GST rationalisation could increase pressure on the oil and gas sector, says ICRA

New Delhi [India], September 5 (ANI): The recent rationalisation of Goods and Services Tax (GST) is set to bring both relief and challenges across India key sectors, according to the ICRA press release. However, in the oil and gas sector, the move could increase pressure.

Prashant Vasisht, Senior Vice President and Co-Group Head, ICRA Ltd., said, GST has been increased on exploration, development and production of oil and gas from 12 per cent to 18 per cent which would lead to increase in the cost of production of crude oil and natural gas... moderating realisations and increase in cost of production would be a double whammy for the Upstream industry and could lead to some assets not being developed on account of poor returns.

On the other hand, Aditi Nayar, Chief Economist at ICRA Ltd., said the move comes at an important time for the economy. The GST rationalisation is a welcome and well-timed move, and its positive implications for consumer demand and producer sentiment will help offset a part of the negative impact of the evolving US tariffs and penalties on India GDP growth. Any revenue foregone by the Centre and the states would effectively need to be compensated through other revenue streams or expenditure rationalisation. Private sector capex decisions may also get a boost in domestic consumption-oriented sectors. As of now, the RBI may choose to retain its growth forecast for India FY2026 GDP at 6.5 per cent, unless there is a thaw in the tariff/penalty situation later this month.

In fertilisers, Vasisht noted that reduced rates on inputs like ammonia and sulphuric acid could improve the working capital management of the incumbents on account of lower tax blockage and support the farm economy.

She added that the timing could also aid festive consumption. Given the earlier-than-expected implementation of the GST rationalisation at the onset of the consumption-heavy festive period, the moderate revenue likely to be foregone in the second half of this fiscal--which would nevertheless necessitate other revenue mobilisation or expenditure-saving measures--and the sharper-than-expected Q1 GDP growth, we now assess FY2026 GDP growth at 6.5 per cent, which remains dampened by the prevailing uncertainty related to US tariffs.

In the renewable energy sector, Girish Kumar Kadam, Senior Vice President & Group Head, ICRA Ltd., pointed out cost benefits. The rationalisation of GST rates for solar PV modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by approximately 5 per cent. This is expected to reduce the cost of generation for solar power projects by approximately 10 paise per unit and for wind power projects by approximately 15-17 paise per unit. This, in turn, will benefit the power distribution companies in the form of lower power purchase cost, going forward.

The automobile industry is expected to see a revival, according to Jitin Makkar, Senior Vice President and Group Head, Corporate Sector Ratings, ICRA Ltd. The GST rate cut is a welcome relief for the automobile sector... Lower tax incidence directly translates into reduced on-road prices, making vehicles more affordable for consumers. The move is expected to revive showroom footfalls, accelerate retail sales, and help OEMs clear existing stock.

Makkar added that FMCG, healthcare, and consumer electronics will also see growth. The GST rate cut on select lifesaving medicines... is poised to enhance affordability and accessibility for patients, he said. Similarly, Lower shelf prices on everyday essentials... will likely drive volume growth, while in electronics, the GST rate cut improves affordability and will revive consumption demand that has been subdued lately.

Rural housing is another beneficiary, as highlighted by Anupama Reddy, Vice President & Co-Group Head, ICRA Ltd. Rural housing will be a key beneficiary from the Government decision to reduce GST on cement from 28 per cent to 18 per cent... The timing of this move is also strategic, aligning with the seasonal surge (post monsoon period) in the construction activity across rural and semi-urban regions. (ANI)

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