How Do GST Rate Cuts Offset US Tariff Impacts to Drive Manufacturing Growth?
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Synopsis
A new report reveals that GST rate cuts have successfully mitigated the tariff-related challenges faced by India's exports, leading to a boost in manufacturing growth. With domestic orders rising and retail prices falling, the economic outlook remains optimistic, despite some concerns about future growth levels.
Key Takeaways
- GST rate cuts have lowered prices and boosted spending.
- Manufacturing output continues to rise.
- Exports to the US have seen a decline, but overall exports remain stable.
- Growth for Q3 CY25 is projected at 7.2-7.4 percent.
- Increased demand for durable goods is noteworthy.
New Delhi, Nov 4 (NationPress) Recent reductions in GST rates have resulted in lower retail prices and a boost in household spending, effectively mitigating the impacts of tariffs on India’s exports, according to a report released on Tuesday.
According to the report from HSBC Global Investment Research, manufacturing output has consistently increased, as the decline in new export orders has been completely balanced by a rise in domestic orders. An uptick in input purchases indicates that manufacturing is likely to maintain its strength in November as well.
The firm forecasts that growth for Q3 CY25 is projected to be between 7.2-7.4 percent, supported by improvements in agriculture, manufacturing, and construction.
Despite a slight decline in exports to the United States due to tariff issues, overall export levels have remained stable, the report states.
However, the research firm cautioned that growth may experience some challenges in the latter half of the current fiscal year due to pressures for fiscal consolidation.
On September 22, GST rates were lowered for approximately 375 items, with government monitoring showing that companies reduced prices more than necessary for about half of the items tracked.
Pranjul Bhandari, Chief India Economist/Strategist, ASEAN Economist, highlighted the increase in demand for durable goods, a significant rise in vehicle sales, and a surge in e-commerce activity. Additionally, she noted a rise in bank credit for industries and services, particularly in electronic manufacturing and retail.
Despite a 12 percent year-on-year decline in exports to the United States in September—following a 25 percent increase in the first half of the year—overall exports have remained stable, Bhandari stated.
The drop in exports to the US was largely attributed to declines in jewellery, crustaceans, and textiles, while stronger shipments to non-US markets, robust US exports in exempted categories like electronics and petroleum, and sustained strength in high-tech exports such as services contributed to overall stability.
The firm noted that its growth data indicators reveal further activity escalation in September, driven by enhancements in agriculture, manufacturing, construction, and financial services.
Point of View
It's essential to recognize that while the GST rate cuts have spurred economic activity, we must remain vigilant about potential challenges in the latter half of the fiscal year. The approach should always prioritize the nation's economic resilience and adaptability.
NationPress
27/12/2025
Frequently Asked Questions
What impact have GST rate cuts had on exports?
GST rate cuts have led to lower retail prices and increased household spending, which have helped to offset the negative impacts of US tariffs on India's exports.
Are manufacturing outputs expected to rise?
Yes, manufacturing output is anticipated to continue rising, supported by a boost in domestic orders and increased input purchases.
What is the forecasted growth for Q3 CY25?
The forecasted growth for Q3 CY25 is between 7.2-7.4 percent, driven by sectors like agriculture and construction.
How have exports to the US changed recently?
Exports to the United States have declined by 12 percent year-on-year in September, attributed to sectors such as jewellery and textiles.
What does the future hold for India's economy?
While the current indicators are positive, growth may face challenges in the latter half of the fiscal year due to fiscal consolidation pressures.
