BY streamlining taxes under the Goods and Services Tax (GST) with two major slabs of 5 per cent and 18 per cent, the Centre has applied a much-needed balm to the country’s economy which is still gauging the impending impact of the high tariffs imposed by United States President Mr. Donald Trump. The GST Council has approved the two-tier tax structure as announced by Prime Minister Mr. Narendra Modi during his Independence Day speech.

 

The proposed steep cuts in GST rates, to be effective from September 22, can act as a major game-changer ahead of the festive season as the economy shores itself from external shocks which are bound to hit India due to global uncertainty. The rate cuts, touted by the Central Government as Next-Gen Reforms, have come at the right time for Indian businesses. Though not all sectors are in the line of fire of the 50 per cent tariffs in the US, most businesses were awaiting a reform in the GST rates as it was the need of the market. The Centre has done well to heed to the market sentiment and given a reason to cheer to the common man who will be the biggest beneficiary of the two-tier GST structure. Most of the things of daily interest for the general public have been brought under the 5 per cent slab which is set to help people save more in their monthly budget. The decision is a big positive for urban consumption as it will automatically result in higher demand and more production.

 

The cyclical nature of urban consumption is set to drive economic growth in the next quarters. With the festive season shopping set to begin in a few days, the lower GST rates can help in raking in a bigger tax revenue in the short-term. The common man stands to benefit the most from the rate cuts. Two critical services -- health care and insurance -- have seen complete exemption from taxes. It is a big help for families across the country as their expenses on these two important and unavoidable needs will be well rationalised. Not only the common man will be benefitted by the rate change but the reforms have come as a boon for small traders and businesses. The rate rationalisation has covered a plethora of goods which form the backbone of small and medium markets. With the market sentiment turning positive after the GST bonanza, they are in line for direct benefit of higher consumption. A notable inclusion in the lower rates slab is agriculture equipment. Tractors, drip irrigation systems, sprinklers, horticultural machinery, cultivators, bio-pesticides which were early in the 12 per cent bracket have been brought under the 5 per cent slab. It is a major relief for farmers and a much-needed booster dose for sustainable and new-age farming. Lowering rates on farm products provides a fillip to the segment where stress has been most visible.

 

The push for modern farming like horticulture and floriculture required availability of equipment at affordable rates. The GST reforms have taken care of this concern. How the GST reforms will impact the stressed sectors will be important to see. One of the critical manufacturing sectors which needed the booster was the automobile industry. Latest numbers have seen sales slackening in the past quarters. Now, with the prospects of prices coming down by almost 10 per cent, the industry is likely to see its wheels moving at a greater speed. The automobile industry is one of the labour-intensive sectors and the benefits will directly pass on to bigger job creations. The Government has delivered what it promised. It has opened up the field for all segments with only two major slabs. It is now time for the markets to complement this welcome step. The focus now shifts to the fine print and translation of lower taxes into lower prices, higher volumes growth and better corporate earnings.