Nomura has kept its estimate for the economic growth of India in FY26 at 6.2 per cent GDP growth along with consumer price inflation of 2.7 per cent.
The Japanese financial services company's forecast comes amid the government working towards a much-anticipated revamp of the Goods and Services Tax (GST) structure.
Presently, GST is levied under four slabs—5 per cent, 12 per cent, 18 per cent, and 28 per cent. The Centre has decided to prune this structure into two base rates of 5 per cent and 28 per cent, and impose a levy of 40 per cent on sin and luxury items.
Experts warn that elimination of the 12 per cent and 18 per cent slabs can theoretically cut GDP growth by 0.19 per cent. States might oppose the move, fearing loss of revenues if compensation is inadequate. Policymakers will prefer to retain high-revenue items in higher tax slabs to protect state budgets.
Nomura pointed out that Indian consumption is largely based on employment and income fundamentals. Tax reforms that boost disposable income could lead to greater savings, while consumer expenditure could change in cycles. The brokerage forecasts initial slowing of buying ahead of weaker rates, followed by a pickup in demand in the festival season in October–November.
The GST rationalisation should have a significant disinflationary impact. Today, 22 per cent of the items in the CPI basket come under the 12 per cent slab, and 5 per cent in the 28 per cent slab.
But Nomura cautioned prices may not be reduced immediately. Leveraging the experience of the 2017 GST introduction, firms have a tendency to increase mark-ups prior to the reform and transferred only a portion of the tax relief to consumers, increasing the profit margin.
The proposal enters the political sphere now. This week, a Group of Ministers (GoM) will discuss the plan, after which there will be a GST Council meet in September. If all goes well, the new GST structure will take effect by Diwali.
On a fiscal basis, government's biggest indirect taxation revenues are derived from items taxed at less than 18 per cent and these are not likely to be impacted big time. With high-yielding products continuing in the highest slab and the existing compensation cess most probably substituted with an alternative one, Nomura has maintained its fiscal deficit forecast unchanged at 4.4 per cent of GDP.
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