Proposed GST Overhaul to Counter US Tariffs, Boost Economy
India plans to overhaul the Goods and Services Tax (GST) regime. This change is expected to soften the blow of US tariffs. This information comes from a Moneycontrol poll. The poll revealed that nearly 67% of economists surveyed believe the GST cuts would help offset some of the impact. These cuts are expected to mitigate at least some of the higher duties imposed by Washington.
Key GST Reforms
The government plans to simplify the tax structure. It aims to reduce the number of GST rate slabs to two: 5% and 18%. Most essential items would fall under the 5% bracket. Luxury and sin goods like tobacco would attract a higher levy. This levy would be around 40%. The 12% and 28% tax slabs would be scrapped. Ninety percent of items currently taxed at 28% would move to the 18% slab.
Economic Impact
The GST overhaul is expected to boost consumption-led growth, with economists estimating a modest impact on GDP growth. The measure could trim headline inflation by 50-60 basis points over the year. Arun Singh, global chief economist at Dun & Bradstreet, said, “GST cuts can provide a short-term boost to domestic demand. This boost helps India partially offset the negative impact of US tariffs on exports.”
Growth Projections
India’s median growth for FY26 is pegged at 6.3%, with Q1FY26 growth likely to come in at 6.6%. Official GDP data for the April-June quarter will be released on August 29.
Broader Reforms Needed
For sustained momentum, experts say the government must pursue broader reforms. These include ease of doing business, administrative reforms, land reforms, and labor reforms. A task force for “next-generation reforms” was announced by Prime Minister Narendra Modi on Independence Day
