GST 2.0, tax cuts to fuel ₹2.5 lakh crore fiscal boost to Indian economy: CEA
CEA Anantha Nageswaran highlighted the sweeping scope of these changes, calling GST 2.0 a "landmark reform."
India's economy could see a major fiscal stimulus of over ₹2.5 lakh crore due to the impact of the recently implemented GST 2.0 reforms, coupled with the income tax relief announced in the Union Budget 2025, Chief Economic Advisor (CEA) V Anantha Nageswaran said on Monday.
Speaking at the Network18 Reforms Reloaded 2025 summit in New Delhi, the CEA said that the combined impact of direct tax relief through income tax cuts and indirect tax relief through GST rate reductions will be over ₹2.5 lakh crore.
He, however, added that some other uncertainties may dilute the effect.
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The CEA highlighted the sweeping scope of these changes, calling GST 2.0 a "landmark reform" that is expected to significantly boost domestic demand and push GDP growth toward the upper end of the 6.3% to 6.8% range in FY26.
Nageswaran emphasised that the reforms are not just symbolic but financially impactful and will have a multiplier effect on the economy, pushing FY26 growth towards the upper end of the 6.3 to 6.8 per cent range.
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"The GST 2.0 is a very significant landmark reform. I am very confident that it will provide a very significant boost to domestic demand. In addition to the indirect taxes, concessions and relief were announced as part of the Union Budget. Taking a multiplier effect, these will quite definitely boost the GDP numbers," Nageswaran said.
GST reforms: What about the impact on states?
Addressing concerns about potential revenue losses to states due to GST rate cuts, the CEA pointed out that the experience shows that, despite rate reductions, collections have risen. "Despite prior rate cuts, the annual revenue collections of these states have gone higher over the years," he said.
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On the fiscal front, Nageswaran expressed confidence that the government remains on track to meet its FY26 fiscal deficit target of 4.4% of GDP, supported by robust non-tax revenue and steady overall revenue growth.
"We had good non-tax revenue growth. Overall revenue growth has been on track. The festival season will continue till the end of the year. We are confident that the fiscal math will hold very well for the current financial year," he said.
CEA on the impact of Trump tariffs
Addressing concerns over US President Donald Trump's tariff measures, Nageswaran said that while India's growth was expected to face a 0.4-0.5 per cent reduction this year and around 1 per cent next year, GST reforms could cushion the blow. "But now due to GST reforms, the impact may be lower," he added.
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Regarding quarterly growth, the CEA indicated that India's Q2 GDP may remain close to 7 per cent, supported by high-frequency indicators. "The impact of US tariffs may be muted in the current year, but that will be compensated by GST rate reductions," he noted.
In the long run, Nageswaran remained optimistic about foreign direct investment (FDI) prospects, asserting that structural reforms like GST and deregulation would continue to bolster India's appeal to global investors, even amid global trade uncertainties.
"In the medium to long term, FDI will not be impacted. GST and deregulation may act as catalysts for higher FDI. Even with additional tariffs, the medium to long-term investment attractiveness of India will not be impacted," noted Nageswaran.
