Most — Winners & Key Themes

Not all sectors are equally exposed to the GST 2.0 boost. Some categories are likely to see disproportionate gains, while others may see only marginal effects.

Likely winners

Consumer durables & electronics

Televisions, ACs, refrigerators, washing machines — products that previously faced higher taxes — stand to become much more attractive post-rate cuts. Replacement cycles may shorten. 

Automobiles & two-wheelers (<350cc segment)

The lower GST burden on smaller vehicles can stimulate first-time vehicle purchases or upgrades. Already, dealerships report significant booking surges. 

Fashion, apparel, and personal care

As slabs on some apparel and personal care items are rationalized downward, discretionary spending in these categories may pick up.

 Home improvement, furniture, décor

With increased spending intent, adjacent categories such as furnishings and décor may benefit as people refresh homes ahead of Diwali.

Local & rural markets / MSMEs

If the benefits percolate into smaller towns and rural areas, local trades (textiles, handicrafts, basic electronics) could see a disproportionate uplift. MSMEs often have higher cost burdens, so any tax relief helps them compete. 

Insurance & financial products

With life and health insurance exempted from GST, uptake may rise slightly (though insurance is less immediately linked to Diwali gift buying).

Sectors with limited or mixed gains

Essentials & groceries — Many of these were already on low slabs or exemptions; the incremental benefit may be small.

Luxury goods & sin goods — A 40% slab is introduced for certain luxury/sin items, which may dampen demand at the top end. 

Gold & precious metals — Jewelry often has its own taxation regimes and may not benefit equally from GST changes.

Highly regulated sectors — Tobacco, alcohol, petroleum (which are often outside GST) may not see significant impact.

In sum, the strongest boost is likely in discretionary, mid-to-high value consumer goods — just the categories that drive festival excitement.

 

Conditions & Risks: What Could Temper the Boom?

A stride toward record Diwali shopping isn’t guaranteed. Several risks and caveats could limit the upside.

1. Pass-through failure (brands absorbing cuts)

Historically, many tax cuts were absorbed by brands, distributors or retailers, rather than passed fully to consumers. In prior GST rate changes, surveys showed only around 20% of consumers actually benefited.

Even under GST 2.0:

Some brands may keep MRPs elevated or adjust margins to retain revenue.
Discounts may be “masked” — e.g. charging a high base price but offering a “discount” rather than reflecting net lower tax price on label. 
In less competitive or remote markets, competitive pressure is lower, so pass-through might be weak.

Hence, consumer vigilance (checking final pricing and tax break) is key. 

2. Logistical, compliance, and implementation challenges

Retailers and SMEs have to update billing systems, re-label inventory, align with state notifications, and adjust their operations. Some may struggle, especially in tier-3/4 areas. 

Coordination between central GST and state GST (SGST) may have teething issues. Some states might lag in issuing matching notifications.

Given the short lead time between reforms and Diwali, some retailers may still sell old stock or delay price changes, leading to confusion.

3. Credit constraints, inflation, and consumer caution

If credit (loans, EMIs) is not easily available, discretionary spending may get capped.

Though inflation is low now, any sudden external shock (fuel price rise, commodity markets) can raise costs and dampen sentiment.

Some consumers may choose to be cautious rather than rushing, especially after macro uncertainty (global trade wars, interest rate changes) — saving rather than spending.

4. Revenue trade-off and fiscal constraints

The government is expected to incur a revenue loss. Some estimates place it at ₹40,000–₹50,000 crore (or higher).

This fiscal burden may limit future stimuli, infrastructure, or state budgets, constraining long-term growth if not managed carefully.

5. Sustainability & post-festival slump

A surge in consumption during Diwali may be concentrated, not sustained. The real test is whether demand holds in the quarters after the festival.

If consumers pulled forward purchases to Diwali, subsequent quarters may see slower growth or demand exhaustion.

Retailers and brands sustaining discounts or absorbing margins to maintain momentum may face margin erosion.

 

What Economists & Experts Are Saying

Here are some notable views and insights:

Economists quoted in New Kerala call the upcoming Diwali “historic,” pointing to lower inflation, higher disposable incomes, and increased purchasing power. 

The Economic Times notes that cuts to GST slabs have been implemented just in time to allow discounts to reflect in Diwali pricing.

SME Futures frames the reforms as a “festive boom” for SMEs and consumers alike. 

Inc42 observes that GST 2.0 may act as a structural catalyst for shifting India’s consumption curve, not just a seasonal blip. 

Some economists raise caution: that brands may not fully pass on savings, or that the fiscal pressure may limit sustained growth.

Analysts also mention that GST 2.0 cushions India from external shocks (e.g. tariffs) by stimulating domestic demand. 

In summary, the consensus is optimistic but tempered by execution risk.

 

What This Means for Stakeholders & Strategies

This GST 2.0 + Diwali combination doesn’t just affect consumers — everyone in the ecosystem (retailers, brands, platforms, government) needs to position correctly.

Conclusion: A Festive Season Like Never Before?

In the run-up to Diwali 2025, India finds itself at a fascinating policy-infused inflection point. With GST 2.0 reforms, the government has essentially placed a macro lever under festive demand. If execution is smooth and market actors pass through benefits, this could very well be the year India sees record-breaking Diwali shopping — across metros, towns, and rural markets.

Yet the upside is not risk-free. Challenges of implementation, the discipline of brands and retailers in price pass-through, credit constraints, and post-festival sustainment will all test the durability of the boom.

For now, the promise is palpable: a festival season sparked not just by lights and emotions, but by smart policy, stronger demand, and economic energy. If the forecasts come true, this Diwali may go down in history not just as a cultural celebration, but as a turning point in India’s consumption story.

Frequently Asked Questions (FAQs)

Q1. What is GST 2.0 and how is it different from the old GST system?
GST 2.0 is the upgraded version of India’s Goods and Services Tax system that simplifies slabs to 5% and 18%, removes GST from life and health insurance, and reduces rates on several consumer goods. It also introduces faster refunds and easier compliance for small businesses.

 

Q2. How will GST 2.0 reforms affect Diwali shopping in 2025?
With lower GST rates, prices of consumer goods like electronics, apparel, and vehicles have dropped. This boosts purchasing power and festive spending, leading to record sales during Diwali 2025.

 

Q3. Which sectors are expected to benefit most from GST 2.0 during Diwali?
Sectors like consumer durables, automobiles, fashion, home décor, and small retail are expected to gain the most due to reduced tax rates and higher customer demand.

 

Q4. Will GST 2.0 really lower product prices for consumers?
Yes, but it depends on how effectively brands and retailers pass on tax benefits. Government monitoring and anti-profiteering laws ensure that consumers receive fair price reductions.

 

Q5. How much Diwali spending growth do experts predict under GST 2.0?
Economists estimate that festive and wedding-related spending could cross ₹8–9 lakh crore in 2025 — the highest ever — with e-commerce and retail sectors driving the boom.

 

Q6. How are small businesses and MSMEs benefiting from GST 2.0?
Simplified tax compliance, quicker refunds, and lower slabs make it easier for SMEs to participate in festive trade, improving cash flow and competitiveness.

 

Q7. What challenges could affect the success of GST 2.0 reforms?
Delayed price pass-through, uneven implementation among states, logistical challenges for small traders, and fiscal pressures on government revenue could moderate the full impact.

 

Q8. What does GST 2.0 mean for consumers after Diwali?
The long-term benefit lies in sustained affordability, improved supply chains, and a stronger formal economy that supports growth well beyond the festive season.

GST 2.0 Reforms and Diwali Shopping 2025