GST reforms will boost consumption, economy: Finance Minister Sitharaman

Finance Minister Nirmala Sitharaman has expressed confidence that revenue buoyancy driven by spurt in consumption will take care of the estimated GST shortfall of ₹48,000 crore following reduction in tax rates on a host of items, and hence there will be no impact on public finances but definitely bolster gross domestic product (GDP) growth.

She also emphasised that the consumption boost to be provided by landmark GST reform and better-than-expected first quarter GDP growth number may help in exceeding the projected pace of 6.3-6.8% for FY26.

Asked about the impact of GST rate cuts on the fiscal deficit, Ms. Sitharaman said the ₹48,000-crore financial implication is a static number based on a base year, but when it gets implemented, the base situation changes.

“So, I think the consumption spurt from September 22 will increase income buoyancy. To a large extent, this ₹48,000 crore amount we will be able to make it up this year itself. So I don’t see an impact on my fiscal deficit or my fiscal management. I will stick to my numbers (of 4.4% of GDP),“ Ms. Sitharaman told PTI in an interview.

The Centre estimates the fiscal deficit during 2025-26 at 4.4% of the GDP, or ₹15.69 lakh crore.

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Last week, the all-powerful GST Council headed by Ms. Sitharaman approved a two-tier structure of 5% and 18% taxes, as well as a 40% slab.

Nearly 400 products — from soaps to cars, shampoos to tractors and air conditioners — will cost less when the rejig of the GST is effective from the first day of Navaratri on September 22. Premiums paid on individual health and life insurance will be tax-free.

In the revamped GST structure, most daily food and grocery items will fall under the 5% GST slab with bread, milk and paneer attracting no tax at all. EVs and small cars will be taxed at 5%, while other white goods are taxed at 18% — slabs that are lower than current rates.

Calling the landmark GST overhaul a ‘people’s reform’, Ms. Sitharaman said that rationalisation of rates for a wide swath of products will benefit every family.

“This is a reform which touches the lives of all 140 crore people. There is no individual in this country who is untouched by GST. The poorest of the poor also have something small that they buy, touched by GST,” she said.

Asked if there can be upward revision in the GDP growth projection for the current fiscal year helped by the consumption boost and better-than-expected GDP number of 7.8% for the first quarter, the finance minister said, “possible, very much possible.” The Economic Survey tabled in parliament in January had projected real economic growth of 6.3-6.8% for FY26.

The GDP growth of 7.8% in the first quarter of the ongoing fiscal year was mainly driven by a good showing by the farm sector, and also helped by services like trade, hotel, financial and real estate.

The previous highest pace of growth in the country’s GDP was recorded at 8.4% during January-March 2024, as per the data. India remains the fastest-growing major economy, as China’s GDP growth in the April-June period was 5.2%.