GST rate cut to boost consumption, provide a cushion against tariff impact, says Finmin report
Despite trade and tariff-related headwinds, India’s external sector has remained resilient
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sreeyashlohiya
GST rate cut is likely to offset tariff impact besides leading to reduction in retail inflation, a Finance Ministry report said on Friday. It also called for close monitoring of impact of $100 thousand H1B visa fee.
Taking note of strengthening domestic growth drivers, the report said that a rationalisation of the GST regime is “expected to lower the tax burden on consumers, boost consumption, and provide a cushion against tariff impacts”. Additionally, it is likely to improve demand visibility for firms, enabling them to expand investment in additional capacities.
Inflation outlook remains stable
Further, there could be an impact on inflation. “Inflation is expected to remain well under control, with replenished reservoirs auguring well for the winter crop. Additionally, the revision in GST rates may lead to a one-time reduction in inflation over the next year,” the report prepared by Economic Affairs Department said. Retail inflation based on Consumer Price Index (CPI) was 2.07 per cent in August, much lower than median rate of 4 per cent of targeted inflation range.
Despite trade and tariff-related headwinds, India’s external sector has remained resilient. Strong service exports and remittances have offset the merchandise trade deficit, while gross FDI inflows continue to rise, underscoring India’s appeal as an investment destination. Labour market momentum is expected to stay positive. However, “the recent US imposition of a one-time fee of $100,000 for all future H-1B visas cause disruptions, the impact of which—particularly on the growths of future remittances and service trade surpluses—will need close monitoring if the restrictions persist,” the report said.
Tariff impact
Highlighting sovereign rating revision by three agencies (S&P Global, Rating and Investment Information, Morningstar DBRS), the report credited combination of strong growth, macroeconomic stability, and credible commitment to fiscal discipline over the previous few years for rating improvement. It also took note of the OECD raising India’s GDP growth forecast for FY 26 by 40 basis points, to 6.7 per cent from the earlier 6.3 per cent citing strong domestic demand and the impact of robust GST reform.
However, it cautioned that about not dropping our guard. “If tariff uncertainties persist, there will be an impact on export sectors with spill over risk to domestic employment, income and consumption. Newer markets will take time to mature and contribute to export growth as established markets have.” it said. Furthermore it also said that the decision by the U.S. government to impose a fee on new H1B visa-seekers is a reminder of the risks of trade uncertainties affecting the hitherto unaffected services sector.
For now, the risks appear manageable. “Taking advantage of the strong monsoon and even excess rains, India must invest in water storage, deepening, desilting and rejuvenating water bodies. Growth in agriculture can be taken up by a few notches if productivity improvements and farmer empowerment go hand in hand,” it advised.
It also suggested that speed of decision-making and attention to detail in execution are more critical than ever at all levels of the government – Union, States and local. “Commitment to and delivering on fiscal targets is critical to make available the stimulus of lower cost of capital to all segments of the society,” the report said.
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Published on September 26, 2025
