A Year On, Your GST Discount Is Quietly Vanishing Into Inflation

A year after the GST rate cuts, prices of many goods have crept back up. Vehicle sales boomed, but clothing and packaged goods tell a different story.

On **22 September 2025**, India made the biggest change to its Goods and Services Tax (GST) since the tax was launched in July 2017. The pitch to households was simple: lower tax, lower prices, more money left over at the end of the month. Finance Minister **Nirmala Sitharaman** said the reform would leave nearly **₹2 lakh crore** in people's hands to spend.

A year later, that promise is being tested. On **21 September 2026**, Congress general secretary **Jairam Ramesh** said in a post on X that the effect of the rate cuts was "being neutralised by galloping inflation". He said prices of many consumer goods had returned to nearly their pre-cut levels within a year, without any meaningful rise in consumption. His example: automobile sales benefited, but apparel sales did not.

This is a checkable claim, not a matter of opinion. It breaks into two questions. Did prices in the categories that got relief climb back to where they were? And did the cut lift sales volumes in those same categories? The answers, category by category, are more interesting than either the government's celebration or the opposition's obituary.

The GST Council, which includes the Union finance minister and state finance ministers, approved the package at its **56th meeting on 3 September 2025**. It replaced the old four-slab system of 5%, 12%, 18% and 28% with two main rates: a "merit" rate of **5%** and a standard rate of **18%**. A special **40%** rate was created for a short list of luxury and "sin" goods such as aerated drinks, high-end cars and yachts. The compensation cess, an extra levy stacked on top of GST on many goods, was removed for most items.

The government said around **375 items** became cheaper. Soaps, shampoo, toothpaste and hair oil moved from 18% or 12% down to 5%. Small cars, two-wheelers up to 350cc, three-wheelers, televisions, air conditioners and cement moved from 28% to 18%. Buses and trucks also dropped from 28% to 18%. Individual health and life insurance premiums were exempted altogether.

The cost to the exchequer was expected to be real. Revenue Secretary **Arvind Shrivastava** put the net revenue impact at about **₹48,000 crore** a year, calculated on 2023-24 consumption data. He cautioned that higher spending and better compliance could change the final figure.

Ramesh called the cuts "long overdue" but said boasting of them as "magic wands" was hyperbole. He went further than prices. He claimed consumption was not buoyant across income groups, that private investment was not booming, and that real wages were declining.

The broad-based claims on wages and investment are political arguments that need their own evidence and are not tested here. The narrower claim, that prices have crept back and that the benefit was uneven across sectors, can be tested against data. It also has support from outside the opposition. Industry executives, dealers and analysts have made versions of the same point in recent weeks.

Automobiles are the strongest evidence for the government's case. Vehicle buyers held back for months in 2025 as the rate cut was trailed. Dealer body **FADA** (Federation of Automobile Dealers Associations) says retail growth was muted at **2–5%** between April and August 2025, then accelerated sharply from September.

The full-year numbers are striking. Vehicle retail sales in **2025-26** reached a record **2,96,71,064 units**, up **13.3%**. Passenger vehicle sales crossed 47 lakh for the first time, rising 13%. Two-wheeler sales grew 13.4% to over 2.14 crore, finally regaining the peak last seen before the pandemic. On the reform's first anniversary, FADA said more than **3 crore vehicles** were sold between October 2025 and August 2026, up nearly **20%** on the year before, compared with growth of under 5% in the comparable earlier period.

Prices also tell part of the story. An entry-level Maruti Alto K10 variant that cost about **₹4.2 lakh** before the cut fell to about **₹3.7 lakh** and has stayed there. A Mahindra Scorpio-N variant fell from about **₹13.9 lakh** to **₹13.2 lakh**, but has since risen to around **₹13.6 lakh**. Carmakers raised prices again on **1 September 2026**, citing input costs.

FADA's own assessment is balanced. It says a substantial part of the affordability benefit still sits with consumers in small cars, commuter two-wheelers and commercial vehicles. But it also warns that successive cost-led price increases have narrowed that cushion, and that the headroom is "finite and thinning".

Fast-moving consumer goods, the everyday items such as biscuits, soap and packaged food, show the erosion most clearly. When GST on many of these items fell to 5%, companies initially cut prices by around **10%** on average. Since then, many have raised prices by **6–7%**, pointing to higher costs for raw materials, energy and freight, including inflation linked to the West Asia conflict.

Industry estimates suggest consumers are still about **2–3%** better off than before the cut, not back to square one. Some companies have warned of another round of increases around Diwali if costs keep rising. Analysts describe the cut as an "affordability boost" that cushioned rising costs, rather than a trigger for people to buy more of each product.

That distinction matters. A cut that stops prices rising as fast as they otherwise would is a real benefit, even if the shelf price looks similar to last year. But it is not the same as the lasting price drop consumers were promised.

Clothing is where the story gets complicated, because apparel did not simply "receive a cut". The reform changed the price threshold that decides the tax rate.

Before September 2025, garments priced up to **₹1,000** a piece paid 5% GST and anything above paid 12%. After the reform, the 5% rate applies up to **₹2,500** a piece. Clothing between ₹1,000 and ₹2,500 got a genuine cut, from 12% to 5%. But garments above ₹2,500 moved **up**, from 12% to **18%**. That hit festive and occasion wear, and much of what mid-market brands sell. The government also cut GST on man-made fibre from 18% to 5% and on man-made yarn from 12% to 5%, fixing a long-standing problem where raw materials were taxed more heavily than finished cloth.

Official inflation data shows how little of that relief is visible now. Clothing prices in **August 2026** were **3.93%** higher than in August 2025, the last full month before the cut. For clothing and footwear together, the figure was **3.56%**. On average, then, the clothing basket costs more today than it did before the reform.

The garment industry expects more increases. The Clothing Manufacturers Association of India has said apparel costs could rise **8–10%** this festive season, with shoppers facing perhaps **5–7%** higher prices as manufacturers, brands and retailers absorb part of the rise.

Sales data is more mixed than the "apparel did not benefit" line suggests. The Retailers Association of India reported apparel retail growth of **10%** year-on-year in August 2026, and a separate tracker showed fashion same-store sales rising **8.5%**, up from 4.5% in July. But these are value figures. When prices are rising 4% or more, part of any growth in spending reflects higher prices rather than more clothes sold. The fair reading is that apparel demand has held up, but has not seen anything like the step-change in volumes that vehicles did.

The difference comes down to what is being taxed, not just by how much.

A car or motorcycle is a big-ticket purchase, often financed with a loan. A 10-point tax cut on a ₹4 lakh car saves tens of thousands of rupees and lowers the monthly EMI. Buyers notice, and dealers advertise it. For many families, that saving decides whether they buy this year or wait.

A shirt or a pair of jeans is a small, frequent purchase. A seven-point GST cut on a ₹1,500 garment is around ₹100, which is easily lost if cotton, dyes, transport or wages rise in the same period. Clothing is also sold through lakhs of small shops, where tracking whether a tax cut reached the tag price is far harder than for a car with a published ex-showroom price.

The wider price environment has turned sharply in the past year. When the cut took effect, inflation was falling fast. Retail inflation fell to a record low of **0.25%** in October 2025 under the old consumer price index, and research by the State Bank of India estimated that the GST cut alone pulled that month's figure down by about **85 basis points** (0.85 percentage points).

Since then, the trend has reversed. Under the new consumer price index, with 2024 as its base year, retail inflation rose from **2.74%** in January 2026 to **4.82%** in **August 2026**, the highest reading since the new series began. Food inflation reached **5.95%**, with onion prices up **48%** and silver jewellery up over **100%** on the year.

Wholesale prices, which track what businesses pay, are rising much faster. Wholesale inflation was **9.92%** in August 2026. Manufactured goods were up **8.37%**, a series high, and fuel and power were up nearly **23%**. The commerce ministry links much of this to the West Asia war and disruption to shipping through the Strait of Hormuz, which has pushed up crude oil, gas and fertiliser costs.

Is 4.82% "galloping inflation"? It is still inside the Reserve Bank of India's tolerance band of **2–6%**, so the phrase overstates it. But the direction is clear. In August, the RBI held its policy rate at **5.25%** and projected inflation of about **5%** for 2026-27. The gap between wholesale and retail inflation also suggests that more cost pressure is still working its way towards shop shelves.

The government did try to make sure the cut reached consumers. The Central Board of Indirect Taxes and Customs ordered its field offices to track the maximum retail prices of **54 everyday items**, from butter and biscuits to cement and air conditioners. They were to report monthly until March 2026.

In October 2025, Sitharaman said the benefit had been "fully passed on" for all 54 items, and in some cases more than fully. The Department of Consumer Affairs had by then received **3,169 complaints** about prices not falling in line with the cut. Of these, 3,075 were forwarded to tax officials, and 94 had been resolved.

That monitoring answered one question well: did prices fall when the cut arrived? It was not designed to answer the question now being asked, which is whether those lower prices lasted. A price can fall fully in October and still drift back up by August through normal increases, with no rule broken. The formal monitoring window also closed in March 2026, before the recent run of cost-led price increases.

The government and its supporters have a fair counter-argument. A single sector's weak response does not make an entire tax reform a failure.

GST collections are growing. Gross collections in **August 2026** were **₹1,99,853 crore**, up **14.8%** on a year earlier. April 2026 set a monthly record of about **₹2.43 lakh crore**. The feared revenue hole has not appeared. Supporters argue that lower rates widened the tax base and improved compliance.

They also point out that the counterfactual matters. Without the cut, prices of many goods would likely be higher still, given the fuel and commodity shock of 2026. On this view, a tax cut that absorbed a cost shock is doing its job, even if shoppers cannot see it on the price tag.

The reform also did more than change rates. It simplified registration and returns, sped up refunds and removed several distortions. Those gains do not show up in a price comparison, but they matter for businesses.

But the government's own framing invites the scrutiny. It sold the reform as putting money in household pockets, and in many categories that money is now being eaten away. Ramesh's point about vehicles and apparel is broadly supported by the data. His wider claim, that prices have returned to pre-cut levels "in many consumer goods", is true for some categories, such as clothing, but not for others, such as entry-level cars.

**Did GST go up on anything?** Yes. Clothing and made-up textiles priced above ₹2,500 a piece moved from 12% to 18%. Several luxury and "sin" goods moved into the new 40% slab, though for many of them the old compensation cess was removed at the same time. Some hotel stays moved to a lower rate but lost the ability to claim credit for taxes paid on inputs, which squeezed some hotels' margins.

**If prices are rising anyway, was the cut pointless?** Not necessarily. A tax cut lowers prices compared with what they would otherwise have been. If costs rise afterwards, prices can still end up higher than a year ago. The honest question is how much of the cut consumers are still getting, and that varies widely by product.

**Can the government force companies to keep prices low?** Not in a lasting way. GST law earlier had a special anti-profiteering mechanism, but the government's main tool in 2025 was monitoring and consumer complaints. Once a cut has been passed on, companies are free to raise prices later for genuine cost reasons.

**September inflation data.** The consumer price figures for September 2026, due in mid-October, will be the first full comparison with a month after the cut took effect. Watch the clothing, personal care and packaged food lines in particular.

**Festive-season pricing.** Watch whether FMCG and apparel companies announce price increases ahead of Diwali in November, as some have signalled.

**FADA's October and November reports.** These will be measured against last year's unusually strong post-cut festive sales. Flat or falling numbers would not necessarily mean demand has collapsed, but steady growth would strengthen the government's case.

**GST Council action.** Watch whether the Council revisits the ₹2,500 apparel threshold. Industry has lobbied against the 18% rate on mid-priced clothing.

**Publication of monitoring data.** Watch whether the finance ministry publishes the full results of its 54-item price monitoring, including what happened to prices after the first month.

**The RBI's October review.** The Monetary Policy Committee's October meeting will show whether the central bank sees price pressure spreading from food and fuel into goods more broadly.

The GST cut worked clearly where it made a big, visible difference to a big purchase, in cars and two-wheelers. It worked partly and temporarily in packaged goods, where much of the saving has been absorbed by rising costs. In clothing it barely registered, partly because the reform itself raised tax on pricier garments.

That makes the claim that the benefit is vanishing into inflation partly true, not wholly true. The more useful test is not the political back-and-forth but category-level data on prices and volumes across the full list of goods that got relief. Until the government publishes that data, both the "game-changer" story and the "erosion" story remain claims in progress, not conclusions.

**Note on perspective**: {{Based on GST Council decisions, official consumer and wholesale price data, GST collection figures, dealer-body sales data and public statements as of 25 September 2026. The piece tests a political claim against the available evidence and treats both the government's and the opposition's framing with equal scrutiny.}}