GST reforms to cushion Indian economy from US tariffs, says CEA Nageswaran

Chief Economic Adviser Anantha Nageswaran said the GST reforms would help counter the effect of US tariffs by stimulating domestic demand and mitigating risks to capital formation

India’s Chief Economic Adviser (CEA) V Anantha Nageswaran on Wednesday said the new goods and services tax (GST) reforms will likely offset the impact of 50 per cent tariffs imposed by the United States (US) on Indian exports. He estimated the overall effect on the economy at 0.2–0.3 percentage points in the current financial year ending March 2026.

 

Speaking at an AIMA event, Nageswaran noted that Indian exports to the US had already reached half of last year’s value in the first five months of this financial year.

 

“In other words, in this financial year, the impact may be relatively limited, depending on the assumptions one makes. But the more important thing is the second and third round effects of the uncertainty of tariffs, provided they last longer,” he said, as quoted by PTI.

 

He added that the effects would become more pronounced if the tariffs continued, with implications for investment, capital formation, and overall economic sentiment.

 

GST reforms to support domestic demand

Nageswaran underlined that GST reforms would cushion the adverse effects of tariffs by boosting domestic demand and reducing uncertainty that could hinder capital formation.

 

“So net-net, if you take the GST into consideration, the impact of tariffs and the compensating effects of GST rate reductions and process reform could probably give us a 0.2–0.3 per cent drag on the Gross Domestic Product (GDP) estimates of 6.3 to 6.8 per cent for the current financial year,” he said.

 

The GST Council earlier this month approved a revised tax structure under which most goods and services will be taxed at either 5 per cent or 18 per cent. Goods such as carbonated drinks and tobacco products will fall under the category of “sin” goods, attracting a 40 per cent GST rate. The new rates will take effect from September 22.

 

The reforms coincide with the imposition of a 50 per cent US tariff on Indian goods, impacting export-heavy industries. The tariffs also include a 25 per cent penalty on imports of Russian crude oil.

 

India rules out alternative to US dollar

Nageswaran also said India was not involved in any effort to create an alternative to the US dollar for global trade.

 

“No, certainly not. India is not part of any such initiative,” he said.

 

At the Brics Summit last year, member nations, including India, had discussed settling cross-border payments in local currencies and even considered the creation of a special Brics currency. The summit declaration welcomed the wider use of local currencies in financial transactions among Brics countries and their trading partners.

 

US President Donald Trump and his administration have warned India and other Brics members against pursuing such de-dollarisation moves.