By Anushka Verma
Updated: October 30, 2025
Introduction
India’s corporate sector is witnessing a temporary slowdown in sales growth during the July–September quarter (Q2 FY2025–26) following the rollout of GST 2.0, even as companies express confidence in a sharp rebound in the months ahead.
While the Goods and Services Tax 2.0 reform — introduced on September 22, 2025 — aims to rationalize rates, enhance compliance, and push consumption, its transition phase has momentarily disrupted the supply and sales momentum across multiple sectors, particularly FMCG, consumer durables, and automobiles.
Leading firms such as Hindustan Unilever Limited (HUL) have already flagged “near-flat to low single-digit” growth for Q2, citing subdued offtake during the transition. Yet, industry experts believe this short-term disruption will pave the way for a stronger, more resilient consumption cycle in the quarters ahead — driven by increased disposable income, improved tax efficiency, and renewed consumer confidence.
Table: GST 2.0 – Sector-wise Impact Overview (Q2 FY2025–26)
| Sector | Q2 Performance (Est.) | Short-Term Impact | Long-Term Outlook (Q3 & Beyond) | Key Drivers |
|---|---|---|---|---|
| FMCG (HUL, ITC, Dabur) | Flat to 2% growth | Inventory adjustment, lower rural demand | 6–8% growth expected | GST rate cut, festive demand |
| Consumer Durables | 3–5% decline | Price correction, distribution lag | 10–12% recovery | GST rationalization, EMI affordability |
| Automobiles | 2–3% dip | Transition delay, dealer destocking | 8–10% rebound | Entry-level segment revival |
| Retail & E-commerce | Stable | Temporary logistics lag | Strong festive uptick | GST efficiency, digital billing |
| Real Estate & Housing | Marginal impact | Input tax credit recalibration | Gradual growth | Improved compliance, rate clarity |
| Textiles & Apparel | Flat | Channel restocking | 5–7% growth expected | Export push, GST simplification |
What Triggered the Slowdown
The implementation of GST 2.0 — a major overhaul aimed at simplifying India’s indirect tax structure — caused a temporary dip in Q2 sales due to supply chain adjustments and compliance recalibrations.
According to industry reports, many distributors and retailers held back new purchases in August and September, anticipating lower effective tax rates post-rollout. This “wait-and-watch” sentiment caused a visible slowdown in offtake, particularly in the rural FMCG segment and price-sensitive durables.
Hindustan Unilever Limited (HUL), India’s largest consumer goods company, highlighted the challenge in its latest quarterly update, stating that “business growth is expected to remain near flat to low single-digit in Q2 due to transitional factors, which may extend till October.”
Similarly, consumer durable players such as Voltas, Havells, and Bajaj Electricals saw slower billing cycles, as distributors adjusted inventory ahead of the GST 2.0 regime.
Understanding GST 2.0: The Reform and Its Promise
The GST 2.0 framework, rolled out by the Ministry of Finance, is designed to:
- Simplify tax slabs into a three-tier structure (5%, 12%, and 18%)
- Enable real-time invoice matching to curb evasion
- Introduce automated input credit refunds
- Reduce compliance burden through AI-driven reconciliation tools
In addition, rate cuts on essential and mass-consumption goods — including soaps, detergents, packaged foods, and small appliances — are expected to lower consumer prices by 5–8% on average, boosting purchasing power.
Expert Take: Short Pain, Long Gain
According to Rajat Sinha, Senior Economist at ICRA, “The Q2 dip is a predictable consequence of any major tax transition. The GST 2.0 rollout has created temporary supply bottlenecks, but its structural benefits — lower compliance costs, faster refunds, and rate rationalization — will accelerate consumption from Q3 onwards.”
Anushka Mehta, Retail Sector Analyst at Kotak Institutional Equities, echoes this sentiment:
“We’re already observing improved consumer sentiment in October, especially in urban markets. With festive spending, income tax relief, and lower GST rates converging, Q3 could mark the beginning of a strong consumption cycle.”
Rural vs. Urban Consumption: The Divergent Trend
While urban markets are showing early signs of rebound — driven by premium consumption and digital retail — rural demand remains relatively muted.
Rural consumers, still recovering from inflationary pressures, are expected to respond with a lag to lower prices and tax benefits.
FMCG companies are banking on the combined effect of lower GST rates and steady monsoon patterns to drive rural revival by December 2025.
HUL, Godrej Consumer Products, and Marico are ramping up distribution and marketing in Tier-2 and Tier-3 towns to capture this rebound early.
Corporate Commentary: From Transition to Transformation
Executives across industries believe the current slowdown is merely a transitionary phase before the structural benefits of GST 2.0 take hold.
Sanjiv Mehta, CEO of Hindustan Unilever, in a recent media briefing, stated:
“The GST 2.0 transition has been smooth in terms of system readiness, but the channel-level adjustments are taking slightly longer. Once the inventory cycle normalizes, we expect growth momentum to pick up sharply.”
Similarly, Sunil D’Souza, MD & CEO of Tata Consumer Products, added:
“The tax rationalization helps the entire FMCG ecosystem. It will create space for price stability, category premiumization, and increased rural penetration.”
Consumption Drivers: Why Demand Will Strengthen in Q3–Q4
Several macroeconomic and fiscal factors are aligning to support the rebound in consumption:
- Income Tax Relief: Budget 2025 introduced lower personal income tax rates, leaving more disposable income in consumers’ hands.
- Festive Season Effect: October–December typically accounts for 35–40% of annual FMCG sales, boosted by Diwali, Navratri, and wedding season demand.
- Rate Rationalization: The GST Council’s decision to lower rates on 60+ everyday products is expected to reduce end-prices and attract new consumers.
- Digital Compliance: AI-enabled GST filing systems have minimized compliance delays, improving cash flow for SMEs and retailers.
- Monetary Stability: Cooling inflation and stable crude oil prices are improving purchasing power across both urban and rural India.
Stock Market Reaction: Investors Turn Optimistic
Despite muted Q2 guidance, equity markets have responded positively to GST 2.0’s long-term prospects.
The Nifty FMCG Index rose 2.8% in October, reflecting investor optimism about a consumption-led revival.
Analysts from Motilal Oswal and ICICI Securities maintain a “Buy” rating on key FMCG stocks, citing structural tax benefits, margin expansion potential, and improved volume growth outlook.
Challenges in Transition
While optimism prevails, companies are navigating several short-term challenges:
- Invoice mismatches due to new return filing systems.
- Delayed input tax credits for SMEs adjusting to the new IT framework.
- Dealer-level confusion about rate applicability in overlapping stock.
- Higher logistics costs in the initial weeks due to system synchronization delays.
However, the government has already issued clarificatory circulars to ease compliance hurdles, with GSTN 2.0 portal witnessing over 9 million return filings in the first month — a 22% improvement over GST 1.0 averages.
Government’s Response: A Calibrated Approach
Finance Minister Nirmala Sitharaman emphasized that the government is closely monitoring the implementation progress:
“We expect a short-term moderation in sales, but the structural impact of GST 2.0 will be transformative. The reduced rates will spur demand, simplify trade, and ensure faster revenue buoyancy.”
The GST Council has also announced a quarterly review mechanism to address industry-specific issues and ensure a smoother transition for MSMEs.
Price Effect: Consumers Begin to Feel the Relief
Early retail surveys suggest that prices of daily essentials such as soaps, packaged snacks, and detergents have already dropped by 3–6% across leading supermarket chains.
Durables such as air conditioners, fans, and mixer grinders are witnessing price corrections of ₹400–₹1,200, depending on product category and brand positioning.
This gradual price normalization is expected to expand household spending capacity, further amplifying the consumption multiplier effect by the December quarter.
Outlook: From Reform to Revival
Industry leaders remain united in their forecast: the dip in Q2 sales is transitory, while the demand revival will be broad-based and sustainable.
With tax simplification, price stability, and digital ease, GST 2.0 is seen as India’s next consumption accelerator — one that will deepen market formalization and strengthen revenue buoyancy for the government.
As Anushka Verma writes:
“Every reform has a transition cost. But the success of GST 2.0 will not be measured by short-term sales numbers — it will be defined by how quickly it can convert efficiency into prosperity for India’s 1.4 billion consumers.”
Conclusion
The second quarter of FY2025–26 may end with subdued figures, but the underlying fundamentals remain strong.
The combined power of GST 2.0’s rate cuts, income tax relief, and stabilizing inflation signals that India’s consumption engine is set to roar again.
By December 2025, companies expect double-digit growth, improved rural participation, and stronger brand premiumization — marking the beginning of a new demand cycle for India’s fast-growing economy.
