GST rate cuts to lift India's GDP by 0.2-0.3% in FY26; stronger push forecasted in FY27: BoB economist

New Delhi [India], September 4 (ANI): The Centre's decision to rationalise GST rates to two slabs - 5% and 18%, applicable from September 22, 2025, is expected to boost the country's GDP by 0.2-0.3% in the financial year 2025-26, according to Bank of Baroda economist Sonal Badhan.
The BoB economist, in response to a questionnaire from ANI, said that the growth will be more pronounced in the second half of the year, with an even higher increase expected in 2026-27 as the impact of GST cuts becomes more visible.
Asked whether the revenue forgone by the government will be offset by higher consumption, or does this risk widen the fiscal deficit, the economist at Bank of Baroda noted that she expects revenue forgone will be offset by higher consumption, with risks to fiscal deficit remaining limited.
"We expect risks to the fiscal deficit to remain limited so far. Since the GST overhaul is expected to significantly boost consumption momentum ahead of the festive season, we expect revenue forgone will get offset by higher consumption," she explained.
The GST Council has approved significant rate cuts across multiple sectors, aiming to reduce the tax burden on citizens and stimulate economic growth.
The GST rationalisation plans announced made goods related to agriculture, tractors, and irrigation systems cheaper.
Queried how much incremental push this will give to farm mechanisation, and can it add meaningfully to rural GDP growth, she said this is expected to bring in not only short-term/temporary relief, but will also aid structural changes.
"Rationalising rates on farm machinery is a major boost to the agriculture sector. This is expected to bring in not only short-term/temporary relief but will also aide structural changes. As machinery equipment becomes cheaper, it will be more affordable for small farmers to adopt mechanisation and improve productivity. This will also provide a boost to industrial production (machinery sector). Rural GDP is set to get a push from both the production and consumption sides," she supplemented.
Farmers and the agriculture sector will benefit significantly from the reforms, with tractor tyres and parts now taxed at 5% (down from 18%), and tractors themselves seeing a rate reduction from 12% to 5%.
The government has further slashed GST on specified bio-pesticides, micro-nutrients, drip irrigation systems, and sprinklers from 12 per cent to 5 per cent.
The reforms are expected to bring in short-term relief and aid structural changes, making machinery equipment more affordable for small farmers to adopt mechanisation and improve productivity.
The sweeping changes have been made under the next-generation GST (Goods and Services Tax) rationalisation just days after Prime Minister Narendra Modi announced it from the ramparts of the Red Fort on Independence Day.
This is aimed at reducing the tax burden on citizens while stimulating economic growth. The GST reforms are part of the government's efforts to stimulate economic growth and reduce the tax burden on citizens. The changes are expected to have a positive impact on various sectors, including agriculture, and drive GDP growth.
The GST Council, on Wednesday, after a threadbare discussion, approved significant rate cuts across multiple sectors, which the government has described as a Diwali gift for the nation. On the essential items front, items of daily household use will now cost less.
Rural GDP is set to get a push from both production and consumption sides, with the agriculture sector and farm mechanisation expected to drive growth. Items of daily household use will now be more affordable, providing relief to citizens. (ANI)