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United News of India
a day ago
- Business
- United News of India
GST rationalisation impact on inflation depends on the effect on CPI components: Bank of Baroda Economist
Chennai, Aug 16 (UNI) The impact of the proposed rationalisation of the Goods and Services Tax (GST) on inflation would depend on the effect on the consumer price index (CPI) components, said a top economist at Bank of Baroda. He also said the impact on investment will be driven by the final effect on consumption. If consumption increases, it can spur more investment in specific products. The Indian government has announced the idea of having two major GST slabs viz., 5% (merit) and 18% (standard). 'The highest slab of 28% would be abolished and all goods and services in this bracket moved to the 18% rate. 99% of goods in the 12% rate will move to 5%. The balance 1% would go to 18%. The existing 40% rate would hold for tobacco and other sin goods. The exempted and special rates of 0.25% and 3% rate goods would remain unchanged,' Madan Sabnavis, Chief Economist said. 'The impact on inflation would depend on how various components of the CPI index are impacted by the new rates. While it has been projected as lowering the tax burden there can be a tendency for inflation to come down. But the extent will depend on the individual tax rates,' Sabnavis said. However, at the micro level, any reduction in GST as it is expected for goods like hair oil, toothbrush, pencils and others may not exactly increase consumption but will release resources of households that can be spent on other products and services. 'Impact on investment will be driven by the final effect on consumption. If consumption increases, it can spur more investment in specific products,' Sabnavis remarked. Having fewer slabs certainly makes the system simpler and leads to better compliance and removal of ambiguity. But it needs to be seen whether or not the final effect is tax neutral. If movement of goods across slabs provides a net gain on the fiscal side, then it would not change much from the consumption point of view, he said. 'On the whole it has been projected to provide support to consumption which is positive for the consumer goods segments. The ultimate impact has to be gauged from the point of view of fiscal impact given that any restructuring has to be a zero-sum game – if the consumer is to gain, there has to be some let off on the budget. This however, can get corrected once the economy grows at a faster rate in the coming years,' Sabnavis said. The GST Council is to meet in Sept-Oct and deliberate on this proposal. The compensation cess is to be phased out and it is possible that goods and services with 40% slab would take in this effect. UNI VJ GNK
Mint
07-08-2025
- Business
- Mint
Fresh US tariffs could shave up to 30 bps off India's FY26 growth prospects, experts say
New Delhi: India's economic growth in 2025-26 could be hit by another 20-30 basis points if US President Donald Trump's proposed additional 25% tariff hike on Indian goods takes effect later this month, economists cautioned. The combined impact of Trump's total 50% tariff hike is conservatively projected to reduce India's FY26 GDP growth by 40-60 basis points, or 0.4-0.6 percentage points. Indian exporters could be among the hardest hit by Trump's trade offensive when the additional duties kick in on 27 August, unless a breakthrough is reached during the ongoing 21-day negotiation window. Benchmark indices Nifty 50 and Sensex dropped almost 1% on Thursday, but rebounded to end the day's session marginally higher on expectations that New Delhi can negotiate a better deal and as the overall impact on India's economy appeared manageable. 'Roughly half of India's exports to the US could be affected, especially from labour-intensive sectors like garments, leather, and gems and jewellery," said Madan Sabnavis, chief economist at Bank of Baroda. 'The impact on GDP may not be dramatic, but we could see growth closer to 6.2-6.3% in FY26," he said. Goldman Sachs projected a similar 0.30 percentage point drag on India's economic growth if Trump's tariffs are fully implemented. Sabnavis said the additional 25% levy would force Indian exporters to either absorb margin pressure or divert shipments to other markets. 'The government may then have to consider targeted support, especially for MSMEs (micro, small, and medium enterprises), which are large employment generators," he said. Trump's latest salvo 'appears to be an effort to bring India to the negotiating table", Sabnavis said. "A deal could still emerge, potentially reducing the hike to 10-15%." Exports to the US account for around 2% of India's GDP, so any disruption is likely to weigh on FY26 growth, added Devendra Kumar Pant, chief economist at India Ratings. However, shipments sent before 27 August and arriving at US ports by early September are expected to be taxed at the earlier, lower rate. "We have already revised our FY26 growth to 6.3% from the earlier forecast of 6.6%. However, if both countries have a trade deal, the impact will be lower," Pant said. A senior government official said it was too early to quantify the impact of the proposed US tariffs on India's FY26 growth, given that trade negotiations are still underway. 'Talks are ongoing, and it's premature to estimate the final impact on growth," this official said, requesting anonymity. India is expected to resume talks this month on a bilateral trade agreement with the US, its largest trade partner. Costly reverberations Trump framed his additional 25% levy as retaliation for India's oil and defence ties with Russia and growing alignment with the BRICS bloc. While India termed the additional tariffs 'unfair, unjustified and unreasonable", Prime Minister Narendra Modi asserted he was unwilling to offer concessions in agriculture and dairy. 'India will never compromise on the interests of farmers, fishermen and dairy farmers," Modi said on Thursday. 'I know personally I will have to pay a heavy price for it, but I am ready for it." The Reserve Bank of India lowered its FY26 growth estimate to 6.5% from 6.7% in April, citing global trade and tariff risks following Trump's announcement of reciprocal duties that month. Goldman Sachs, too, recently trimmed its real GDP forecast for India to 6.5% for calendar year 2025 and 6.4% for 2026. 'We had previously estimated a potential direct impact of around 0.3 percentage point (annualised) to India's real GDP growth, following President Trump's surprise announcement of a 25% tariff on Indian imports (last month)," Goldman Sachs said in a report on Thursday. 'If the new additional duty (including exclusions) is enforced, then that would constitute a potential incremental drag of around another 0.3pp (annualised)." Exports to the US account for nearly 4% of India's GDP, the New York-headquartered investment bank said in its report, adding that even a modest slowdown in American demand could reverberate across the economy. 'We see downside risks to our growth estimates for both CY25 and CY26, but are not making any changes to our growth forecasts at the moment, given that there is a three-week window for negotiations until the new incremental tariffs come into effect," Goldman Sachs added. A senior economist at a global consulting firm, speaking on condition of anonymity, warned that a 50% tariff could drag down India's FY26 GDP growth by as much as 0.8%. 'A 25% tariff could shave off 0.2-0.3% from GDP, but at 50%, the impact doesn't just double, it could be significantly worse, as some export-dependent sectors may not survive," the economist said. 'There will definitely be a negative impact. It's unclear how businesses will adjust, particularly in vulnerable sectors like textiles." Growth forecasts split The warnings come amid a broader wave of downward revisions to India's growth outlook. Last month, the Asian Development Bank cut its FY26 GDP growth forecast for India to 6.5% from 6.7%, citing tariff risks and weaker global trade. The International Monetary Fund, in contrast, raised its projection for India's economic growth in FY26 to 6.4% from 6.2%, pointing to resilient domestic demand and macroeconomic stability. Moody's and S&P Global have both pegged India's growth at 6.5%, while the government's Economic Survey earlier this year projected a range of 6.3-6.8%. Despite the headwinds, India remains the world's fastest-growing major economy. A spokesperson for the Union finance ministry did not respond to emailed queries on whether the government is reassessing its forecasts in light of the proposed US tariffs. The US is one of the few major economies with which India runs a sizeable trade surplus. That surplus widened to $41.18 billion in FY25, up 16.6% from $35.33 billion the previous year. Exports to the US rose 11.6% to $86.51 billion, while imports climbed 7.4% to $45.33 billion. By contrast, India's overall merchandise trade deficit stood at $282.83 billion in FY25, underscoring the strategic importance of its trade with the US.
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Business Standard
06-08-2025
- Business
- Business Standard
Trump trade tariffs: MCA planning to ease compliance burden for MSMEs
As part of a broader strategy to shield domestic industry from US tariffs, the Ministry of Corporate Affairs (MCA) is planning to ease compliance reforms for medium, small and micro enterprises (MSMEs), according to official sources. 'We are looking at it very seriously and taking inputs from the MSME ministry as well,' a government source said. The MCA may also consider amendments to the existing Companies Act for simpler certification processes for MSMEs and doing away with certain compliances for such companies, sources said. Some of the measures which were recommended in the expert committee report regarding Company Law in 2022 included reducing fines and penalties which are designed keeping larger companies in mind. Suggestions made by the Federation of Indian MSMEs (FISME) include exemption for unlisted companies up to a turnover of ₹1,000 crore from mandatory Corporate Social Responsibility (CSR) obligation to provide them with greater flexibility in their board structure and reduce their compliance costs. The MSME body has sought relaxation in the requirement to appoint independent and women directors, which it says can be costly and time-consuming for unlisted companies, especially those with limited resources. With a global environment marked by trade tensions and geopolitical volatility, the government is expected to look for ways to support domestic industries. 'Direct assistance to MSMEs and assistance through processes - both are important since macro-economy may not be impacted much by tariffs, but MSMEs will face some challenges and require support from the government,' said Madan Sabnavis, chief economist, Bank of Baroda. Sabnavis said that help with administrative hassles may not give direct support to MSMEs, but would still bring ease of doing business for the sector. Experts said that the government should allow self-certification or deemed acceptance for various procedures under Companies Act, instead of demanding a host of documents from MSMEs. 'They could do risk profiling and have automated acceptance for smaller companies. Departments across governments often ask for the same data and if there was better sharing of information between ministries, it would also ease compliance burden on MSMEs,' an industry expert, who did not wish to be named said. According to the Ministry of Statistics & Programme Implementation, MSME contribution to the country's GDP was marginally lower in 2023-24 to 31.1 per cent, compared to 31.3 per cent in the previous year. Under the present Companies Act, MSMEs are granted certain exemptions. For instance, the requirement that the cash flow statement should be part of the financial statement has been made optional. Small companies are not required to rotate auditors and disclosures, such as auditor's report on internal financial controls do not apply to MSMEs. Small companies are also exempt from requirements of pre-certification of forms by professionals. All companies with authorised capital up to ₹15 lakh or with up to 20 members where no share capital is applicable are charged zero fees for incorporation.
Time of India
06-08-2025
- Business
- Time of India
RBI's monetary policy pause leaves room for another rate cut in coming months: Experts
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel The Reserve Bank's status quo on the monetary policy provides more leg-room for another rate cut in the coming months depending on macro-economic data to boost growth amid tariff headwinds, experts said on Reserve Bank of India (RBI) kept its repo rate unchanged on Wednesday, as policymakers weighed the risks posed by US President Donald Trump's trade policies and the uncertainties surrounding the potential for higher six-member rate-setting panel, headed by RBI Governor Sanjay Malhotra, held the repurchase rate at 5.5 per cent in a unanimous vote and decided to continue with a 'neutral' on the monetary policy, Binod Kumar MD and CEO of Indian Bank , said that as RBI had front loaded rate cut, it was expected to maintain status quo."It is a welcome move. However, it leaves room to reconsider in coming months as CPI is benign and a push for growth may be required," Kumar said, adding that the Indian Bank has already passed on benefits of previous rate cut and expect further normalisation in MCLR as cost of fund continue southward Sabnavis, Chief Economist at Bank of Baroda , said the credit policy was more or less on expected lines with a status quo on rates and a continuation of the stance being neutral. While underlying the strength of the economy which is to grow by 6.5 per cent, the policy has flagged the uncertainty on the trade front."...it does look like that this status quo can be persevered with for some more time unless there is any dramatic change in the conditions outlined in the policy. There can hence be at most one more rate cut which will be data dependent," Sabnavis uncertainties over global trade front, Governor Malhotra said the central bank is taking all necessary steps to support economic growth The pause on repo rate follows a 100 basis point cut in interest rate over three bi-monthly MPC meets in Banerjee, Partner and Economic Advisory Leader at PwC India, too said the MPC has rightly pushed the pause button on the policy rates, given there is no immediate need to fire another rate cut bullet."The growth forecast has been retained at 6.5 per cent, which may come under some mild pressure but may not be very off, with a 10-20 bps downside risk. Any downsides on the external front are likely to be cushioned from the domestic demand uplift possibilities," Banerjee Kumar Srivastava, MD & CEO, Indian Overseas Bank , said RBI's decision to enhance retail access to Treasury Bills via SIPs and the standardisation of bank locker and account claim settlements, are initiatives that are expected to further deepen financial inclusion and boost investor confidence."At Indian Overseas Bank, we see this policy stance as growth and stability oriented, and we are committed to supporting the credit needs of individuals and businesses alike," Srivastava Prem, co-founder & CEO of FIA Global, said the impact of the 100 bps rate cut since February on the economy has been broad-based and is still unfolding, the banks are passing it on in terms of lower lending rates, including for borrowers under the PM Mudra Yojana."The Governor's emphasis on building on bank account openings under PM Jan Dhan Yojana to develop resilience afforded by insurance and pensions augurs well," she Varayur, Co-Founder of Manasum Senior Living, opined that while a rate cut could have provided additional stimulus, the unchanged GDP growth forecast of 6.5 per cent for FY26 suggests a stable economic outlook."For the senior living housing sector, this stability in interest rates could be beneficial in the long run, as it may keep borrowing costs manageable for potential homebuyers," Varayur Kapur, Chairman of Krishna Group and Krisumi Corporation, said while a rate cut would have further accelerated the demand for homes across segments, borrowing costs continue to remain at relatively accommodative levels, supported by the cumulative 100 bps reduction earlier this year."With the festive season approaching, stable interest rates and the continued transmission of past rate cuts are expected to keep housing demand buoyant - particularly in the mid and premium segments," Kapur Singal, CEO of Quest Investment Advisors, said the RBI's decision clearly indicates the regulated approach towards controlling inflation while supporting economic growth in the country."Keeping interest rates steady when inflation is very much under control is a very good decision and will help in boosting positive sentiments in the economy while encouraging long-term investments in the economy," Singal Agrawal, Head of Fixed Income at Union Asset Management Company, opined that given the ongoing trade and tariff-related disruptions, the MPC is in a pause mode and looking for rate transmission to take place."In our assessment, given the growth inflation dynamics, the rate environment is expected to remain benign with further rate reductions ahead. Hence, investors are advised to remain invested in light of the prevailing benign environment," Agrawal Finance Managing director V P Nandakumar said the RBI has decided to pause policy rates and maintain a neutral stance, mainly because it requires more clarity on upcoming inflation data and the final US tariff structure, as these are currently creating greater uncertainty."Therefore, the central bank believes that further easing is not necessary at the moment, as liquidity in the banking system is already in surplus, and the CRR cut announced earlier will further improve liquidity conditions," Nandakumar said.
Time of India
05-08-2025
- Business
- Time of India
With festive winds and tariff headwinds, RBI MPC's policy call may set the tone for India's second-half story
RBI Rate Cut Expectation: The Reserve Bank of India's Monetary Policy Committee is reviewing the bi-monthly policy. A hold on the repo rate is expected. This is despite low inflation and a stable rupee. US tariffs add uncertainty. Economists are divided on the need for a final rate cut. The festive season will be key. Markets await the RBI's decision and forward guidance. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, began its three-day review on Monday to decide the next bi-monthly policy action. With the decision due Wednesday, a status quo on the repo rate looks likely, despite low inflation, a stable rupee, and calls for a final rate cut to support US government's decision to impose a 25% tariff on Indian imports from August 7 has added a layer of uncertainty to the central bank's February, the central bank has cut the benchmark repo rate by 100 basis points in three steps, bringing it to 5.5%. Wednesday's meeting takes place as retail inflation has cooled significantly, well below the 4% target, while global trade tensions and capital flow concerns have resurfaced due to US tariffs. Market participants, policymakers, and businesses are now focused on the RBI's tone, not just the rate.A majority of economists expect the central bank to maintain its current policy stance. However, a growing segment sees room for a final 25 basis point cut to maintain credit momentum, especially in light of evolving downside risks to growth and soft consumer Sabnavis, Chief Economist at Bank of Baroda, said that recent inflation or tariff announcements are unlikely to shift the RBI's stance. 'The policy already would have buffered in the 26 per cent tariff, which was the deferred rate in April. Therefore, the tariff per se may not really change the view on growth,' he expects RBI to revise its full-year inflation projection slightly downward to 3.5–3.6%, but anticipates no policy change in Chief Economist Aditi Nayar highlighted that inflation had cooled to just 2.1% in June. 'Further, the tariffs imposed by the US will pose a downside risk to GDP growth, while admittedly injecting volatility into the INR,' she said. 'In our view, the balance remains slightly tilted towards a final rate cut of 25 bps in the August 2025 policy review.'Mandar Pitale, Head of Financial Markets at SBM Bank India, noted that even if the US moderates its tariff plan, the impact will remain. 'Even in case of an eventual deal, US tariffs that will finally get imposed on India are likely to be closer to the tariffs offered to other emerging market Asian countries (15-25 per cent range) and will add to downside risk to growth,' he upcoming festive quarter is expected to play a key role in how demand shapes up. Retail, MSMEs, and real estate stakeholders believe that another rate cut, even if modest, could improve sentiment and credit Arora, CEO & Co-Founder, Biz2X and Biz2Credit, said, 'These tariffs not only present uncertainty into external trade but also risk squeezing smaller exporters who are already grappling with tightening domestic liquidity. With the festive season approaching, a 25-basis-point rate cut could help MSMEs absorb external shocks, maintain credit access, and power job-creation.'Jash Panchamia, Executive Director, Jaypee Infratech, said, 'With inflation currently at a six-year low, a 25-basis-point cut in the repo rate would be encouraging for the overall economy. The real estate sector, having already benefited from the previous three consecutive rate cuts, would see a further boost in demand and buyer confidence if another cut is announced.'Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution, added, 'With inflation remaining below expectations, geopolitical tensions easing, and the domestic economy showing signs of resilience, a moderate 25 basis point cut remains a strong possibility.'The festival season, which begins from late August and peaks in October-November, typically drives spending across sectors including housing, consumer goods, travel, and electronics. Policymakers will be watching whether the credit growth picks up in this period, which could inform their policy path for the second half.A Bloomberg report stated that Soumya Kanti Ghosh of SBI and Dhiraj Nim of ANZ now expect a 25 bps cut, reversing their earlier prediction. 'There's no point in holding off on rate cuts now,' said Ghosh, arguing that inflation is likely to remain below the RBI's 4% target through FY26. He added that a front-loaded cut could help pre-festive season not all agree. Aastha Gudwani of Barclays said, 'The RBI would choose to wait this policy out and let these events unfold, thereby keeping the powder dry.'According to an ET poll, 12 of 16 economists expect the repo rate to be held steady. Four expect a 25 bps cut, citing inflation's drop and supportive macroeconomic conditions. Anand Rathi Research noted, 'With inflation well contained but underlying risks still bubbling, the RBI is expected to hold the repo rate steady at 5.50%.'Suresh Darak, Founder, Bondbazaar, said, 'RBI has already frontloaded all the rate cuts to boost economic growth. Now we believe RBI will await the impact of its actions on GDP growth and inflation, before considering any movement in rates.'On the liquidity front, traders are expecting guidance following the recent CRR cut that created short-term rate volatility. With a system surplus of Rs 3.3 lakh crore and another Rs 2.5 lakh crore likely to be added from September, the RBI's commentary on liquidity absorption will be Malhotra will announce the decision on Wednesday morning at 10am. The Governor's address will be streamed live on RBI's Youtube channel. The live address can also be seen at The Markets, businesses and households alike will be listening for not just the rate, but the central bank's forward guidance, whether it confirms a long pause or leaves the door open for one final cut in 2025.
