GST 2.0 to cushion economy from US tariff headwinds: India Inc

Annual revenue loss pegged at Rs 48,000 crore

New Delhi: The GST rates rejig and reforms will bring down inflation and cushion the Indian economy from the US tariff blow by boosting domestic consumption, analysts said.

With the rate cut effective from September 22, the majority of consumer goods will become cheaper. As per analysts, lower taxes on consumer goods may ease retail inflation by upto 100 basis points.

"The GST rationalisation goes a long way in supporting the consumer demand and cushioning the downside risk to growth emanating from the tariff related uncertainties," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

She added the income tax cuts, announced in the February budget and GST rate cuts, if fully passed through could potentially provide a stimulus of 0.6% of GDP on a pro rata basis in FY26 itself. "Furthermore, the full pass through of the GST cut could create a disinflationary impact of at least 100 bps," she said.

The Consumer Price Index (CPI) based retail inflation declined to an eight-year low of 1.55% in July. The GST reforms are likely to keep the inflation under check on a sustainable basis.

According to SBI Research, the GST rate rationalisation may lead to 65-75 basis points moderation in the retail inflation in the year 2026-27.

"The simplification of the tax structure will offer multiple benefits. It will reduce classification disputes, improve compliance and address anomalies on account of inverted duty structure," said Harsha Vardhan Agarwal, President, FICCI.

“This reform is anticipated to stimulate domestic demand for goods and services, contribute to the reduction of core inflation, and foster economic growth through increased disposable income and improved compliances,” said Ashok Chandra, Managing Director, Punjab National Bank.

Under GST 2.0 rationalisation unveiled on Wednesday, out of the 453 goods where the GST rate has changed, 413 goods exhibited a decrease in rates while only 40 goods exhibited an increase. Almost 295 goods now have a new GST rate of 5% or nil from earlier 12%.

Some analysts expect that the rate cut may strain government finances by widening the fiscal deficit by around 40 basis points, if there is no reduction in the capital expenditure (Capex).

The government estimates the net fiscal impact of this rationalisation at Rs 48,000 crore on an annualised basis.

However, SBI Research said in a note that the consumption boost may offset the revenue loss. “We expect almost minimal Rs 3,700 crore revenue loss in GST, which has no impact on fiscal deficit,” SBI Research said.

Meanwhile, Commerce and Industry Minister Piyush Goyal urged businesses to pass on the rate cut benefits to the consumers.

The Institute of Chartered Accountants of India (ICAI) President Charanjot Singh Nanda said the successful rollout of the GST reform measures would depend on timely preparedness of Goods and Services Tax Network (GSTN) systems.

“Anti-profiteering will assume significance in making certain that the benefits of rate reductions are ultimately passed on to end consumers,” Nanda said.

Venkatram Mamillapalle, Managing Director, Renault India, said the rationalised GST will ease household expenses, fuel consumption, and create a multiplier effect on long-term economic growth.

“With reduced taxes on tractors, agri-inputs and farm equipment, the GST reform will boost rural demand, strengthen agri-linked enterprises, and create new growth avenues in semi-urban and rural India," Mamillapalle said.

“The GST rationalisation is a progressive step towards making products and services more affordable for consumers, easing operational complexity of doing business, lowering inflation and driving consumption growth across the retail sector," said Mukesh Ambani, Chairman and Managing Director of Reliance Industries Limited.

"This will serve as a big booster to India’s economic growth. With GDP growth rate having reached 7.8% in the first quarter of this financial year, the new reforms have the potential to accelerate the economy even further, raising the growth rate closer to double digits," Ambani added.