Will inflation go up when prices rise?

One of the bolder decisions taken by the government was to increase the GST rates on several goods and services. This was taken at a time when inflation was high at around 7% with surprises coming in every day, the latest being the rupee touching the 80 mark against the dollar.

- Madan Sabnavis

The justification for the imposition of these rates was manifold. First several goods were kept out of the ambit to begin with, that needed to be corrected. This is logical considering a review was taken after five years. Second, producers were indulging in beating the system through the unorganised sector route through labelling concessions. This led to leakages which needed correction. Third, the government has realised that the automatic buoyancy taken for granted in 2017 did not work out. Hence a review of rates was essential. The ultimate justification was that the average rate now being charged was lower than the pre-GST regime and hence this was only a part of the tax structure as even at the time of imposition of this tax, it was made clear that the rate had to converge. Therefore it was a well thought-out strategy and we can expect more such changes until the convergence takes place.