“This is probably the single largest reform since the start of GST. I see this as a very significant tailwind that should help drive growth in the coming quarters and years,” Bajaj told ET Now in an exclusive interaction. He added that the reform would benefit not only consumers but also businesses in housing, construction, insurance, infrastructure, and financial services.
Revival of consumer demand
Over the last year, urban consumer demand had shown signs of fatigue, with spending on big-ticket items slowing down. Bajaj noted that the slowdown was partly due to external uncertainty, particularly around global trade tensions, and also due to tighter rules on unsecured lending. “In the last quarter, we started seeing some improvement. Now, with this GST cut, confidence and disposable income will get a big boost,” he said.
With the festive season approaching, Bajaj expects demand for consumer durables—such as mobile phones, air conditioners, televisions, and washing machines—to rebound strongly. He also foresees an uptick in two-wheeler sales, which have been sluggish for several months, as well as in entry-level cars. “The timing of this reform is ideal. It will help trigger not just festive buying but also set the stage for sustained demand in the months ahead,” he explained.
Big implications for insurance
One of the most impactful changes has been the GST exemption for health and term insurance products. Bajaj believes this could significantly expand insurance coverage in India. “There will be a direct price reduction, making health and life insurance more affordable. This puts money back into the consumer’s hands and should help expand insurance penetration,” he said.
He also urged hospitals to pass on the benefits of GST cuts on inputs to patients, ensuring the ecosystem as a whole contributes to affordability. Bajaj added that insurance companies now have a responsibility to pass on tax savings to customers through pricing adjustments. “It is not just about maximizing profit per policy. India is a huge market. The more we expand, the more financially inclusive we become,” he stressed.The Bajaj Finserv chief also noted that cheaper premiums could encourage insurers to design new products for the middle- and lower-income segments, spurring innovation in the sector.
Support for MSMEs and housing
Bajaj pointed out that MSMEs, many of whom operate with tight cash flows, would benefit from lower GST on key inputs, boosting their confidence and profitability. With rising sales during the festive period, he expects many MSMEs to approach capacity limits and eventually step up investments. “This could finally trigger the next investment cycle, which has been waiting for the right demand trigger,” he said.
The GST cut also has implications for housing and infrastructure. With reduced costs in construction materials, Bajaj expects an uptick in demand for housing finance and MSME loans, which will benefit lenders such as Bajaj Finance and Bajaj Housing Finance.
Lending risks under control
Bajaj acknowledged concerns over defaults in the MSME lending space but emphasized that Bajaj Finance’s default rates remain well below the industry average. “We flagged this risk earlier, but our defaults are still about half the industry levels. With GST putting more money in the hands of SMEs and MSMEs, logically, defaults should reduce. But we need to wait for a few quarters to see the full impact,” he said.
He added that unsecured lending, which was a major concern for the Reserve Bank of India (RBI) over the last two years, is now back to pre-Covid levels after regulatory tightening.
Move to strengthen financial ecosystem
Beyond immediate consumption gains, Bajaj sees the reform as a step towards expanding India’s formal financial system. By streamlining registration and reducing inverted duty structures, more businesses and individuals are expected to join the GST network, improving compliance and broadening the tax base.
“This reform provides more horsepower not just for the short term but directionally for the years ahead. It is not just about rate cuts but about strengthening the financial ecosystem,” Bajaj said.
For Sanjiv Bajaj, the GST rate cut is more than a fiscal tweak—it is a structural reform that boosts consumer confidence, expands insurance coverage, supports MSMEs, and sets the stage for the next investment cycle in India.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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