GST reform: Nirmala Sitharaman says ₹48,000 crore shortfall won’t hit fiscal deficit, growth may exceed 6.8%
- 8th September 2025
- 06:30:00 PM
- 3 min read
Summary
Finance Minister Nirmala Sitharaman says revenue buoyancy from higher consumption will bridge the ₹48,000 crore GST shortfall, ensuring no deviation from the 4.4% fiscal deficit target. With GST rate cuts on nearly 400 items set to take effect on September 22, the government expects stronger household demand to also lift GDP growth beyond 6.8% in FY26, positioning the reform as both fiscally neutral and growth supportive.
Mumbai | September 8 – Finance Minister Nirmala Sitharaman has said that the government is confident of meeting its fiscal targets despite the estimated ₹48,000 crore GST shortfall caused by the recent tax rate cuts. According to her, stronger consumption and revenue buoyancy will compensate for the loss while supporting GDP growth.
Speaking a few days after the GST Council announced sweeping reforms, the Finance Minister framed the restructuring as a fiscally neutral step that will help stimulate demand and benefit every household.
Key highlights from FM’s remarks on GST reform
- Consumption to cover shortfall: Sitharaman said the government expects a surge in consumption starting September 22, when the new GST structure comes into effect. She believes this spurt in spending will generate additional revenues, allowing the ₹48,000 crore shortfall to be absorbed within the current financial year.
- Fiscal deficit target unchanged: Despite concerns, the minister stressed that the fiscal roadmap will not be altered. “I do not see an impact on my fiscal deficit or my fiscal management. I will stick to my numbers,” she said, reiterating the target of 4.4% of GDP for FY26.
- Growth outlook brightens: Alongside the GST rationalisation, India’s economy has already shown resilience, with Q1 GDP growth surpassing expectations. Sitharaman noted that the combination of these factors could push GDP growth beyond the 6.3–6.8% range projected earlier, suggesting upside potential for FY26.
- GST rate structure revised: The GST Council approved a simplified three-tier framework with slabs at 5%, 18% and 40%. Nearly 400 products are set to become cheaper, ranging from daily-use goods such as soaps and shampoos to larger items like cars, tractors, and air conditioners.
- Insurance relief: In a significant move for households, premiums on individual health and life insurance policies will be exempt from GST. This is expected to improve affordability and broaden access to essential insurance coverage.
- A people’s reform: Sitharaman described the overhaul as a “people’s reform”, highlighting that GST touches the lives of all 140 crore Indians. “There is no individual in this country who is untouched by GST. Even the poorest of the poor buy something every day that is impacted by GST,” she said.
Implications for investors and markets
For investors, the Finance Minister’s assurance underscores the government’s commitment to fiscal discipline even amid revenue challenges. The reaffirmation of the 4.4% fiscal deficit target signals policy stability, which is positive for both bond and equity markets.
At the same time, a consumption-led recovery could lift corporate earnings in consumer-facing sectors such as FMCG, autos, and durables, while households gain from lower tax incidence. The exemption of health and life insurance premiums is also expected to support the financial services sector.
Economists point out that the sustainability of the revenue buoyancy will depend on whether the initial surge in spending continues over the next few quarters. If demand momentum holds, the reform could be both a fiscal win and a growth driver.
Outlook
By combining lower taxes, household relief, and fiscal discipline, the government is positioning the GST overhaul as a reform that benefits both the economy and citizens. For the market, the message is clear: the reform is designed to stimulate demand without derailing fiscal stability, setting the stage for a stronger growth trajectory in FY26.
Source: Finance Ministry, GST Council announcements
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