GST reforms expected to soften impact of US tariffs and boost Indian economy with growth push

28 August, 2025
GST reforms expected to soften impact of US tariffs and boost Indian economy with growth push

Winning Bizness Desk

Mumbai.India is expected to remain one of Asia’s fastest-growing emerging economies despite the pressure of American tariffs. According to the latest report by BMI, a Fitch Solutions company, reforms in the Goods and Services Tax (GST) will play a key role. The report highlights that lowering tax rates under GST will encourage higher household and business consumption. Combined with recent income tax cuts, this could result in a significant rise in spending across the economy.

Rise in demand may offset tariff pressure

BMI estimates that these tax changes could lead to a consumption boost worth nearly 5.31 lakh crore rupees, equivalent to about 1.6 percent of India’s GDP. This expansion in demand is expected to act as a shield against the negative effects of US tariff measures. While tariffs may create a drag on growth, stronger domestic demand will support economic activity.

Growth forecast slightly revised downward

Even with this support, BMI projects a small dip in India’s growth due to tariff pressures. The report suggests that India’s GDP growth could slow by 0.2 percent in the financial years 2025–26 and 2026–27. As a result, growth is now estimated at 5.8 percent for 2025–26 and 5.4 percent for 2026–27. However, BMI still believes that throughout the decade of 2019 to 2029, India will remain among the fastest-growing economies in Asia, with average growth slightly above 6 percent.

S&P rating upgrade adds confidence

Earlier, global rating agency S&P Global upgraded India’s credit rating outlook, a move that reflects growing investor confidence. The long-term rating was raised from BBB- to BBB, while the short-term rating improved from A-3 to A-2. Importantly, the outlook on India’s economy was maintained as stable. The upgrade signals that the country is now seen as having stronger debt repayment capacity with lower risk compared to the past.

Meaning of rating shift for India

The difference between BBB- and BBB is significant for financial markets. While BBB- is considered the lowest investment grade rating, suggesting limited but safe repayment ability, BBB shows a step up in financial strength. It means India is viewed as less risky, with improved trust from global investors. This upgrade, along with strong domestic reforms like GST and fiscal consolidation efforts by the government, strengthens India’s overall economic outlook.

Story in a nutshell

  • GST reforms to reduce taxes and increase consumption
  • Consumption rise estimated at 5.31 lakh crore rupees
  • Boost equals 1.6 percent of India’s GDP
  • US tariffs may slow growth by 0.2 percent
  • India’s growth forecast at 5.8% and 5.4% for next two years
  • S&P upgrades India’s credit ratings to BBB and A-2
  • India remains among Asia’s fastest-growing economies this decade