GST Reforms To Boost Consumption, Unlikely To Be A Drag On Govt Revenue: S&P

The impact of the reforms in the goods and services tax will take time to play out and will help boost consumption, S&P Global Ratings said.

The reforms will need to be approved by the GST Council. However, it is unlikely to be a drag on the government's fiscal revenue, the ratings agency said in a webinar.

The comments come after S&P upgraded India’s sovereign rating to BBB from BBB- last week with a stable outlook. The rating was upgraded citing economic resilience and sustained fiscal consolidation.

Large debt stock and interest-rate burden persists, though the government is prioritising consolidation efforts. Interest rate servicing cost remains high for the government and the ratings upgrade may help bring down funding costs, which in turn, might help bring down to continue to improve the sovereign's profile.

Still, Indian issuers are largely funded onshore so linkage to offshore funding costs is not much. As such, the rating change might not have substantial impact on spreads, the ratings agency said.

Along with the GST reforms, private capex prospects, too, appear strong, according to the global ratings agency, which forecasts corporate capex at $800-850 billion by 2030 — almost two times as much as seen in the past five years. This surge will likely be led by investments in power and transmission, along with continued increase in investments in aviation, according to analysts at S&P.

While the impact of tariffs imposed by the US could have some short-term impact, they are unlikely to have any effect long-term, it reiterated.

Room for further rate cuts remains given the inflation outlook that looks relatively benign for now, S&P global said.

While technology and the gig economy have been critical in creating jobs in India so far, AI will be a swing factor with less demand for certain jobs in the near term. Still, in the long term it is expected to help boost productivity.