India’s recent rationalisation of goods and services tax (GST) rates is expected to deliver a significant boost to middle-class consumption and support broader economic growth, according to Ashwini Vaishnaw, Union Minister for Railways, Information and Broadcasting, Electronics & IT.
In an exclusive interview with Moneycontrol, Vaishnaw said the latest round of tax relief- including both GST revisions and the income tax threshold adjustments in the Union Budget, reflected Prime Minister Narendra Modi’s continued focus on easing the financial burden on India’s middle-income households.
“PM Modi has always cared for the middle classes,” Vaishnaw said, pointing to the increase in the income tax exemption limit as “a very big relief” for salaried families. “The same thing is now happening in GST rationalisation.”
He argued that the combined impact of income tax and GST cuts would spur household consumption in a meaningful way.
“Our economy is Rs 330 lakh crore, and over Rs 200 lakh crore comes from consumption. With these measures, consumption will go up by 10 percent,” he said.
This expected uptick in consumption, Vaishnaw noted, would have a multiplier effect on investment and growth. “When consumption grows, investment grows, which feeds consumption again,” he said. “Each and every one of us will get the benefit of this reduction. It will have a positive impact on the economy.”
The GST rate changes, particularly those affecting electronics, are expected to benefit aspirational consumers looking to upgrade their homes.
“Every home has many electronic appliances. There are so many products we use that have an electronic component,” the minister said, predicting a “significant boost to demand” in this category.
“These measures will help our aspirational families; their dreams to upgrade and improve their standard of living will also be fulfilled,” he added.
Hundreds of consumer items, from soaps to cars, could turn cheaper following the GST Council’s decision to rejig rates under two broad slabs—5 per cent and 18 per cent.
The GST rate cuts come less than six months after the new income rates came into effect from April 1 which Finance Minister Nirmala Sitharaman announced in the Union Budget on February 1. These measures are aimed to catalyze growth by putting more money in people's pockets through tax breaks and increasing their purchasing power.
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