GST Rate Cuts Offset US Tariff Impacts to Drive Manufacturing Growth

By | November 7, 2025
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GST Rate Cuts Offset US Tariff Impacts to Drive Manufacturing Growth

 

Issue: To analyze how the strong domestic stimulus provided by the Goods and Services Tax (GST) rate rationalization helped insulate the Indian manufacturing sector from the negative financial impact of high US import tariffs, sustaining overall output growth.

Facts:

  • The GST rates were reduced for around 375 items on September 22, 2025.
  • The reforms led to retail price reductions and increased household spending.
  • Exports to the United States (US) experienced a slump, declining 12% Year-on-Year (YoY) in September due to tariff-related concerns.
  • The decline in US exports was driven by sectors like jewelry, crustaceans, and textiles.

Decision:

The GST rate cuts and the consequent rise in domestic orders successfully offset the tariff-related impact on India’s exports, allowing overall manufacturing output to continue its rise and maintain strong growth momentum.

Key TakeDowns:

  • Domestic Orders Counter Export Fall: The manufacturing sector’s growth was driven by a strong surge in domestic orders, which absorbed the fall in demand from the global market (specifically the US export decline).
  • Policy Success as Insulation: The successful price transmission following the GST cuts (with companies lowering prices by more than the tax cut for about half of monitored items) directly fueled domestic consumption, proving the reforms to be a strong insulation measure against external global headwinds.
  • Sectoral Buoyancy: The demand increase was notable for durable goods, significantly boosting vehicle sales and increasing e-commerce activity.
  • Investment and Credit Growth: Bank credit growth also rose for industries and services, including electronic manufacturing and retail trade, suggesting sustained investment in manufacturing capacity.
  • GDP Growth Tracking: Based on the pickup in agriculture, manufacturing, construction, and financial services, growth for the third calendar quarter (Q3 CY25) is tracking a healthy 7.2–7.4%. * Export Resilience: Overall exports remained steady, despite the US dip, due to stronger shipments to non-US markets and continued strength in high-tech exports like services and electronics (which often fall under exempted categories).