Could GST Reforms and the Festive Season Enhance Domestic Demand?

New Delhi, Aug 30 (NationPress) Chief Economic Advisor V. Anantha Nageswaran indicated that the festive season alongside the Goods and Services Tax (GST) reforms has the potential to bolster domestic demand in the upcoming quarters.

However, he pointed out that short-term risks to economic activities, especially in exports and capital formation, persist due to uncertainties stemming from the 50% US tariff imposed on August 27.

Nageswaran emphasized that strong domestic consumption would motivate private enterprises to keep investing, even amidst challenging circumstances.

Following the release of GDP data, showcasing a remarkable 7.8% growth rate in the June quarter—surpassing expectations—Nageswaran projected that the growth rate is anticipated to remain within the targeted band of 6.3%-6.8% for this fiscal year, as outlined in the Economic Survey earlier this year.

He dismissed the idea of revising this growth figure, despite concerns regarding US tariffs, stating, "It is too early to gauge the precise impact of the US tariff on the Indian economy."

A senior finance ministry official noted that the sectors of manufacturing, construction, and services were pivotal in driving supply-side growth. Meanwhile, private final consumption expenditure rose by 7%, and gross fixed capital formation saw an increase of 7.8%, significantly contributing to demand-side growth. The government's capital expenditure also played a vital role in enhancing investment growth.

The share of private consumption in GDP for the three months concluding in June was the highest recorded for that quarter in 15 years.

According to CEA Nageswaran, high-frequency indicators for July suggest that the economic momentum from the June quarter is persisting.

India continues to be recognized as the world's fastest-growing major economy, increasing the gap with others. Recent data shows that China experienced a growth rate of 5.2% in the June quarter, followed by Indonesia at 5.1%, the US at 2.1%, and both Japan and the UK at 1.2% each, with France lagging at 0.7%.

A report from SBI Research earlier this month highlighted that a consumption surge of Rs 5.5 lakh crore could generate an additional Rs 52,000 crore in GST revenue in FY26, easily offsetting the predicted revenue loss of Rs 45,000 crore from the GST 2.0 reforms.

The GST 2.0 reforms are expected to catalyze a consumption boost, leading to increased tax revenue, diminished inflation, and accelerated growth, as noted in the report.