HSBC Calls for Fiscal Incentives, Rate Cuts, and Reforms to Maximise Gains from GST Revamp
New Delhi, Aug 19 (TheTrendingPeople.com) – Global research firm HSBC Global Investment Research has urged the Indian government to combine fiscal incentives, monetary easing, and structural reforms to fully leverage the benefits of the upcoming Goods and Services Tax (GST) rate revision. The recommendations come as New Delhi prepares for one of the most significant tax policy changes since the introduction of GST in 2017.
Fiscal Push: Incentives for Exporters Key
According to HSBC, fiscal incentives for exporters should be a top priority to support trade competitiveness, particularly at a time when global uncertainties and tariffs are pressuring India’s export sector.
The report highlighted the urgency of policy coordination, noting that India will also need to slash import tariffs on intermediary inputs, as these directly impact manufacturing costs and export competitiveness.
With the US imposing 50 per cent duties on Indian exports effective August 27—although one-third of shipments are exempt—the need for fiscal support has become more pressing. The US accounts for nearly 20 per cent of India’s exports, making the tariff hike a potential drag on near-term GDP growth.
Monetary Easing and Structural Reforms
HSBC also called for monetary easing through rate cuts to stimulate domestic consumption and investment. While India’s growth outlook remains robust compared to other major economies, tighter financial conditions could weigh on demand in the coming quarters.
Domestically, the research firm recommended:
- Ease-of-doing-business deregulation across states.
- Implementation of the four labour codes.
- Accelerated disinvestment of public sector undertakings (PSUs).
These measures, it argued, would not only attract foreign capital but also create a more competitive environment for domestic businesses.
The report also urged India to welcome FDI, including from China, to deepen capital inflows at a time when global firms are diversifying supply chains.
GST Rate Cuts: Boost for Demand, But Questions Remain
The government has announced a major GST overhaul, likely moving most items from the 12 per cent and 28 per cent tax slabs to the 5 per cent and 18 per cent categories.
According to HSBC, this could deliver a strong demand push across multiple sectors, including food, beverages, consumer durables, autos, hotels, cement, and building materials.
However, the research note flagged concerns over fiscal implications:
“We may have to wait a bit longer to ascertain whether clouds are lifting or just shifting. In the meantime, it would serve India well to have a growth plan, ranging from fiscal support (incentives for exporters) and monetary easing to structural reforms,” the report stated.
Impact of Global Trade Dynamics
The HSBC report underlined that a possible reduction in US tariffs on India could mitigate the drag on GDP growth. A more favourable trade environment, coupled with domestic reforms, would help India better absorb short-term disruptions caused by the revenue gap from GST cuts.
It also stressed the importance of maintaining fiscal discipline, noting that global credit rating agencies are closely monitoring India’s policy mix.
Ratings Boost: Sentiment and Borrowing Costs
HSBC pointed out that India’s recent ratings upgrade by S&P Global Ratings, from BBB- to BBB (long-term) and A-3 to A-2 (short-term), could bolster investor sentiment.
“This move may not just boost sentiment, but also help lower the risk premia and borrowing costs in the economy,” the report observed.
India’s ability to uphold fiscal credibility while implementing GST cuts will be crucial to preserving these gains, it added.
Outlook: Balancing Growth with Fiscal Prudence
While the GST revamp could provide a much-needed demand stimulus, HSBC cautioned that the government must balance short-term growth acceleration with long-term fiscal stability.
If managed well, the combination of export incentives, structural reforms, and credit easing could position India to not only withstand global trade shocks but also sustain its position as the world’s fastest-growing major economy.
Final Thoughts from TheTrendingPeople.com
The HSBC report is a reminder that tax reforms alone cannot drive India’s growth story. To fully benefit from the upcoming GST rationalisation, the government must simultaneously pursue export support measures, interest rate flexibility, and structural reforms.
While immediate tax cuts may spark consumption, it is the broader policy framework—covering trade, investment, and fiscal credibility—that will determine whether India can convert this opportunity into long-term, sustainable growth.