Will GST Reforms Drive Consumption While Securing Fiscal Stability?
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Synopsis
Discover how the latest GST reforms may enhance domestic consumption while ensuring fiscal stability. Moody's analysis reveals insights into the government's financial strategy and expected impacts on household spending and economic growth.
Key Takeaways
- GST reforms aim to boost domestic consumption.
- Expected revenue loss of Rs 48,000 crore for the government this year.
- New two-slab GST rate structure introduced.
- Household consumption constitutes 61 percent of GDP.
- Moody's highlights India's debt affordability issues.
New Delhi, Sep 10 (NationPress) Reforms in the Goods and Services Tax (GST) are anticipated to enhance domestic consumption while maintaining the momentum of fiscal consolidation, according to a recent analysis.
The report from the ratings agency Moody’s suggests that the Centre may curtail government spending over the next two quarters to ensure the continuity of fiscal consolidation.
The government forecasts a net revenue loss of Rs 48,000 crore ($5.4 billion) for this year, based on calculations from FY24 data. The impact of the GST reform could hinder the government's objectives to decrease debt, as noted in the report.
Moody's indicated that India holds the lowest debt affordability among investment-grade sovereign nations, with interest payments projected to consume around 23 percent of total government revenue in the fiscal year 2024-25.
The agency highlighted that the anticipated revenue loss from the GST rate adjustments is likely to surpass government predictions, leading to greater financial pressure in the future.
"Considering the government's employment of revenue-reducing strategies to foster growth over the past year, we do not foresee significant revenue-boosting initiatives for the remainder of its term. This diminishes the prospects for substantial debt reduction or enhancements in debt affordability," Moody's emphasized.
Nevertheless, a reduction in effective GST rates could stimulate private consumption and support economic growth, as per the report.
The GST reform acts as an added fiscal policy support for households, complementing the increased income tax thresholds established in February, which have exempted numerous middle-income families from income tax and reduced tax burdens for others.
Moody's remarked that both strategies are designed to elevate household consumption, which accounts for around 61 percent of GDP.
Last week, the GST Council updated the tax framework to a dual-rate system of 5 percent and 18 percent, and introduced a new 40 percent GST rate on 'sin goods', effective September 22.
A previous report from SBI Research suggested that the overall revenue loss for the government is likely to remain controlled, accompanied by a shift of sin goods from the 28 percent slab to the 40 percent slab.
The new GST 2.0 regime, while expected to incur an average revenue loss of Rs 85,000 crore, is forecasted to have increased consumption by Rs 1.98 lakh crore, according to the report.
Point of View
I observe that the government's approach to GST reforms reflects a strategic balance between stimulating consumption and maintaining fiscal discipline. This careful navigation is crucial for sustaining economic growth while addressing debt concerns effectively.
NationPress
10/09/2025
Frequently Asked Questions
What are the expected impacts of GST reforms?
The GST reforms are anticipated to boost domestic consumption and support economic growth without disrupting fiscal consolidation.
How much revenue is the government expected to forego due to GST reforms?
The government estimates a net foregone revenue of Rs 48,000 crore ($5.4 billion) for this year.
What is the new GST rate structure?
The GST Council has revised the tax structure to a two-slab rate of 5 percent and 18 percent, with a new 40 percent rate on 'sin goods.'
What does Moody's say about India's debt affordability?
Moody's noted that India has the weakest debt affordability among investment-grade sovereigns, with interest payments consuming about 23 percent of general revenue.
Will household consumption increase due to GST reforms?
Yes, the GST reforms are expected to enhance private consumption, which comprises approximately 61 percent of GDP.
