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How GST Rate Cuts Offset US Tariff Impact to Boost Manufacturing Growth

GST rate reductions have sparked a manufacturing revival in India despite US tariff pressures. Domestic orders have completely offset the decline in export orders to the United States. The economy is tracking strong 7.2-7.4% growth for the third quarter across multiple sectors. However, fiscal consolidation pressures might create some softness in the second half of the fiscal year.

Key Points: GST Cuts Drive Manufacturing Growth Despite US Tariff Concerns

  • GST cuts on 375 items led to retail price reductions boosting household spending
  • Domestic orders surged despite 12% decline in US exports during September
  • Strong growth in agriculture, manufacturing and construction sectors driving economy
  • Increased demand for durable goods and vehicle sales indicates consumer confidence
2 min read

GST rate cuts offset US tariff impacts to drive manufacturing growth

HSBC report reveals GST rate reductions boosted domestic demand, offsetting US export declines and driving 7.2-7.4% Q3 growth projections for India's economy.

"Overall manufacturing output continued to rise, with the fall in new export orders fully offset by a rise in domestic orders - HSBC Global Investment Research"

New Delhi, Nov 4

GST rate cuts have led to retail price reductions and increased household spending, which have offset the tariff-related impact on India’s exports, a report said on Tuesday.

“Overall manufacturing output continued to rise, with the fall in new export orders fully offset by a rise in domestic orders. A spurt in input purchases suggests that manufacturing could remain strong in November too,” the report from HSBC Global Investment Research noted.

Based on pick-up in agriculture, manufacturing, construction, growth for Q3 CY25 is tracking 7.2-7.4 per cent, the firm said.

The overall exports remained steady in spite of a dip in exports to United States due to tariff-related concerns, the report said.

The research house, however, maintained that growth may see some softness in the second half of the current fiscal year due to fiscal consolidation pressures.

GST rates were reduced for around 375 items on September 22, the report said, adding that government tracking indicates that companies lowered prices by more than what was warranted by GST rate cuts for about half of the items monitored.

Pranjul Bhandari, Chief India Economist/Strategist, ASEAN Economist said that increased demand for durable goods, a significant rise in vehicle sales, and heightened e-commerce activity is notable. Further, bank credit growth rose for industries and services, including electronic manufacturing and retail trade, she mentioned.

Bhandari said that in spite of exports to the United States declining 12 per cent year-on-year (YoY) in September, following a 25 per cent increase in the first half of the year, the overall exports remained steady.

The slump in exports to US was driven by weakness in jewellery, crustaceans, and textiles, the report noted. Meanwhile, the overall exports remained steady, driven by stronger shipments to non-US markets, strong US-exports in exempted categories like electronics and petroleum, and continued strength in high-tech exports such as services, it said.

The firm said that its growth data indicators show that activity picked up further in September, led by a pick-up in agriculture, manufacturing, construction and financial services, it noted.

- IANS

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Reader Comments

R
Rohit P
The diversification away from US markets is smart thinking. We shouldn't be too dependent on any single country for exports. The growth in electronics manufacturing and services exports shows India's strength in high-value sectors.
A
Arjun K
While the growth numbers look good, I'm concerned about the fiscal consolidation pressures mentioned. Hope the government maintains the right balance between growth and fiscal discipline. The second half might be challenging.
S
Sarah B
The vehicle sales growth and e-commerce boom are really visible everywhere. Even in smaller cities, people are spending more. This domestic consumption story is what will drive sustainable growth in the long run.
V
Vikram M
It's impressive that companies lowered prices more than required for GST cuts. Shows competitive market forces are working in consumers' favor. More purchasing power in common people's hands is always good for economy.
M
Michael C
The resilience shown by Indian exports despite US tariffs is remarkable. The strategy to focus on non-US markets and exempted categories seems to be paying off. This could be a model for other emerging economies facing similar challenges.

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