India expects consumption tax cuts announced by Prime Minister Narendra Modi will give a boost to the economy without hurting the government’s fiscal deficit, helping to offset the fallout from higher U.S. tariffs.
Officials in New Delhi said on the weekend the proposed changes to the goods and services tax — which will see the number of tax categories reduced to two from four — would benefit a broad range of sectors, including consumers and small businesses. The adjustments would have a limited effect on government revenue, officials told reporters, requesting anonymity in order to discuss the plans.
IDFC First Bank Ltd. estimates the lower consumption taxes will help boost nominal growth by 0.6 percentage points, while the impact on inflation is expected to be a reduction of 0.6-0.8 percentage points, spread over 12 months. Emkay Global Financial Services Ltd. forecasts a drop in government revenue of about 0.4% of gross domestic product, with states expected to bear a disproportionately bigger burden of the slump.
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