GST rationalisation could boost India's revenue in long term: S&P

S&P Global Ratings analysts say that the GST rationalisation reforms could boost India's fiscal revenues over the long term due to simpler implementation and clearer accounting processes

S&P Global Ratings has said the goods and services tax (GST) rationalisation announced by Prime Minister Narendra Modi on Independence Day could bolster fiscal revenues over time by making compliance easier and accounting more transparent under a proposed two-rate structure.

 

“The current GST regime is quite complex, with four different rates, which makes accounting and implementation difficult at times,” an S&P analyst said during a webinar on the agency’s recent upgrade of India’s sovereign credit rating.

 

On the possible fiscal impact of lower GST slabs, YeeFarn Phua, director, Sovereign & International Public Finance Ratings at S&P, said it was too early to assess. “If the rates come down, it could impact revenues, but it might not… We don’t think the government will reform the system to the point that it hurts fiscal revenues,” he said.

 

Over the past five to six years, S&P noted, GST had proven to be a successful anchor of government revenues.

 

Modi, in his Independence Day address, described the reform as a step that could alter uneven consumption patterns. “This Diwali, I am going to make it a double Diwali for you,” he said, adding that the changes would ease the burden on everyday items, benefit MSMEs, and provide a fresh boost to the economy.

 

On August 14, S&P raised India’s long-term sovereign credit rating by a notch to ‘BBB’ from the lowest investment grade of ‘BBB-’, with a stable outlook. The first upgrade in 18 years reflects the country’s economic resilience, fiscal consolidation and improved quality of public spending. The move puts India in the same category as Mexico, Indonesia and Greece.

 

S&P expects private capital expenditure in India to double over the next five years compared to the previous five-year period, supported by government-led infrastructure spending and emerging sectors such as aviation.

 

On artificial intelligence, the agency said the technology could reduce demand for some jobs in the near term but is likely to lift productivity over the medium run, given India’s strong record in adopting new technologies.

 

The rating upgrade, S&P emphasised, was not the result of any single policy shift but of broader economic progress over the past decade.