Debt control need not succumb to new fiscal pressures

The additional 25% tariff announced by America on Indian exports took effect on 27 August. With this, the total levy on Indian exports to the US stands at 50%.

- KAUSHIK DAS

While we still think that these tariffs will come down after bilateral negotiations, they could dampen India’s exports to the US over the next few months. To counter their impact on economic growth and continue with reforms, India’s government recently announced a simplification of the goods and services tax (GST) from a four-rate structure (5%, 12%, 18% and 28%) to a simplified two-rate regime of 5% and 18%.

Households looking to buy big-ticket items such as electronics and white goods may delay their purchases till these lowered rates become effective from 22 September. This can lead to a slowdown in consumption this month. But over the next few quarters, lower GST rates should combine with the earlier income-tax reduction to increase consumption on the margin.

Lower GST rates, various other monetary as well as fiscal measures that have already been announced, and additional support—we expect one more 25-basis-point rate cut by the Reserve Bank of India on 1 October while the government is likely to announce further fiscal support for small and medium enterprises, including exporters—should join forces to help sustain India’s real gross domestic product (GDP) growth at around 6.5% in 2025-26 and 2026-27, despite the threat of higher US tariffs.