Indian GST reforms to cut some tariff bite; ICRA sees 6.5% FY26 growth

However, it cautions that this continues to be dampened by the prevailing uncertainty related to the US tariffs.

The new GST structure is likely to reduce the weighted average GST rate to single digits from 11.64 per cent in fiscal 2023-24 (FY24), bringing cheer to consumers and producers alike, while creating fiscal implications for the central and state governments, it noted.

The first-round revenue foregone to the central government and state governments is likely to be moderate at ₹142 billion and ₹338 billion respectively in the second half (H2) of FY26, as per ICRA’s understanding. The latter reflects the likely downside to both state GST and central tax devolution (CTD).

The revenue foregone may necessitate other revenue mobilisation or expenditure saving measures, although the second-round impact of enhanced consumption would provide some cushion, it noted.

Notably, the revenue implications as a percentage of revenue receipts will not be uniform, and will vary across states based on the share of state GST and CTD within their total revenue pie.

The GST rejig could dampen the headline consumer price index (CPI) prints by at least 25-35 basis points (bps) between the third quarter (Q3) of FY26 and Q2 FY27, suggesting that the full year average for FY26 may slip below 3 per cent, ICRA said in a note.

Given the earlier-than-expected implementation of the rationalisation at the start of the consumption-heavy festive period, the moderate revenue likely to be foregone in H2 FY2026, and the stronger-than-expected Q1 FY2026 GDP print, ICRA now assesses the FY2026 GDP growth at 6.5% (from +6.0% earlier), although this continues to be dampened by the prevailing uncertainty related to the US tariffs.

ALCHEMPro News Desk (DS)