GST Rate Rationalisation: A Boost to India's GDP and Agriculture Sector

The Centre's recent decision to streamline GST rates to two slabs—5% and 18%—starting September 22, 2025, is set to boost the country's GDP by 0.2-0.3% in FY 2025-26. According to economist Sonal Badhan of Bank of Baroda, growth will be more substantial in the second half, with 2026-27 expecting further boosts as GST cuts take fuller effect.

In response to questions about the potential widening of the fiscal deficit due to forgone revenue, Badhan expressed optimism that increased consumption would offset revenue losses. "We expect risks to the fiscal deficit to remain limited," she stated. The GST reform is anticipated to enhance consumption momentum, particularly during the festive season.

The GST Council has sanctioned rate cuts across several sectors to alleviate tax burdens on citizens and invigorate economic growth. Tax reductions on agriculture-related goods, tractors, and irrigation systems aim to boost farm mechanization, offering both short-term relief and aiding longer-term structural changes. These measures are expected to foster increased productivity, making machinery affordable for smaller farmers. This could potentially uplift rural GDP, driven by gains in both production and consumption sectors.

(With inputs from agencies.)