Moody’s: GST Reforms to Lift Consumption, Strain Revenues but Won’t Derail Fiscal Consolidation

Moody’s Ratings on Tuesday said India’s recent goods and services tax overhaul will support consumption and growth but weigh on government revenues. The agency noted the revenue forgone will not significantly derail fiscal consolidation.

The GST Council has collapsed the four-slab structure (5%, 12%, 18%, 28%) into two rates—5% and 18%—and introduced a 40% levy on sin and luxury goods. The new rates, except those on tobacco, take effect September 22.

The government estimates revenue forgone at ₹480 billion for 2023-24 data, though Moody’s expects the actual loss to be higher, especially when felt over a full year. Even so, slower government spending in the second half of 2025-26 should help preserve the fiscal deficit target of 4.4% of GDP (vs 4.8% last year)

The agency highlighted:

• GST reforms could boost GDP growth by 50 bps in 2025-26, offsetting the drag from US tariffs of 50% on Indian imports.
• Lower prices will help keep inflation in check, with CPI expected at 2.1% in August after falling to an eight-year low of 1.55% in July.
• India’s debt affordability remains the weakest among investment-grade peers, and further revenue-enhancing measures this term are unlikely.

Moody’s said the reforms are credit-positive for autos, FMCG, cement, and white goods companies. The GST exemption on individual life and health insurance will also be positive for the insurance sector, making policies more affordable and boosting demand.