New Delhi: Union Finance Minister Nirmala Sitharaman has expressed confidence that an increase in consumption will offset the estimated GST shortfall of Rs 48,000 crore, resulting from tax rate reductions on various items, and will not adversely affect public finances, instead fostering GDP growth. Sitharaman highlighted that the consumption boost from significant GST reforms and stronger-than-expected GDP growth in the first quarter may help surpass the projected growth rate of 6.3-6.8 percent for FY26. In response to questions regarding the impact of GST rate reductions on the fiscal deficit, she noted that the Rs 48,000 crore figure is based on a static base year, and that the situation will change upon implementation.
“I believe the consumption surge starting September 22 will enhance income buoyancy. We can recover this Rs 48,000 crore this fiscal year. Therefore, I do not foresee any impact on my fiscal deficit or management. I remain committed to my target of 4.4 percent of GDP,” Sitharaman stated in an interview with a news agency. The Centre anticipates a fiscal deficit of 4.4 percent of GDP, amounting to Rs 15.69 lakh crore for 2025-26. Recently, the GST Council, led by Sitharaman, approved a two-tier tax structure of 5 percent and 18 percent, along with a 40 percent slab.
Approximately 400 products, ranging from soaps to cars and shampoos to tractors and air conditioners, will see price reductions when the GST changes take effect on September 22, coinciding with the start of Navaratri. Premiums for individual health and life insurance will be exempt from tax. In the revised GST framework, most essential food and grocery items will be taxed at 5 percent, while staples like bread, milk, and paneer will be tax-free. Electric vehicles and small cars will have a 5 percent tax, with other white goods taxed at 18 percent, representing reductions from current rates.
Describing the GST reform as a ‘people’s reform’, Sitharaman stated that the adjustment of rates across a broad range of products will benefit every household. “This is a reform that impacts the lives of all 1.4 billion people. No individual in this country is unaffected by GST. Even the poorest among us purchase small items influenced by GST,” she remarked.