'GST reforms positive for consumption-focused issuers': Fitch as India FY26 GDP growth forecast raised to 6.9%

Global ratings agency Fitch has raised the GDP forecast for India to 6.9% from 6.5% earlier, saying India's goods and services tax (GST) reforms should be generally "credit positive" for its rated Indian companies, which could stimulate consumption and reduce risks to the economic growth outlook as higher US tariffs threaten export demand.

"We estimate the fiscal cost of the reforms to be around 0.2% 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. Fitch recently revised up its GDP growth forecast for India to 6.9% in FY26, from 6.5%, although this largely reflects a stronger 1QFY26 outcome," Fitch ratings said in its latest research note on India.

Before this, Fitch had raised India's GDP growth forecast to 6.5% for FY 2025-26 in March 2025, while marginally increasing its GDP estimates for FY27 to 6.3%.

It also expects the impact on the sovereign credit profile to be limited, though it believes the GST reforms are likely to reduce revenue slightly compared with its assumptions when it affirmed India’s ‘BBB-’ rating, with a stable outlook in August. "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% of GDP budget target for FY26," says Fitch.

The simplification of the GST is expected will ease the administrative burden on businesses, which could eventually support increased compliance and offset some of the impact on revenues.

The key element of GST 2.0 is the abolition of the 12% and 28% bands, effective from September 22. Most products in these bands will move to the lower 5% and 18% bands, respectively. "We expect 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," says Fitch.

Following the GST restructuring, car manufacturers are among those that have already announced price cuts. Fitch says 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.

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

Additionally, the reduction of GST on cement and building materials could aid demand and EBITDA for firms like UltraTech Cement (BBB-/stable) and Hella Infra Market (B+(EXP)/stable). "We expect cement companies to pass through most of the GST cut to consumers due to the industry’s competitive pricing environment. Construction companies, including Larsen & Toubro Limited (BBB+/Stable), could also benefit from lower costs in fixed-price contracts if building material prices fall."

Similarly, lower GST rates on bio-pesticides are also positive for crop-protection chemical producer UPL, whose consolidated profile forms the basis of the rating of its subsidiary UPL Corporation Limited (BB/stable), says Fitch.

It adds that the power generator NTPC (BBB-/Stable) should be insulated from the impact of the removal of the compensation cess and a higher GST rate on coal, of 18% from 5% previously, through cost pass-through mechanisms. "Overall, we expect a marginal decline in generation costs because of the reforms, with no material impact on electricity demand."