Finance Minister Nirmala Sitharaman has expressed confidence that India's public finances will remain unaffected by the recent GST rate cuts, despite an estimated Rs 48,000 crore shortfall in collections. She said higher consumption, triggered by lower taxes, would generate sufficient revenue to offset the gap and even push economic growth beyond current forecasts.
In an interview, Sitharaman explained that the Rs 48,000 crore figure was only a static estimate based on a base year, and the reality would change once the consumption surge kicks in from September 22, when the new GST structure takes effect.
GST overhaul to fuel demand and growth
The GST Council recently approved a simplified three-tier structure - 5%, 18% and 40% slabs with nearly 400 items set to become cheaper. Everyday essentials such as bread, milk and paneer remain tax-free, while groceries, shampoos, soaps and small cars will fall under the 5% bracket. White goods like refrigerators, washing machines and ACs will attract 18%, down from higher rates earlier.
Premiums on individual health and life insurance will also be exempt, providing significant relief to households. The finance minister termed the changes a "people's reform", highlighting that every Indian, from the poorest to the richest, will benefit.
"This is a reform that touches the lives of all 140 crore people. The poorest of the poor also have something small that they buy, touched by GST," Sitharaman said.
Fiscal stability assured
Reiterating her fiscal discipline stance, Sitharaman said she would stick to the government's target of limiting the fiscal deficit to 4.4% of GDP (Rs 15.69 lakh crore) in FY26.
"The consumption spurt will increase income buoyancy. To a large extent, this Rs 48,000 crore amount we will be able to make up this year itself. So I don't see an impact on my fiscal deficit or my fiscal management," she added.
Growth outlook may improve
India's economy grew 7.8% in the April-June quarter of FY26, outpacing China's 5.2% and maintaining its status as the world's fastest-growing major economy. Strong farm output and robust services particularly trade, hospitality, finance and real estate, powered the performance.
With festive-season demand expected to rise, Sitharaman said GDP growth could even surpass the Economic Survey's projection of 6.3-6.8% for the current financial year.
"Possible, very much possible," she said when asked if forecasts might be revised upward.
India had earlier clocked an 8.4% growth rate in January-March 2024, the highest in recent years. The finance minister believes that the GST 2.0 reforms will create a virtuous cycle of rising consumption, higher revenues, and greater economic momentum in the coming quarters.
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