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Informist, Tuesday, Sept. 9, 2025

 

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--Moody's: India GST reform to stimulate consumption; reduce govt revenues 
--Moody's: GST reform to have mixed effects on Indian credit 
--Moody's:Revenue loss from GST reform may limit fisc consolidation progress 
--Moody's: Revenue loss from GST reform may limit debt reduction progress 
--Moody's: Fall in India effective GST rates likely to boost pvt consumption 
--Moody's: Fall in India effective GST rates likely to support econ growth 
--Moody's:Revenue foregone from GST changes likely higher than govt estimate 
--Moody's:Revenue strain from GST rejig to be more pronounced in coming yrs
--Moody's: Expect Indian govt spending to slow over next 2 quarters 
--Moody's: Slower India govt spend to preserve fiscal consolidation trend 

 

NEW DELHI – Moody's Ratings Tuesday said India's recent goods and services tax reform will stimulate consumption by improving affordability but reduce the government's revenue. However, the revenue forgone will not significantly detract from fiscal consolidation, the rating agency said.

 

The GST Council last week decided to overhaul the tax regime by tweaking the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on "sin" and luxury goods. All new rates, except for those on tobacco products, will take effect Sept. 22.

 

The government's estimate for net revenue forgone is INR 480 billion, as per calculations based on data from the financial year 2023-24 (Apr-Mar). Given the expansion of the economy, the revenue loss is likely to be higher than the government estimate, Moody's said. Moreover, the strain will be more pronounced in the coming years when the loss is felt over the full year rather than just the remainder of the current fiscal year.

 

"The GST reforms will have mixed effects on Indian credit: while the support for growth is credit-positive for some sectors, the loss of tax revenue will likely limit progress in fiscal consolidation and debt reduction," the agency said in a note.

 

The changes to GST are likely to boost private consumption and support economic growth at a time when the country is facing external pressure from the 50% tariff imposed by the US on imports from India, Moody's said. The Reserve Bank of India has projected India's GDP growth for the financial year 2025-26 (Apr-Mar) at 6.5%. Economists have projected a hit of nearly 50 basis points to GDP growth in FY26 on account of the tariffs. The expected consumption boost from GST changes, on the other hand, is seen leading to a rise of 50 bps in GDP growth, economists have said.

 

Lower prices because of the GST changes will also help to keep inflation "at bay", the rating agency said. CPI inflation in India fell to 1.55% in July, the lowest in eight years, and is expected to remain well below the RBI's target of 4% over the next few months. It is seen rising to 2.1% in August, as per an Informist Poll.

 

"Although the lower rates will support consumption, we do not expect marginal additions to tax revenue from more robust domestic activity to offset the strain on tax revenue," Moody's said. "Nevertheless, there will be further mitigation from additional revenue generated from the introduction of the higher 40% tax rate on the goods mentioned above, as well as the accompanying simplification of GST governance aimed at improving compliance and reducing classification disputes."

 

The agency expects government spending to slow over the next two quarters after rising 20% in the first four months of FY26 to INR 15.64 trillion. The slower pace of expenditure will help the government to preserve the trend of fiscal consolidation, it said. The government aims to lower its fiscal deficit to 4.4% of GDP in FY26 from 4.8% of GDP last year.

 

Moody's does not expect further revenue-enhancing measures by the government over the remainder of its term, after the income-tax breaks and GST changes this year. "This, in turn, preempts material gains in debt reduction or improvements in debt affordability," Moody's said, adding that India continues to have the weakest debt affordability among investment-grade countries.

 

The GST overhaul will be beneficial for the automotive industry, the fast-moving consumer goods sector, the cement sector, and white goods companies, the rating agency said. The exemption of GST on all individual life and health insurance policies is a credit-positive for the insurance sector, Moody's said. "This will reduce the premium cost to consumers and boost consumer appetite for these products as they become more affordable," it said.  End

 

Reported by Aaryan Khanna and Shubham Rana

Edited by Rajeev Pai

 

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