Changes in GST 2.0 Architecture → Food & Agri Lens
Authored by: Dhruv Saxena, Senior Consultant, Agri-Food & Nutrition Growth Advisory, Frost & Sullivan
India will be moving to a 2-slab GST—5% and 18%—with nil on a subset of essentials. New rates will take effect September 22, 2025 with several common food items shifting down (e.g., select dairy and bakery staples), while sin/luxury items remaining outside the relief. The intent is to spur consumption, simplify compliance, and cool inflation. Early estimates point to ~25 bps reduction in CPI and a temporary revenue hit of ~₹48,000 crore to the exchequer as lower rates are absorbed and demand ramps up.
Quick Recap → What has Changed
Change: Shift Down | GST Bracket: From 5% → NIL
Products: UHT milk; pre-packaged & labelled Chhena/Paneer; Indian breads (chapati/roti, paratha, parotta, etc.
Change: Shift Down | GST Bracket: From 12%/18% → 5%
Product: Packaged namkeens/bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee and other everyday FMCG foods—designed to spur consumption
Change: Remains same | GST Bracket: 40%
Product: Sin”/luxury buckets (e.g., tobacco and allied products; some high-end items) do not receive rate relief. Luxury segment sees a separate 40% band retained/introduced for a narrow set of goods
Changes in Architecture Expected to Spur Consumption
GST 2.0 compresses slabs to 5% and 18%, with a nil list for key essentials; many packaged foods move down to 5% (e.g., namkeens/bhujiya, sauces, pasta, instant noodles, chocolates, coffee, cereals/flake items, butter/ghee), and some dairy/bakery items (e.g., UHT milk; pre-pack chhena/paneer; Indian breads) are listed nil. This lowers shelf prices as stocks rotate, improving affordability across urban and rural baskets.
Economists and market trackers estimate ~20–30 bps downside to headline CPI from pass-through of rate cuts; Business Standard pegs the effect near 25 bps, while Reuters highlights a larger “up to 1.1 ppt” range cited by some analysts. Lower inflation supports real disposable income and typically lifts food category throughput.
Because many pre-packaged foods are now cheaper (5% or nil), the prior tax-driven price gap vs loose/un-labelled will get narrow driving a gradual shift to packaged products in staples, dairy and bakery.
Impact on Consumer Brands, Food Manufacturers and Processors
With many common foods moving down in rate (some to nil), households should see lower effective MRPs once stocks rotate. It is estimated that the rate rejig could support greater consumption ahead of the festive season leading to a demand impulse as sentiment strengthens. The move is expected to have a major impact on Food Manufacturers and Processors as they would have to navigate through quick decisions to maximize benefits
Dairy basket → UHT milk/paneer relief supports pan-India availability and affordability and increased uptake; Juices and Processed Food segment with a cut to 5% can unlock greater demand in value tier packs, and single serves in rural and semi urban markets. In case of bakery/bread segments, Nil rate on chapatti / pao / parotta etc. would help QSR segment and street food sales
The 2022 “pre-packaged & labelled” regime remains—but lower rates on packaged SKUs reduce the price gap versus loose and will pull consumers toward formal, packaged formats especially in cereals / pulses / flour and dairy category.
With demand-elastic categories (snacks, noodles, sauces, value-added dairy) getting cheaper, rapid pass-through will allow brands to gain market share. An alternative strategy can be to absorb gains without passing the benefits to consumers to achieve higher margins.
Expect brands to front load promotions in categories with proven elasticity (noodles, biscuits, sauces, juices, value-added dairy) to have quick gains.
With increasing demand for price elastic products and SKUs, brands would have to rapidly alter their demand forecasting and S&OP to ensure products are supplied at the right time and in full to the retail shelves.
The move will lead to brands re-drawing their channel strategies to cement gains – an incentive push with price reduction in General Trade coupled with promotions in Modern Trade and sponsored search results in Quick Commerce can lead to brands taking early lead in price reduction led demand surge.
Expect retailer private labels to react fast on pass-through coupled with better placements on aisles to push for more sales.
GST 2.0 marks more than a rate cut; it provides a reset demand distress facing India’s food and agri value chain. With a simpler two-slab architecture, and lower rates on essentials, the policy can translate into real price relief, and stronger consumption—if manufacturers pass benefits through quickly. The winners will re-ladder prices and packs, guard margins, and capture digital and modern-trade visibility in the first 30–60 days. The mandate is clear: convert tax relief into velocity, formalize loose-to-pack demand, and build durable share gains before the market reaches a new equilibrium for the next decade.