India’s large domestic market can insulate exporters from the loss of business in the US market | Photo Credit: MURALI KUMAR K

A GST rate rejig can help India weather the Trump tariff storm. Although there is no clarity yet on when the next GST council meeting will take place, a number of economists businessline spoke to underlined that using India’s large domestic market as an alternative can insulate exporters from the loss of business in the US market. Critical to this strategy is GST rate rationalisation, which can stimulate domestic consumption, and offset the potential decline in export demand from the US.

The Union Budget has already put more money in the hands of citizens by increasing the Income Tax threshold. Experts argue that a cut in GST rates would be the next logical step to boost this newfound purchasing power, especially in urban areas where consumption growth has been lagging. A GST cut would make a wide range of products, particularly consumer-heavy goods cheaper, leading to increased spending and help insulate the economy from external shocks.

Consumption growth

Experts say the Union Budget has provided additional money in the hands of the common people by hiking the income threshold for no Income Tax to ₹12 lakh (₹12.75 lakh for salaried persons) under the new tax regime. A cut in GST rate will further boost domestic consumption, especially in urban areas. Consumption growth in urban areas has been subdued for quite sometime.

DK Srivastava, Chief Policy Advisor at EY, said apart from diversifying its exports to destinations other than the US, particularly towards the BRICS+ countries, India should also aim to further strengthen its domestic consumption and production.

“This may be the right time to undertake the next generation of GST reforms, which may call for an overall rate rationalisation into fewer categories and a lower effective GST rate,” he said.

Further, he suggested that decision on the more contentious issues such as inclusion of petroleum products and other goods excluded from the purview of GST can be postponed. But overall rate reduction and rate rationalisation should be taken up on a priority basis. At best, a three-rate structure should be considered with 14 per cent as the core rate. “For protecting revenues, demerit rates can be used for specified demerit goods and a non-rebatable excise duty/VAT rate should be considered for polluting inputs and outputs,” he said.

Well-known stock market analyst Ajay Bagga, in a note, said: “GST cuts are the need of the hour, and a sharp pass through of lower crude oil prices to the end consumers of petrol, diesel, cooking gas and aviation fuel will help.”

However, some experts have slightly different views. Garima Kapoor, Economist and Executive Vice-President at Elara Capital, feels targeted measures in form of subsidies or rebates are likely to be more successful in mitigating the loss of loss of export orders than GST cuts. “Measures like GST cuts also suffer from ‘ratchet effect’, where measures once taken are difficult to reverse, which then may lead to permanent loss of income to the government,” she said.

GST meeting

The last council meeting took place on December 21 last year. According to the Rules for Procedure and Conduct of Business Regulations of the GST Council, it is mandated to meet at least once every quarter of the financial year. The rules also stipulate that a notice for the meeting must be dispatched at least seven days prior to the scheduled date, though an emergency meeting can be convened with two days’ notice. Typically, a 21-day notice period is observed.

Published on August 10, 2025