GST cuts may boost GDP, lower inflation: Report
GST reforms: Rate cuts may lift GDP, ease inflation, says Standard Chartered
India’s recent Goods and Services Tax (GST) reforms could turn into a significant boost for the economy, with potential benefits ranging from higher GDP growth to easing inflationary pressures, according to a fresh report by Standard Chartered Global Research.
The study, titled “India – A timely GST cut”, projects that GDP growth could gain by 0.1–0.16 percentage points over the next year, while consumer price inflation (CPI) may ease by 40–60 basis points. The move comes at a time when households are battling rising costs and businesses are navigating global tariff headwinds, making the decision particularly well-timed.
Limited revenue loss, but fiscal deficit risks remainStandard Chartered analysts noted that while the reduction in GST rates will naturally lead to some revenue loss, the scale is expected to be limited. The report highlights that the cut could put pressure of about 0.15–0.20% of GDP on the combined fiscal deficit. However, this pressure may be manageable, especially if stronger consumption during the festive season helps offset some of the losses.
“Although fiscal worries cannot be dismissed, the cut should not be seen as a trigger for major slippage in public finances this early in the financial year,” the report said.
Experts believe that the government’s decision to reduce tax rates just ahead of the festive period is strategic. With lower GST rates, demand could receive a direct boost, providing much-needed support to economic momentum.
“This is a quick, well-timed decision. The GST revamp is likely to help both businesses and consumers, and may cushion the economy against external trade pressures,” Standard Chartered’s economists wrote.
From a macroeconomic perspective, the report suggests that lower GST will soften inflationary pressure across essential items and services. This could not only ease household budgets but also improve consumer confidence, feeding into higher spending and investment.
On growth, while the impact is expected to play out over the next four quarters, the immediate effect on FY26 GDP may be smaller. Since the tax cut has been implemented mid-year, Standard Chartered estimates that only about half the benefit will show up in FY26 numbers, with the rest flowing into FY27.
The bank has therefore chosen to keep its FY26 GDP growth forecast unchanged at 6.9%, pointing to uncertainties such as the ongoing 50% tariff on exports to the US, which could dilute some of the gains.
OutlookOverall, Standard Chartered’s assessment remains cautiously optimistic. While the GST rate cuts may add to fiscal challenges, the trade-off could be worthwhile if they help stimulate demand, ease inflation, and build growth momentum during a period of global economic volatility.
For India, the reforms are more than just a tax adjustment — they signal a willingness to recalibrate policy quickly in response to both domestic needs and global pressures. As the festive season approaches, the true impact will be visible in how consumers and businesses respond to this timely relief.