GST reforms: Demand boost to add up to 120 bps to GDP growth, nullifying negative impacts of US tariff, say experts

The efforts to further ease the compliance burden on tax filers are positive and should aid ease of doing business. The GST rate changes, along with RBI’s rate cuts, income tax rebates announced in the FY26 budget, and easing inflation, are all levers for a consumption uptick in the economy, they note.

Garima Kapoor, economist and executive vice president at Elara Capital, opines that at first impression, the GST rate changes look favourable, especially since there is an across-the-board decline in daily use items, including services like hotel rates below ₹7,500. Moreover, extremely critical items such as cement have seen a cut from 28% to 18%, which should be a huge positive for the infrastructure sector.

"We expect the GST-related demand boost to add 100 to 120 bps to the GDP growth over the next 4-6 quarters, thereby nullifying the negative impact of higher tariffs on exports to the US. We remain constructive on the uptick in consumption demand in the economy as multiple policy levers turn favourable for the first time in a decade," Kapoor added.

Similarly, Amit Baid, Head of Tax at BTG Advaya, said that the lower rates on consumer-facing essentials and durables aim to put more money in the hands of households and spur demand at a time when consumption has been uneven. The exemption of life and health insurance is also a strong signal towards making social security more affordable.

"However, businesses will be keenly watching the implementation challenges – migration of classification, input credit balances, and transition provisions could pose practical hurdles in the short term," Baid added.