The India consumption story has been bolstered by multiple measures including the most recent GST reforms. Whilst domestic growth has remained a persistent topic of discussion, the economic impact of investing in a large uncorrelated economy presents itself as a lucrative option even for foreign investors. The domestic economy has been assuming yet another transformative path after demonetization, Insolvency and Bankruptcy Code (IBC) and Unified Payments Interface (UPI), with disruptions leading to consistent and continued growth.
The US tariff situation continues to look grim, as India continues to face pressure from the US on opening sensitive sectors like agriculture and diary as well as scrutiny over the purchase of oil from Russia. With India reiterating that it will seek to protect national interests, tariffs have been playing spoilt sport. India’s export heavy MSME clusters, which account for over 45% of the total exports remain vulnerable to tariff pressures due to limited customer diversification, often concentrated in the US, resulting in fragile supply chains and elevated trade risk. The picture below indicates the tariffs across countries and is aimed to give readers a sense of where India stands versus the rest of the countries.
Expectations around a slowdown of the economy were rife, owing to the US tariff situation. However, India Inc. is witnessing a growth story that is unpending. Reforms in GST and Income tax come in as a welcome measure, and in time to boost domestic consumption and ensure that the consumption story continues to define the country’s growth.
Going down the four-tier system (5%, 12%, 18%, 28%) into a leaner, simpler two-slab structure (5% and 18%), while keeping the 40% cess for sin and luxury items is a move that could boost demand, compliance, and confidence across sectors—exactly the kind of antidote India’s economy needs to stay strong amid global trade turbulence. A few factors that add to the urgency of reforms include:
- End of Compensation Cess: With cess repayment to States nearing completion, the government sought a new rate structure to prevent “sin goods” like tobacco from becoming artificially cheap.
- U.S. Tariffs Impact: With 50% tariffs imposed by the U.S. on Indian imports, India anticipated stress on exports and private investment. By rationalizing GST, the government aimed to boost domestic consumption to offset external shocks.
The loss of revenue to the government, estimated at Rs.48,000 crores; effectively, money moved from the public to the private sector is expected to stimulate an economy of Rs. 330 lakh crores. The reforms position India towards a simpler GST architecture, potentially improving compliance and reducing litigation. While short-term fiscal challenges exist, long-term gains could emerge through stronger demand, private investment, and the formalisation of the economy. The GST rationalisation also complements India’s broader economic reforms agenda and may help cushion the economy against global uncertainties. Here’s a brief look at the changes:
The ‘one district, one product’ idea was designed to enable diversification in output and exports. The disruptions caused by technology are upending livelihoods. India needs a public-private skilling-reskilling revolution, which is happening albeit at a slower pace as compared to what it should have been. If India Inc. unlocks the government holdings in public sectors, it could lead to another revolution in our growth story. For now, it’s a wait and watch.
