Festive ad spends set to surge as GST 2.0 promises consumption boost

New Delhi: The announcement by Prime Minister Narendra Modi regarding GST 2.0 from the ramparts of the Red Fort on Friday is turning out to be a game-changer for the advertising industry, experts say. 

With the promise of lower GST rates by Diwali, the festive season is poised to witness a significant uptick in consumer spending, driving advertisers to ramp up their budgets to capture the surging demand.

Modi declared that GST rates will be lowered, bringing down prices of everyday use items. 

This reform aims to simplify the eight-year-old tax regime, into a more streamlined structure with two main slabs, standard and merit, replacing the current four-tier system of 5%, 12%, 18%, and 28%. 

Luxury and sin goods will continue to attract a levy on top of the highest rate.

"The Prime Minister's vision for GST 2.0 is a timely and strategic move to build a resilient Indian economy. These are not merely procedural changes; they are essential structural reforms designed to mitigate the risks arising from global trade tensions. By addressing the inverted duty structure, we are unlocking crucial working capital and making our exports more competitive on the global stage," said Saurabh Agarwal, Tax Partner, EY India. 

Simultaneously, rationalising rates will boost domestic consumption, creating a powerful buffer against external shocks, Agarwal added.

The anticipation of lower prices on items of daily consumption, particularly those currently taxed at 12%, is expected to be shifted to the 5% slab. 

"With the announcement by the Prime Minister, it seems the rate fitment work is complete and one could expect the rate rejig of items of daily consumption falling in 12 per cent to 5 per cent, which could help not only reduce end-product prices but also boost consumption and demand, especially for MSMEs," said Krishan Arora, Partner-Tax Planning & Optimisation, Grant Thornton Bharat.

This shift is likely to have a domino effect on the advertising sector. As consumers gear up for a more affordable Diwali, brands are expected to leverage the festive season to maximise their reach. 

The prospect of increased disposable income and heightened consumer sentiment is already prompting advertisers to revise their strategies.

Vivek Jalan, Partner, Tax Connect Advisory Services LLP, noted, "It is expected that this Diwali, items of mass consumption by the common man will be brought into the lower slab of 5 per cent GST. For example, small sachets of Rs 10 or less supplied by FMCG players may be considered to be brought under the lower tax bracket of 5 per cent." 

A lower GST rate, Jalan added, will augur well for the overall economy, including the advertising industry, which thrives on consumer spending.

The Confederation of Indian Industry (CII) Director General Chandrajit Banerjee echoed this sentiment, stating, "The Prime Minister’s Independence Day address reflects a deep commitment to empowering India's youth, strengthening MSMEs, and accelerating the Atmanirbhar Bharat mission. MSMEs, as the backbone of India’s economy, stand to gain significantly from these measures. Increased access to talent, targeted incentives, and a stronger domestic manufacturing ecosystem will enable them to scale, innovate, and integrate more deeply into global value chains."

Harsh Shah, Partner, Economic Laws Practice, pointed out the timing of these reforms. "The long-awaited GST 2.0 now seems even closer. The Prime Minister, in his speech on the 79th Independence Day, has promised a bonanza for aam aadmi in Diwali. There is a possibility of two GST Council meetings in September in this regard. The possible reforms could include doing away with the 12 per cent slab, rate rationalisation for health and life insurance, some of the essential items, and clarity in the provisions regarding blocked credits."

With GST collections in FY 2025-26 likely to exceed 22 lakh crore, the financial cushion provides the government with the flexibility to implement these reforms without compromising revenue. 

This economic boost, especially in the context of recent geopolitical tensions, is seen as a critical step to stimulate demand.

Brands across sectors, from FMCG to electronics, are expected to increase their ad spends to capitalise on the heightened consumer interest.