Tax Reform and Household Welfare: The Impact of GST 2.0 on India's FMCG Sector | RISE Research

This paper evaluates how India's GST 2.0 reform, implemented in September 2025, has affected consumer welfare, consumption patterns and tax pass-through in the Fast-Moving Consumer Goods (FMCG) sector. GST 2.0 rationalised the earlier multi-slab indirect tax structure into three primary rates: 5% for essentials, 18% for standard goods and 40% for luxury and 'sin' goods. Because FMCG is high-volume, low-margin and central to household spending, the study argues that any change to its indirect taxation has direct consequences for prices, affordability and the distribution of expenditure across households. Using secondary data, policy documents and a hypothetical consumption-basket analysis, the paper assesses both the benefits and the limits of the reform. Its central finding is that GST 2.0 improves affordability and equity for necessity-heavy baskets while raising the burden on baskets containing luxury and sin goods, so the welfare effect depends primarily on what a household actually buys rather than on income level alone. Crucially, the paper highlights that incomplete tax pass-through and implementation frictions prevent the full consumer-welfare benefit from reaching all households, even where headline rates have fallen. It situates this within the broader literature on the FMCG sector and the transition from GST 1.0, drawing on prior studies of effective tax rates, purchasing power and supply-chain restructuring. The focus is empirical and policy-oriented: it addresses a genuine gap created by the reform's recency, examining price changes, price elasticity and distributional outcomes, and closes with policy prescriptions aimed at improving pass-through and consumer awareness in India's largest consumption-driven industry.