GST 2.0 could cushion Trump tariff blow, say economists

The Centre’s proposal will be placed before the GST Council during the upcoming meeting.

The proposed overhaul of the goods and services tax (GST) regime, which the Prime Minister Narendra Modi has said would offer relief to citizens, could soften the blow of US tariffs on India, a Moneycontrol poll has said.

Of the 15 economists surveyed last week, nearly 67 percent said the proposed GST cuts would help offset at least some impact of higher duties imposed by Washington.

“Combined with the reduction in income tax announced in the Budget, the GST cuts will be a medium-term positive to spur consumption-led growth,” said economists at QuantEco Research.

Early this month, the US raised tariff on Indian goods to 25 percent and the levy will double to 50 percent when a 25 percent penalty announced by President Donald Trump for buying Russian oil comes in to force from August 27.

GST 2.0 on the table

In the week gone by, a group of ministers approved a two-rate GST structure that moves 90 percent of items in the 12 and 28 percent slabs to lower brackets.

The GST Council is expected to take a final call on doing away with the two slabs when it meets in New Delhi on September 2–3.

The decision follows Modi’s Independence Day announcement of “next-generation GST reforms” as a Diwali gift. “Everyday items will become very cheap and that will also give a new boost to the economy,” he said in his 12th address from the Red Fort.

A previous Moneycontrol analysis found that GST cuts would directly lower inflation in about 10 percent of consumption basket items. Economists estimate the measure could trim headline inflation by 50–60 basis points over the year.

Growth impact could be modest

Most economists cautioned that the impact on growth would be limited.

“GST cuts can provide a short-term boost to domestic demand, helping India partially offset the negative impact of US tariffs on exports. However, the relief on GDP would be limited, as GST cuts cannot fully compensate for export losses and may strain government revenues,” said Arun Singh, global chief economist at Dun & Bradstreet.

Economists have pegged India’s median growth for FY26 at 6.3 percent, with Q1FY26 growth likely to come in at 6.6 percent. Official GDP data for the April–June quarter will be released August 29.

For sustained momentum, experts say the government must pursue broader reforms. In his Independence Day address, the Prime Minister announced a task force for “next-generation reforms”.

Economists polled by Moneycontrol ranked ease of doing business and administrative reforms at the top of their wishlist followed by land and labour reforms.

“Digitalising land records, implementing ‘one nation, one election’, and adopting stronger ESG policies, including carbon credits, should be the three key priorities,” Anitha Ranjan, chief economist at RBL Bank, said.