GST rationalisation can be key to increasing consumption

Next year, too, could be a bit choppy if tariff curbs don't change and economy has to go through a full year's cycle in the new environment

- MADAN SABNAVIS

One of the biggest reforms which is expected in September pertains to the GST. A teaser was released on Independence Day that there would be two rates, and this means the migration of several goods and services from the 28% bracket to 18% and those in 12% to 5%. The sin goods could move to 40%. The timing has been appropriate. First, there are still few signs of consumption picking up across the board, which means that any lowering of rates will enthuse demand. This holds for both rural and urban India.

The second is that our exports to the USA are now subject to a total duty of 50%, effective from August 27. Lower GST rates on inputs will improve cost efficiency. Therefore, this needs to be welcomed.

The GST structure, to begin with, was complex with multiple rates, as distinct from the practice in most countries where there is a single rate. But there were indications given at the time of implementation that there was room for rationalisation of the structure, depending on how the economy reacts to the same. Therefore, rationalisation to two rates is a good first step. The GST has been one of the biggest success stories in our economic history, as it has meant taking all the states along and ensuring that a lot of taxes are all encapsulated in this rate. There were upheavals during Covid when revenue fell across the board and the compensation cess fund went empty. This was countered by borrowings by the centre, which lent for the long term on an interest-free basis to states. Now that this period is over (5 years was the timeline for the cess), it looks like this will be withdrawn in the new dispensation.