GST Reforms Seen Cushioning Impact of US Tariffs on Indian Economy

Picture Credit: indbiz.gov.in

The upcoming Goods and Services Tax (GST) reforms, aimed at cutting rates and boosting private consumption, could help offset the impact of additional US tariffs on India, according to a note by BMI, a Fitch Solutions company. Despite external challenges, India is projected to remain one of Asia’s fastest-growing emerging market economies through this decade.

BMI forecasts India’s GDP to remain above 6 per cent, even as higher tariffs weigh on certain industries. It expects growth to gradually moderate to just above 6.0 per cent by the decade’s end, slightly below the pre-pandemic average of 6.5 per cent from 2010 to 2019, but still strong enough to keep India among the region’s top performers. Productivity growth, projected at around 5 per cent annually over the next ten years, is expected to provide significant support to long-term expansion.

However, BMI highlighted that tariff hikes could temporarily dampen growth. A 25-percentage point reciprocal tariff increase is estimated to slow GDP by 0.2 per cent in 2025/26 and 2026/27. As a result, growth forecasts have been revised down to 5.8 per cent and 5.4 per cent, respectively, for those years.

Picture Credit: india-briefing.com

On the domestic policy front, GST reforms are viewed as a key buffer. The proposed rationalization into a two-slab structure is expected to stimulate consumption and improve profitability across sectors such as automobiles, cement, financial services, and consumer goods. An SBI Research report suggests that combined with recent income tax cuts, GST reforms could lift consumption by ₹5.31 lakh crore, equivalent to 1.6 per cent of GDP.

Meanwhile, Fitch Ratings has affirmed India’s sovereign rating at ‘BBB’ with a stable outlook, noting that US tariffs are likely to have only a limited impact on the broader growth trajectory.