GST Reforms To Cost 'Only' Rs 18,000 Crore For Central Government: Bernstein
GST Reforms: Brokerages believe this impact will be miniscule and will be offset by higher consumption and better tax compliance.
The sweeping changes to GST rates will only lead to a Rs 18,000 crore fiscal burden for the centre, as per Bernstein's analysis.
This number amounts to only 0.05% of India's FY26 GDP value.
On Sept 3, the government announced significantly reduced GST rates on a wide array of goods, which will be applicable from September 22.
From daily FMCG products, cars and white goods to insurance, most products are expected to get cheaper for an average Indian consumer.
Brokerages have shared a rather optimistic view on the GST reforms, believing that it will significantly aid consumption and lead to better tax compliance.
The GST reforms, though, will lead to a short-term revenue hit for the government, the brokerages add.
The Economic Impact Of GST Reforms
Bernstein's latest India Strategy Note has highlighted the potential financial impact of the GST reforms, not just for the government but for the end consumer as well.
The net revenue loss the government will incur from rationalising the 12% slab to 5% will be a significant Rs 79,600 crore.
The loss of the 28% slab is even greater, amounting to Rs 1.12 lakh crore. Although these losses are partly offset by a gain of Rs 700 crore (12% to 18%) and Rs 15,000 crore (28% to 40%) from other slab changes, it is minuscule compared to the overall impact.
Now, assuming a 65% pass-through, the consumption impact stands at Rs 1.14 lakh crore, which accounts for a GST increase of Rs 19,100 crore, assuming 16.6% is the newly calculated effective GST across 5% and 18% slabs.
This means both the centre and state governments together will incur a net loss of Rs 1.57 lakh crore. In keeping with the centre's 47% share, this amounts to a loss of Rs 74,000 crore for the government.
However, Bernstein is assuming a 5% capex cut owing to these changes, which amounts to Rs 56,000 crore. Therefore, the total burden of the GST changes could end up at Rs 18,000 crore only, which is only 0.05% of the FY26 GDP.
Brokerages believe this impact to be minuscule and will be offset by higher consumption and better tax compliance.
