Demand Booster With No Fiscal Pain — Axis Bank's Neelkanth Mishra Sees Big Gains From GST Cuts

A potential GST rate rationalisation could act as a demand booster for the Indian economy without adding to fiscal stress, according to Neelkanth Mishra, chief economist at Axis Bank.

Mishra said moving goods down the tax slabs effectively works like a stimulus. Even in the worst-case scenario, where all items in the 28% slab move to 18% and those in 12% drop to 5%, the combined revenue loss for the Centre and states would be about Rs 1.7 lakh crore.

But he pointed out the actual loss would be lower since some goods may move to higher slabs, like 12% to 18% or even 18% to 40%. "This will aid formalisation and boost volume growth in sectors like autos," Mishra said.

Concerns over higher government borrowing may be misplaced, Mishra argued, thanks to the compensation cess. In the early GST years, the cess on coal, tobacco and large cars was used to cover state revenue guarantees. During 2022–23, the Centre borrowed against future collections, and recent inflows have gone towards repaying that debt.

"This collection will now add to GST revenues, ensuring no rise in borrowing," Mishra said.

Real estate, Mishra noted, is a critical driver of the investment cycle. After a slowdown over the last year, sales are picking up again, and a GST cut could give the sector the necessary push. "When real estate takes off, demand for manufactured goods also rises," he said.

Domestically, he added, earnings downgrades are slowing and forward earnings growth is turning positive — both supportive for markets.

Still, Mishra warned that global uncertainty remains high. Recent tariff measures in the US may ultimately hurt consumers rather than boost manufacturing. "Global macro uncertainty is going to remain elevated, so we should stay cautious," he said.