GST reforms may offset tariff impact, India remains fastest-growing economy: Fitch Solutions' BMI

New Delhi, Aug 28 The upcoming Goods and Services Tax (GST) reforms, which aim to cut rates and boost private consumption, could offset the US tariff impact, BMI, a Fitch Solutions company, said on Thursday, adding that India is likely to remain one of the fastest-growing emerging market economies in Asia through this decade.

India's GDP is projected to hold above 6 per cent, even as additional US tariffs hit certain industries, according to the note by BMI.

"We forecast India's economic growth to steadily slow to just above 6.0 per cent by the decade's end, slightly below the 2010-2019 pre-pandemic average of 6.5 per cent, yet still positioning India among Asia's fastest-growing economies," BMI said.

It further stated that productivity is projected to grow around 5 per cent over the coming decade, providing substantial momentum to GDP growth.

"We previously estimated that a 25-percentage point increase in the ‘reciprocal’ tariff would slow real GDP growth in FY2025/26 (April-March) and FY2026/27 by a further 0.2 per cent. As such, we have revised down our forecasts accordingly and now expect the economy to expand by 5.8 per cent in FY2025/26 and 5.4 per cent in FY2026/27," it said.

On GST reforms, BMI said that "depending on the specifics, the GST reform could cancel out the drag on growth from the tariffs. Given that the details have yet to be confirmed, we highlight the GST reform as a slight upside risk to our growth forecast for now".

The upcoming GST slab rationalisation of the two-slab tax structure is expected to drive consumption and improve profitability in sectors such as automobiles, financial services, cement, and consumer staples.

According to a latest SBI Research report, GST reforms, combined with recent income tax cuts, could lift consumption by Rs 5.31 lakh crore, equal to around 1.6 per cent of GDP.

Fitch Ratings has also affirmed India's rating at 'BBB' with a stable outlook, and expects US tariffs to have a limited impact on growth.

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