The coming Goods and Services Tax (GST) reforms, designed to reduce rates and boost private consumption, would counteract the blow of US tariffs, said BMI, a Fitch Solutions company.
The company further stated on Thursday that India would likely continue to be among Asia's fastest-growing emerging market economies in this decade.
BMI’s note indicated that India’s GDP is expected to stay above 6 per cent, despite the additional US tariffs affecting certain sectors.
"We forecast India's economic growth to steadily slow to just above 6.0 per cent by the decade's end, slightly below the 2010-2019 pre-pandemic average of 6.5 per cent, yet still positioning India among Asia's fastest-growing economies," BMI said.
The company also underscored that productivity is anticipated to increase by some 5 per cent over the coming decade, which will make a substantial contribution to GDP growth.
"We had earlier assumed that a 25-percentage point hike in the 'reciprocal' tariff would decelerate the growth in real GDP in FY2025/26 (April-March) and FY2026/27 by another 0.2 per cent. Accordingly, we have cut our estimates and now forecast the economy to grow at 5.8 per cent in FY2025/26 and 5.4 per cent in FY2026/27," it said.
In terms of GST reforms, BMI observed that "subject to the details, the GST reform could offset the growth drag from the tariffs. That being said, since the details remain unconfirmed, we flag the GST reform as a modest positive risk to our forecast for the moment."
The two-slab GST structure suggested is expected to increase consumption and improve profitability across industries such as automobiles, financial services, cement, and consumer staples.
SBI Research recently stated that GST reforms, combined with recent income tax cuts, would increase consumption by Rs 5.31 lakh crore, approximately 1.6 per cent of GDP.
Fitch Ratings has also reaffirmed India's 'BBB' rating with a stable outlook and anticipates that the effect of US tariffs on growth will be contained.
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