Boost or Burden?

GST reforms need to be followed up with steps to ensure job creation and sustained wage growth. Else the gains may be short-lived

- By SAMAR SRIVASTAVA

EVERYONE LOVES A GOOD DEAL. Come September 22, shoppers around the country will see lower retail prices thanks to a tax cut by the government.

In cutting the Goods & Services Tax (GST) and reducing the number of slabs from four to two (plus an additional 40 percent slab for 'sin' goods), the government has worked to kill two birds with one stone.

First, revive flagging consumer demand and give consumers an incentive to spend more. The consumer economy makes up about two-thirds of the gross domestic product and reviving sentiment (and spending) is one lever of growth.

Second, go back to the original promise of making the GST structure simple and easy to administer. On both counts, changes should have a positive impact. It now remains to be seen how the consumer responds.

Soon after the announcement, companies rushed to reprice fast moving consumer products like soaps and shampoos as well as discretionary purchases like televisions and air conditioners (AC). These items are now at rates of 5 percent or 18 percent, down by at least 10 percentage points.

The price cuts were more pronounced in automobiles where cars up to 4 metres and an engine size of 1500 cc are now at the 18 percent slab while those above this are at the 40 percent slab. Car companies have announced reductions of between ₹1 lakh and ₹4 lakh. Meanwhile, consumer goods companies rushed to retain old packaging but promised to offer the benefits of new prices to consumers immediately.