The current, simplified GST rate structure is expected to generate a net gain to consumption of between ₹70,000 crore and ₹1 lakh crore—amounting to between 0.2% and 0.3% of the GDP—from the second half of the current financial year, according to a note by the Economics Research Department of the Bank of Baroda. The taxable consumption group would be between ₹150 and ₹160 lakh crore, the note adds.

According to the Bank of Baroda, the major overhaul of the indirect tax structure has been a significant boost to overall demand for consumption. “The real gain to consumers through lower inflation is significant. This opens more scope to even re-route consumption to savings and investment. What has been interesting is the sector-specific focus,” reads the note.

The GST rates have been lowered, especially for certain non-durables segments, which hitherto were facing downside risks to production. Even in the durables segments, the sweeping reforms have given special attention to those segments whose share in exports to the U.S. has been significantly higher. “Fine policy balancing is a welcome move.”

The inflationary impact of the reforms is expected to be between 55 and 75 basis points. This has led the state-owned lender to revise its current estimate of the headline CPI downward from 3.5% to 3.1%. This tax reform, according to the Bank of Baroda, is also expected to act as a counteracting force to negate the impact of higher tariffs to a certain extent.

Bank of Baroda has also retained its growth projection to 6.5% as its baseline forecast, with some underlying policy support expected. “The RBI will be watchful of the evolution of the inflationary trajectory, which is reeling under downside pressure, before taking a call on rates. We expect a 25 basis points cut to remain in the current cycle since the bond market has exhibited some pressure recently,” the note said.

Bank credit growth is also expected to be revived in the second half of the current financial year. “Lending to MSMEs, auto, consumer durables, other personal loans and credit card receivables will improve. Our baseline forecast for credit growth for FY26 was to the tune of 10-11%. However, we expect the current move of lower indirect tax rates to stimulate the growth of credit by another 1% (net gain due to lower inflation) to our baseline projection. The second-order effect will be more pronounced,” the not explained.

The lender also cited government estimates that the GST overhaul is expected to affect FY26 revenue by ₹48,000 crore. This impact, according to the Bank of Baroda, is minimal, accounting for between 0.1% and 0.2% of the GDP, approximately. “We continue to expect the fiscal deficit target for FY26 to be met, as there remains a possibility that consumption improves significantly and the actual impact on revenues is even lower,” it added.