Key Points

"The reform of India's goods and services tax (GST) should be generally credit positive for our rated Indian companies, stimulating consumption and reducing risks to the economic growth outlook as higher US tariffs threaten export demand," the report noted.

Fitch expects these and other GST changes to result in lower prices, though some firms may seek to absorb the benefit themselves rather than passing it on to consumers through price cuts.

Most of India's auto manufacturers have already announced price cuts. Fitch Ratings believes this will help to lift demand across passenger and commercial vehicle segments in the second half of the financial year ending March 2026 (FY26), after a subdued first half. Demand for two-wheelers could also be lifted by price cuts.

"Higher sales in the domestic market could cushion the effect of weak demand in overseas developed markets for auto components," the report said

The removal of GST on private insurance premiums will help to improve access to healthcare, particularly in lower-tier cities and rural areas. This, coupled with the potential for GST reform-related price cuts, is expedited to enhance demand prospects in the domestic pharmaceutical market. This may offset some risks that Indian firms could face if the US raises tariffs on pharmaceutical product imports.

The report mentioned that, "The reduction of GST on cement and building materials could aid demand" benefitting cement manufactures. Fitch expects cement companies to pass through most of the GST cut to consumers due to the industry's competitive pricing environment.

Construction companies are also likely to benefit from lower costs in fixed-price contracts if building material prices fall. Similarly, lower GST rates on bio-pesticides are positive for crop-protection chemical producer companies.

Overall, Fitch Ratings expects a marginal decline in generation costs because of the reforms, with no material impact on electricity demand.

It estimates the fiscal cost of the reforms to be around 0.2 per cent of GDP annually, but the potential boost to consumption and growth will depend on the extent to which companies pass on lower taxes to consumers.

The reform's impact will be slightly negative on revenues, which could complicate further deficit reduction beyond FY26.

"However, we anticipate the government will adjust spending to keep the deficit to the 4.4 per cent of GDP budget target for FY26. We also believe simplification of the GST will ease the administrative burden on business, which could eventually support increased compliance and offset some of the impact on revenues," the report noted.

Fitch has recently upgraded India's ratings to BBB- with a stable outlook and also upped India's GDP growth forecast to 6.9 per cent in FY26 from the earlier projection of 6.5 per cent.

- ANI