India's GST reform expected to stimulate consumption: Fitch Ratings

Fitch Ratings believes the reform of India's goods and services tax (GST) should be generally credit positive for rated Indian companies, stimulating consumption and reducing risks to the economic growth outlook as higher US tariffs threaten export demand. Fitch expects the impact on the sovereign credit profile to be limited, though the reform is likely to reduce revenue slightly compared with our assumptions when we affirmed India's 'BBB-' rating with a Stable Outlook in August. The key element of the reform is the abolition of the 12% and 28% bands for GST, effective from 22 September. Most products in these bands will move to the lower 5% and 18% bands, respectively. The ratings expect these and other GST changes to result in lower prices, though some firms may seek to absorb the benefit themselves rather than passing it on to consumers through price cuts, the agency said. The ratings agency further estimates the fiscal cost of the reforms to be around 0.2% of GDP annually, but the potential boost to consumption and growth will depend on the extent to which companies pass on lower taxes to consumers. Fitch recently revised up its GDP growth forecast for India to 6.9% in FY26, from 6.5%, although this largely reflects a stronger 1QFY26 outcome.

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