GST has cut a short -term pillow, but rate uncertainties and worldwide risks keep India’s growth costs ready for care: suvodeep rakshit

The recent GST rationalization can offer a timely pillow to the Indian economy, because it is confronted with the headwind of steep American rates, according to Suvoepep Rakshit, chief economist at Kotak Institutional Equits.

Rakshit now said to Et, said that the GST movement had been in the making for more than a year and its implementation coincided with the tariff shock. “The timing is appropriate because the GST benefit will start to play just when rates begin to bite,” he said.

According to Rakshit, GST could increase the GDP growth by 0.3% to 0.5%, so that the potential resistance of 0.5% of American rates is compensated if they stay in place for a few months. “The long-term implications depend on how long rates remain, but we know for sure that GST benefits will initially have a one-off impact, followed by multiplier effects,” he added.

Rakshit said that the Indian economy navigates due to a delicate balance between tariff risks and domestic policy support. “GST will give consumption an interpretation, income tax lighting and reducing the rate, will contribute to the demand, and rates cannot last very long. The outlooks remain stable, but much depends on how to evolve commercial conversations,” he concluded.

Tariff pain seen as of short duration

The US has imposed 50% rates for Indian exports, the heaviest such measures in Asia. While Minister of Finance Nirmala Sitharaman has recognized the hit for GDP, she also broken the seriousness.

Rakshit reflected this cautious optimism. “As a basic case, we do not expect that 50% rates for several quarters will take place. We hope that bilateral commercial conversations will yield a deal by the end of the year,” he said. He estimated that the rates could shave around 0.5% of GDP on an annual basis. However, he pointed out that different export sectors have been exempt and some goods could be diverted to other markets or can be absorbed in their own country. “This prevents a complete exercise of export,” he explained.

GDP -Front views stable at 6.5%

Despite the uncertainties, Rakshit maintained a 6.5% GDP growth earring as a basicase. “There are several levers in the game – GST reduction, income tax lighting of the budget of February, festive question and the 100 BPs of monetary relaxation that has already been supplied by the RBI,” he said.

While India briefly hit the growth park of 8% in the first quarter, Rakshit said that such a momentum will probably not maintain. “Some neighborhoods will see stronger growth, but in general 6.5% look feasible,” he noticed.

Inflation process is relaxed

Rakshit also marked disinflatoire pressure from both GST and rates. Only GST cuts can lower inflation with 80-100 basic points on an annual basis, he said.

Moreover, if the export rate export does not find in foreign buyers and will be diverted to domestic markets, they can also dampen the price pressure. “This will play in the inflation process. Although inflation could hit 4% at the fourth quarter of FY26 based on basic effects, GST and Tariefspillovers can keep it closer to 4.5% in FY27,” Rakshit explained.

RBI’s room to maneuver

The RBI has maintained a cautious position, with its inflation views with approximately 4.5% linked for FY27. Rakshit said that this limits the policy space, but lower than expected inflation could change the image.

“If inflation slips under 6.5%on the disadvantage and GDP growth, the RBI can open space for 25-50 basic points of speed reductions. But this will not be immediately -it will depend on the process in the next three to six months,” he said.

(Disclaimer: recommendations, suggestions, views and opinions of the experts are their own. These do not represent the views of economic times)