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Speaking to ET Now, Rakshit said the GST move had been in the works for over a year, and its implementation coincided with the tariff shock. “The timing is opportune because the GST benefit will start to play out just as tariffs begin to bite,” he said.
According to Rakshit, GST could lift GDP growth by 0.3% to 0.5%, offsetting the potential 0.5% drag from US tariffs if they remain in place for a few months. “The long-term implications depend on how long tariffs stay, but we know for sure that GST benefits will have a one-off impact initially, followed by multiplier effects,” he added.
Rakshit said India’s economy is navigating a delicate balance between tariff risks and domestic policy support. “GST will give consumption a fillip, income tax relief and rate cuts will add to demand, and tariffs may not last very long. The outlook remains steady, but much depends on how trade talks evolve,” he concluded.
Tariff pain seen as short-lived
The US has imposed 50% tariffs on Indian exports, the harshest such measure in Asia. While Finance Minister Nirmala Sitharaman has acknowledged the hit to GDP, she also downplayed its severity.
Rakshit echoed this cautious optimism. “As a base case, we do not expect 50% tariffs to continue for multiple quarters. We are hopeful that bilateral trade talks will yield a deal by the end of the year,” he said.He estimated the tariffs could shave off about 0.5% of GDP on an annualised basis. However, he pointed out that several export sectors remain exempt, and some goods could be diverted to other markets or absorbed domestically. “This will prevent a complete wipeout of exports,” he explained.
GDP outlook steady at 6.5%
Despite the uncertainties, Rakshit maintained a 6.5% GDP growth forecast as the base case. “Multiple levers are at play — GST cuts, income tax relief from the February budget, festive demand, and the 100 bps of monetary easing already delivered by the RBI,” he said.
While India briefly touched the 8% growth mark in the first quarter, Rakshit said such momentum is unlikely to sustain. “Some quarters will see stronger growth, but overall 6.5% looks achievable,” he noted.
Inflation trajectory eases
Rakshit also flagged disinflationary pressures from both GST and tariffs. GST rate cuts alone could lower inflation by 80–100 basis points on an annualised basis, he said.
In addition, if tariff-hit exports fail to find overseas buyers and get rerouted into domestic markets, they could also dampen price pressures. “This will play into the inflation trajectory. While inflation could touch 4% by the fourth quarter of FY26 on base effects, GST and tariff spillovers may keep it closer to 4.5% into FY27,” Rakshit explained.
RBI’s room to manoeuvre
The RBI has maintained a cautious stance, with its inflation outlook pegged around 4.5% for FY27. Rakshit said this limits policy space, but lower-than-expected inflation could change the picture.
“If inflation surprises on the downside and GDP growth slips below 6.5%, the RBI may open up room for 25–50 basis points of rate cuts. But this will not be immediate — it will depend on the trajectory over the next three to six months,” he said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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